The Future of Financial Standards – Best of the Live Blog

The Future of Financial Standards – Best of the Live Blog

Good morning from London!  Today Finextra is live blogging from The Future of Financial Standards event at Level 39 in Canary Wharf, UK. Brought to you by The Swift Institute, the Forum and the London School of Economics (LSE) and Political Science the conference today is entitled ‘The Future of Financial Standards’.

(Editor’s Note: Read the blog starting from the bottom of the page to read the blogs in order of posting.)

16:49 And that’s it for today as SWIFT’s Muir wraps up the event and thanks everyone for their active participation.

16:46 TowerGroup’s Raeves: “Have to get over the fact there are rival commercial interests.  It need not stop collaboration.”

16:42 Aite’s O’Shea: “The back office and post-trade isn’t glamorous but for it to be effective it requires collaboration between the industry and the regulators.  We’ll see how that progresses.”

16:40 Wrap-up and closing: On the home straight now as Gert Raeves of TowerGroup consultancy and Virginie O’Shea of Aite Group form the concluding panel, along with Susan Scott, Associate Professor from the LSE.

16:28 Audience Poll: SWIFT’s Muir shares the results of the voting over the coffee break about what the audience thinks is the best solution to the regulatory intent vs. outcome debate.

  • 14% think technology is the answer
  • 24% think regulators should work together to create agreed, detailed schemas
  • 24% think there is scope for a global regulatory standard
  • 38% believe the most promising way to bridge the gap between regulatory intent and outcomes is for financial services firms to work together.

16:21 Stephen Lindsay, Head of SWIFT Standards is advising the audience that the way to bridge the gap between regulatory intent and the outcome is to get the right stakeholders together.  “You’ve heard it here already today,” he says, “but I’d like to reiterate it.”

16:15 The ECB’s Bayle says he sees similarities between some of the projects discussed here today and his own Target2Securities (T2S) single euro settlement engine project in Europe.  “You need to move a lot of data and have efficient communication mechanisms based upon standards to succeed.  That is common to all projects.”

16:09 HSBC’s Treacher: “What is encouraging is that regulators are willing to engage and talk to banks such as my own: No-one is out there to make systems worse,” he says.

16:03 Z/Yen’s von Gunten: “45 new regulations expected from the EU in the FS sector over the next 15 years – never mind the national regulations! Predicted expenditure is EUR26bn 2013-2016.”

16:00 SWIFT’s Muir and De Teran are gathering the concluding panel of the conference to respond to the academics and the previous panel, providing solutions to the identified problems.  All of whom are gathered in front of them and surrounded by the audience.  This is getting like a campfire revivalist meeting!  On the concluding panel offering potential solutions to the problems of achieving standardisation are:

  • Marc Bayle, European Central Bank (ECB)
  • Marcus Treacher, HSBC and SWIFT Board Member
  • James Whittle, ISO 20022 and UK Payments Council
  • Chiara von Gunten, UK Think-tank – Z/Yen
  • Stephen Lindsay, Head of SWIFT Standards

15:30 Coffee break

15:26 Conclusions: The main conclusion of this problem panel is to not give work to the lawyers.  Euroclear’s Trundle reminds everyone to “know what you want to do before you start”.  ISIN and IBANs are examples of successful projects, he adds, and should be aped.

15:23 Thomas: “Some firms have had an active interest in avoiding commoditisation in the past.  Regulators broke that practice: they do have a role!  Can be a tool to break concentrated markets.  Also a reminder that “politics drives everything”. Vote for collaboration therefore!

15:18 Even if all the data is perfect would it provide financial stability, asks Trundle? As he says: “It depends what the regulator does with it and they face a large technology challenge there.”

15:14 Euroclear’s Trundle: The former Bank of England (BoE) employee discusses MiFID II and how it will place enormous reporting obligations on the industry, and also on regulators.  “I’m not sure sufficient thought has gone into what to do with all this data!  Perhaps 20 million bits of trading data per day in the UK alone.  It’s a problem.”

15:10 Emma Kalliomaki: The other standardiser on the panel points out that “one size does not fit all” and advocates a “non-competitive collaborative approach”, which she says has worked for the Association of National Numbering Agencies.

