Regulations for the providers of financial-transaction infrastructure aren't going to return to pre-financial-crisis levels -- in fact, they're likely to be an ever-increasing burden for everyone involved in a transaction. But regulators could make that burden easier to handle by providing more guidance on what the ground rules actually are, argued Thomas Zeeb, CEO of Swiss provider SIX Securities Services, in Futures & Options World.
Financial infrastructure providers "must now readjust their business aims and aspirations," Zeeb said. "In a post-crisis world, the compliance burden will continue to cost everyone significant resources both in time and money. Those of us in the market infrastructure space are facing a particularly heavy torrent of regulation. From Emir [European Market Infrastructure Regulation] to CSDR [Regulation on settlement and Central Securities Depositories], Dodd-Frank to Basel III, the list goes on."
Individually, the regulations are manageable, Zeeb said. But taken together, they're a huge challenge -- in part because regulators don't always have a clear understanding of how they requirements they implement will conflict or interact with other regulations.
(In some cases, regulators can also be hamstrung by legislation that was written with a particular country or region in mind, but that will end up applying to cross-border transactions that are covered by potentially conflicting rules on each end.)
But if stricter regulation is unavoidable, especially on infrastructure providers that serve as the backbone of the financial system, a higher-level approach could help compliance departments, which have to both meet current regulations and preempt rules that haven't yet been rolled out.
"I would like to see a more principles-based approach to regulation rather than a prescriptive approach, accompanied by much clearer guidelines for [infrastructure providers] as to how regulations should be implemented," Zeeb says.
With regulations that include vaguely defined terms such as "liquid" and "easy-to-understand," regulators could play a significant role in enabling compliance by providing clear guidance to infrastructure providers rather than letting them fly blind.
Another problem: Once regulators realize the unintended consequences of their implementations, many take the approach of issuing new versions -- "sequels" or "fixes" -- that may bulldoze the careful efforts of providers to meet the original regulations.
"We're now in the habit of seeing 'Mifid,' 'UCITS' or 'Basel' with ever-lengthening Roman numerals attached to them," says Zeeb. Infrastructure providers "can then be penalised in retrospect for not envisioning future regulations adequately enough."
Providers "have a critical role to play in the stability of the financial systems," he adds, "but we shouldn't be the final safety net that covers the mistakes of other players in the value chain."