We all know the story of the boy who cried wolf – a tale concerning a shepherd boy who repeatedly tricks nearby villagers into thinking a wolf is attacking his flock. When one actually does appear and the boy again calls for help, the villagers believe that it is another false alarm and the wolf eats the sheep.
It seems the finance industry, and the regulation within, follow a very similar tale; Are we all like villagers who ended up disbelieving this child after he fooled them twice, only for the wolf to eat the sheep?
Once a new regulation makes its way to our ears, we see large institutions prepare projects, plans and business cases (regulation should not always be associated with costs). Mid to small size organisations will be closely monitoring how their peers react and will usually follow suit. Time and time again the industry get set for the wave of regulation predicted to hit the shores, and time and time again the same regulation is pushed back, a new implementation date set a year into the future.
Imagine you started a plan to implement MiFID II shortly after its adoption by the European Parliament in 2014. You would have needed to wait for June 2015 to receive the final Technical Standards. Despite preparing for a January 2017 deadline you would have been informed earlier this year that the deadline for implementation had been pushed by one year to 2018!
The impact on resources used to put these plans in place – time, manpower and cost – can be huge. Ultimately firms might feel their efforts have been in vain, but do not be fooled. Much like the boy who cried wolf, the mythical wave of regulation will finally hit the shores and firms need to be prepared.
The effect of regulation on collateral management is similar. The Margin requirements for Uncleared swaps (BCBS 261: Basel Committee on Banking Supervision – Margin Requirements for non-centrally cleared derivatives) originally issued in September 2013 were amended in March 2015, pushing the major deadline forward by one year.
Most buy-side firms, small and large, will be impacted by the March 2017 deadline. Variation margin requirement for non-physically settled FX forwards and swaps could have a huge impact on some asset managers.
Procrastination is like a credit card; it seems a lot of fun until you get the bill! March 2017 deadline is approaching and the implementation of a Collateral Management solution could take a long time if you plan to have an on-site installation.
I am not saying that we should keep on crying “Wolf” for every new upcoming regulation, but only cloud-based solutions allow you to be ready for the impending regulation; whether you decide to put a plan in place 2 years before or 2 months before! This is because implementation time takes just two weeks with cloud-based technology ; there is no hardware to install. There is no software to support and there is nothing to upgrade.
Do not be a villager, and be regulation ready!