December 2019 - Global Risk Regulator
December 2019 Editor's Blog: FCA ponders UK’s post-Brexit financial regulatory regime
CFTC chair advocates principles-based approach
While Fed gives US banks thumbs up, OMFIF bemoans lack of detail
Basel Committee says supervisors must pay attention to the impact of open banking
BIS makes raft of appointments including Powell as GEM chair
EU countries attempt CMU reboot: Seven EU countries have cooked up a plan for a radical overhaul of the stalled capital markets union initiative, but scepticism abounds as to whether this one will work following numerous failed attempts.
'When the ESAs were conceived after the 2007-9 global financial crisis, they were meant to have a pan-EU supervisory role. However, they had their wings clipped by the UK and some others, which did not want to cede too many of their domestic supervisory powers. While ESMA does directly supervise credit rating agencies, trade repositories and coordinates the supervision of benchmark administrators, the three ESAs mainly work with and through the national competent authorities (NCAs).'
Battle between CCPs and their members steps up a notch: Wall Street's biggest dealers have forged a new alliance with asset managers to demand clearing houses change the way they do business. Now they are making their case to regulators.
'Tensions have been simmering for some time between clearing houses and the firms that use them – their members. CCPs are adamant that they do a sound job of managing risk and that the current set-up works, while some of their members whole-heartedly disagree. Now a nine-strong alliance of clearing members has published a series of recommendations and is calling on regulators for reform. JP Morgan, Goldman Sachs, Citi, State Street, Société Générale, BlackRock, Vanguard, Allianz Global Investors and T. Rowe Price have joined forces to take on the clearing houses.'
EU authorities open to considering technical tweaks to MiFID II: Following years of industry criticism, one of the most intricate pieces of EU financial regulation, the markets in financial instruments directive (MiFID) II is up for review.
'Following discussions with industry and possibly nudged on by a report about MiFID II in June from the German Finance Ministry, the European Commission is to conduct a targeted review in 2020 of some of the technical aspects of the directive covering investor protection rules, investment research on small listed companies, the cost of data feeds and the availability of data. In particular, it is looking to iron out any potential unintended consequences and this is likely to see a consultation launched shortly.'
The real promise of regtech is financial stability: The big prize promised by regtech is to provide genuine financial stability where looming risks can be detected and managed in real-time by regulators and firms before they ever develop into a full blown crisis.
'In Australia, spurred on by the Royal Commission, banks are adopting regulatory technologies, or regtech, to automatically monitor and respond to evolving regulation. As well as supporting compliance, regtech enables banks to be more flexible and customer-centric – by providing capabilities from digital identity validation and monitoring of financial promotions to risk management. Keeping in step with corporates, regulators are also beginning to explore artificial intelligence and machine learning to interrogate regulatory returns and identify risks and anomalies. For example, at a recent forum, ASIC shared the results of a natural language processing (NLP) technology trial to listen to insurance sales calls to screen for inappropriate language. This enables ASIC to routinely analyse thousands of calls, instead of human listeners painstakingly listening to hundreds of calls.'
Trade war threatens pace of China’s regulatory reforms: The US-China trade war could be risking financial stability as shadow banking appears to have once again been let off the leash in China, raising fears that it could cause a wave of bad loans.
'However, there are signs that this reform zeal might be cooling as sustaining the economy becomes the main priority. Though, some media reports suggest that it is very much in full flow. According to independent data provider, China Beige Book International, China’s shadow banking sector has seen significant growth since the second and third quarters of 2019. It accounted for 39% of total lending in the third quarter and 45% in the second quarter, compared with 21% in the middle of last year and represents the highest levels since 2013. Much of those funds are being channeled into smaller private companies, often construction companies, which the government is keen to see staying afloat to keep unemployment down so as to maintain social calm.'
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