Tired of regulations yet? - New financial market regulatory demands just keep coming!

Tired of regulations yet? - New financial market ...

Source: KPMG Corporate Treasury News, Edition 40, February 2015   After a somewhat bumpy start, most companies have completed their implementation of EMIR. Next up are the first compulsory tests under § 20 of the German Securities Trading Act. To follow are future requirements under REMIT, MIFID II and the global G20 OTC derivative regulations, which will directly affect and occupy businesses. Beyond these are the indirect effects of Basel III and the 'benchmarking' regulation, which taken together could become a game changer for trading, hedging strategy and bank policy once they take full effect.

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The flood of regulations places an enormous burden on businesses:

  • The complexity and their often specific impacts on corporations need to be worked out and ultimately understood.
  • In addition, the interplay of the different provisions, such as the EMIR–MiFID II–REMIT complex, must be grasped.
  • Compliance must be assured for every requirement.
  • And finally, the short-term and medium-term ramifications of each rule for corporate strategies require analysis.

All regulations have one thing in common: they lack concrete specification of the fine details throughout; instead, they initially present only a framework of requirements that must be interpreted. Analyzing the details and practical consequences of these regulations and ultimately implementing them in processes and systems represents a major expense for businesses.

To prevent 'regulation fatigue', it is important to be aware and make the most of the opportunities that can also arise from implementation projects. They can help the responsible individuals build a case for getting rid of outdated practices in the enterprise where budgets and capacity were previously lacking. This can include:

  • automating processes that have always been carried out by hand
  • reducing risks in process execution
  • improving IT structures
  • cracking down on 'remote' business units

One of the major issues surrounding financial market regulation will be its considerable impact on the financial market, hedging and financing strategies of industrial enterprises. Giving in to fatigue now carries the risk of falling behind the benchmarks (including those related to costs and KPIs) and being unprepared for the coming 'new, regulated world' with its changing game rules. 

Author: Martin Thomas, Manager, martinthomas@kpmg.com

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