Fightin’ talk: the regulatory backlash begins …
After the annual Sibos conference organised by Swift, the bank-owned messaging consortium last October, it seemed that banks and financial institutions were emerging from the state of mourning that the 2008 financial crisis had induced, and beginning to engage with regulators and politicians in a constructive dialogue.
It seemed that the industry had recognised that new frameworks and rules were necessary, and if it didn’t get involved in drafting them, all sorts of mayhem would result. For their part, regulators actively seek feedback from the industries that they deal with – they don’t want unworkable laws any more than the industry does. It looked like a positive development.
Less than three months later, it looks less so. There may be some areas where the dialogue is constructive, but overall, the atmosphere is becoming acrimonious. On two occasions recently, we’ve carried stories about regulators being heckled at industry conferences by audience members – and even by fellow panellists, in the case of Philippe Guillot, executive director of the markets directorate at French regulator AMF, speaking in London this week.
The case of Guillot gives a clue as to the reason for the rise in temperature: if the regulators have the capacity to compromise, their political masters don’t. Guilot was talking about High Frequency Trading, which the French and German governments would like to see curbed, if not actually banned.
Unfortunately it’s a bit more complicated than that: HFT has supporters even among those who don’t use it, for its contribution to market liquidity among other things. Perhaps there should be a special exchange just for HFT trading? Might that not violate the competition principles on which the German/French-initiated European Union is based?
Meanwhile, over in the US, a row has blown up between the DTCC, the settlement mechanism for the US securities markets, and the Commodities Futures Trading Commission, which regulates commodities trading (and hence derivatives) in the US (and hence everywhere else, in its view).
Tangled as it is in bureaucratic legalese, the DTCC’s letter commenting on CFTC proposals is as close to apoplectic as that organisation ever gets. It expresses concern “over the lack of clarity as part of an overall arbitrary and inconsistent rulemaking process” relating to regulatory reporting of OTC derivatives trades, and particularly the impact of the Chicago Mercantile Exchange’s proposed Rule 1001.
The DTCC is acting as the representative of a range of trade associations and market participants – including Citi, Deutsche Bank and JP Morgan – who “have expressed serious concern” over the proposed rule.
Just run those words through an imaginary semantic reverse engineering process: if the DTCC is using language like “arbitrary and inconsistent” and “lack of clarity”, what sort of language do you think it is hearing from those market participants? Proper Anglo-Saxon banking language, I’d bet.
Far from coming out of a post-crisis period of grieving and re-learning how to engage with the wider world, the financial services industry looks like it is returning to its old belligerent self.