13.06.2017

FinfraG: a new regulatory act

Point Nine Limited will be among the speakers at FinDating, the event that will be held in Geneva on June 22nd organized by FinLantern. Andrea Peratitis, Head of Regulatory Reporting for Point Nine Limited, answered a few questions for MarketPlus about FinfraG.

In your opinion what will be the impact of this new regulatory act?
To comply with FinfraG, market participants should have in place new processes, procedures and controls, create connectivity with clearing brokers, central counterparties and recognised trade repositories and thus sign new legal contracts to meet the new clearing and other requirements.
Furthermore, the regulation requires that for non-centrally cleared derivatives, appropriate procedures and arrangements should be put in place to measure, monitor and mitigate risks.
These will have a significant impact on derivatives market participants. To achieve compliance with the above, firms should devote a great deal of time and resources. Depending on the firm, the impact and the effort needed would vary.

What is the role of a company like yours, especially in the first stages of finfrag?
Point Nine is financial technology company that offers post-trade processing outsourcing services to financial firms and corporations.
Our hands-on experience on post-trade derivatives reporting like EMIR, FinfraG, MiFID, MiFIR and ASIC, is our biggest advantage and the reason why our clients trust us.
When firms outsource their reporting requirements, their professionals have time to focus on the legal/compliance aspects of the regulation. So, outsourcing regulatory reporting increases their operating efficiencies and cost-savings.
At Point Nine we offer among others, heavy enrichment of raw data to produce the various reports required by the regulators. We have real-time connectivity to all market participants and our automated solution is adjustable to our clients internal and external data sources. We offer validations and matching of data before generating the final report and submitting it to the Trade Repository or ARM. We also offer UTI management and exception management.

Which is the scope for regulation in the modern financial world? Is there something as too many rules?
Following the global efforts to reform and strengthen the financial environment with the aim of reducing the impact of future financial crises, increased prudential requirements in the form of new regulations and directives have been created for market participants to comply.
The scope of these new regulatory reforms is to reduce future uncertainty in the market by increasing transparency and by having as many OTC derivatives trades cleared through a central counterparty as possible.
Paradoxically, there are debates going on, arguing that all these reforms could result in the unwanted effect of firms trying to avoid all these new requirements by operating outside the borders of these regulations.
Having in mind the lessons learned from the financial crisis though and by observing the impact of that crisis on the market, we see that the costs of a less regulated financial sector can be immense. Regulators should seek to ensure that all the risks across all sectors are captured and closely monitored.
Finally, to answer your question if there is something as “too many rules” I would say there are as many rules as there are opportunities for the market participants.

How long and how "painful" will it be for the players to comply?
Truth is that there is no escape plan from financial regulations if your business model falls within the scope. All market participants, even the big players, are faced with the complex and expensive-to-comply regulatory environment.
So for firms to keep up with the numerous, upcoming regulatory frameworks, they need to automate their process, establish new policies and monitoring procedure, invest on their IT infrastructure and many more.
In addition, from our experience at Point Nine, we saw that the fundamental problem on how to be compliant is for firms is to keep on upgrading their systems and processes and following the fast speed of all the regulatory changes especially now that most of the market is not seeing the regulatory burden to diminish in the coming years.

Do you think that these new rules will shape the market or just put it on the right path?
Regulatory compliance has been increased in the recent years. Dodd-Frank in the US was the biggest change in terms of regulatory supervision since 1930s. In Europe, EMIR, FinfraG and the different reporting requirements on OTC and listed derivatives, MiFID II, MiFIR and SFTR are some examples on why by 2018, the European financial world will be more regulated than ever. 
Firms will need to adjust to all these new regulatory reforms by establishing new business strategies and by allocating their resources as efficient as possible to achieve compliance.
I do see that there will be a reshape in the market and that financial industry will be heading to a more resilient environment towards the right path although there is a thin line between creating a more robust financial environment and diminishing the potential of opportunities due to high compliance cost.

Who 's gonna strive more to comply? Are the categories well built?
FinfraG differentiates between 4 counterparty classes: FC+, FC-, NFC+ and NFC- which are clearly built and explained in the regulation.
Unlike EMIR, FinfraG requires single-sided reporting, where the obligation will be determined in a certain hierarchical order. This means that Financial Counterparties will report when trading with non-financial counterparties. Large entities will report when trading with small counterparties and for trades between counterparties of the same classification, the sell-side will report.
Theoretically single-sided reporting will make life of certain firms easier as usually Financial Counterparties and larger entities have the required IT infrastructure and the processes in place to comply with the reporting requirements rather than smaller entities or non-financial counterparties where their resources are usually limited.

If you were to grade this regulatory effort, which mark would you give to it? Is it a positive innovation, a necessary evil or a useless limit for firms in the industry?
FinfraG follows a similar ideology as EMIR. One can say, by inspecting the effect of EMIR in the market, that both regimes are a positive innovation trying to enhance confidence in the financial system.

Speaking of the derivatives market, knowing how hard it Was hit in the aftermath of the subprime crisis, has it been able to fully recover yet?
Even though there was a restoration of trust in the market I believe that there is still space for improvement and a way ahead.

Andrea Peratitis
Head of Regulatory Reporting

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