Regulation matters: What are regulators focusing on around the globe?

Key Takeaways

• Firms need to scan the regulatory horizon to ensure compliance across different jurisdictions
• Brexit divergence and spread of T+1 add to ongoing complexity
• Trusted partners can help manage regulatory change, allowing you to focus on opportunities

For financial firms to manage the complex global regulatory environment they find themselves in, they must monitor developments from jurisdictions around the world and ensure their trading technology solutions empower compliance.

So, with 2024 racing ahead, let’s look at some of the emerging regulatory themes.

At a recent conference in London, the moderator of the regulators’ session asked representatives from around the globe about their current focus.

• SEC: the US Securities and Exchange Commission is focusing on market structure proposals, execution quality, data reporting, climate change, and US Treasury changes.
• ASIC: the Australian Securities and Investments Commission is focused on climate change disclosures, operational resilience, and private vs public markets.
• AMF (EU): the Autorité des marchés financiers explained that nothing new is expected for MiFID, (MICA, DORA, or CMU) but in the meantime there will be Level 2 technical standards (RTS).
• FCA: the UK Financial Conduct Authority is focused on growth, the wholesale markets review, and the regulatory sandbox to support innovation, and aims to have an authorised, effective consolidated tape provider by the end of 2025.

Regulatory trends: Brexit and T+1

In another regulation-related session in London in early May, market participants highlighted that we are experiencing perhaps less divergence in regulators’ approaches post-Brexit than was expected. The biggest differences are apparent in the detail of the low-level rules and in their application and implementation timelines. EU/UK divergence at any level is adding to the burden for firms operating across borders.

From a UK firms’ perspective, regulators are focusing on:

• Counterparty risk supervision
• Anti-money laundering/fraud
• Operational resilience, cyber security, and risk management
• Market abuse monitoring tools and procedures/processes.

Other topics covered included T+1 and the need to identify today’s pain points in your settlement cycle and invest in people too. Pain points can be considered now for automation and workflows streamlined to get ahead of T+1 in UK/EU potentially coming by the end of 2027.

In the Nordics at a conference in Stockholm, participants spoke about one of the key challenges in the region being around finding liquidity in a post-MiFID II fragmented market. With the continuing use of trading at close, periodic auctions, passive and dark trading, market participants are looking to innovation to bring liquidity back to the lit order book to encourage more open trading. And with enviable retail participation in Sweden, panels discussed safeguarding the domestic retail market and their ambitions to open up to US and other global retail investors.

Turning overheads into opportunities

While the burden of regulation for financial firms and the challenges of navigating the compliance roadmap can arguably be seen as hurting profitability and competitiveness, the industry can drive innovation by overcoming those challenges, turning overheads into opportunities.

For investment firms, there is a continuous pipeline of work required to meet externally set regulatory deadlines, set either via trading venues for their members or jurisdiction-led. Managing this complex compliance workload eats up a significant portion of any firm’s budget, year on year. After over a decade of heavy-lift regulatory changes, markets are now looking for growth, but can we expect this regulatory weight to shift anytime soon?

For planning purposes, it makes sense that sufficient lead time is available between fully understanding the requirements and the final application date, but often a lack of detail and interpretation consensus can blur the requirements. Legal uncertainty adds to the complexity. This lack of clarity around requirements inevitably squeezes the much-needed lead time. Can we expect to see this approach change for the next wave of changes?

In a complex global trading environment, firms want to be able to dovetail the implementation of related solutions. Coordination at all levels is key to maintaining efficiency of rule application, delivery and to ultimately reducing costs across the markets.

On a more positive note, from the supervisors’ perspective, regulatory global convergence was a big theme highlighted at a conference earlier this year, with collaboration on rulemaking very much in vogue.

Picking trusted partners

As with every rollout of regulation change, if financial firms are to meet the deadlines, it’s crucial they constantly scan a wide horizon and keep on top of developments as and when they happen. It’s good to work with trusted partners, who can keep up with the constant cycle of changes and understand the potential impacts on your business.

At ION Markets, we’re always working to ensure our customers meet their regulatory obligations. If you’re a Fidessa customer, you’ll receive regular updates on regulatory product changes via email and on ION Client Portal. Our Fidessa service is fully managed, ensuring that your equities trading solution always incorporates the latest regulatory updates. Frequent upgrades deliver reliability via comprehensive regression testing. This model helps to transform exchange and regulatory changes from overheads into opportunities.