15:06 Thomas: “I built the stock exchange system for the big bang in the City in the 1980s, and back then you had to be ready to justify your actions.  That was the approach and I don’t think it is such a bad one.  We moved towards the principles-based approach at the FSA to formalise matters but it’s not such a bad approach.”

14:46 Barclays’ Reilly mentions the need for cooperation and to move towards global standards, citing SWIFT’s MyStandards as a good example.  This is turning into a love-in!

14:42 Thomas admits he developed transaction reporting, “which got into MiFID: We just wanted an audit trail”.  Goes on to share his opinions about EMIR and past practices.

14:40 Afternoon panel: SWIFT’s Natasha De Teran is gathering a panel of market infrastructure representatives in the shape of Lindsay Thomas, an ex-director of the UK Financial Services Authority (FSA) and John Trundle of Euroclear UK and Ireland, to debate the ‘problem’ of regulatory disconnect and if standards can help bridge it.  The panel is getting larger with a banker – Barclays’ Brendan Reilly – joining two standardisers in the shape of Kevin Houstoun of FIX and Emma Kalliomaki, of the Association of National Numbering Agencies (ANNA), up on stage.

14:35 Kirilenko: has a slide up entitled Financial Regulation 2.0… only the second iteration?  According to Kirilenko, Financial Regulation 2.0 should be:

  • Safeguard heavy
  • Transparency rich
  • Cyber-centric
  • Platform neutral

14:20 Defining the problem 2: Second academic takes to the stage Andrei Kirilenko of the MIT Sloan School of Management replaces his academic colleague on stage.  His focus is on the need for unambiguous rules and wording to reduce the risk of country-by-country misinterpretations in data coding and so forth.

14:18 Attendance figures are in: 230 people registered for today’s event.

14:14 Will we have a new London Whale, AIG, etc. asks Weinstein? Without effective regulation and standardisation we will.  That’s is partly why everyone is gathered here today.

14:06 In a fun presentation Weinstein is now discussing regulatory differences between countries within the EU.  Finding standards harmony is hard.

14:01 Weinstein cites Shaw’s quote that the US and UK are divided by a common language.  Nice…and too true if you look at Dodd Frank and EMIR.

14:00 Defining the problem: A little help defining the ‘problem’ of the disconnect between regulatory intent and real-world outcomes is being offered by Stuart Weinstein, Head of Coventry Law School. He is discussing the differing approaches and indeed language of global regulators – even when they’re aiming for the same goal.  It is a problem any global universal bank that spans different countries and regions will be familiar with.

13:47 Neil Burton at Earthport shares his viewpoint in this interactive segment by reading out his questions.  He asks: “Is there a role for standards in making the market bigger for everyone … and to what extent can it take friction out of the system?”  Answer: container standards prove standardisation can make the market bigger.

13:35 Andrew Muir of SWIFT has just given the audience 10 minutes to talk to their neighbour in the room and note what they see as the main problems with the interaction between regulatory compliance and standards – where to start?  I see a ‘classic defining the problem, offering the solution’ exercise gearing up here.

13:25 Ideas Whiteboard: The ‘thought wall’ whiteboard has been filling up with attendees ideas about standards, regulation and solutions to move the industry forward.

12:30 Lunch…let’s hope it’s not of the standard variety either!

12:28 “Visualisation techniques can help make effective use of big data, driving real-time analytics and historical story telling,” says Sarlin.  It would certainly be fascinating to see the 2008 crash and its aftermath on one of his models.

12:25 Some fascinating slides being put up by Sarlin illustrating risk dashboards from the past decade in regard to interest rate impacts, vulnerabilities and other risk factors experienced by Finnish and other European financial institutions. He’s showing a financial stability map, transaction flows and ‘big data’ analytics can help cut risk.

12:00 Final Academic research presentation: Macro prudential oversight, risk communication & visualisations – Peter Sarlin of Goethe University in Frankfurt, Germany, presents the final SWIFT Institute-sponsored academic paper of the morning.  It is on macro prudential surveillance and supervision of the whole financial system (rather than individual institutions).  “Such systemic risk oversight is increasingly a common objective of regulators and this research looks at the use of analytical models and tools to try and achieve it,” says Sarlin.  According to him the key aim of his research is to provide financial professionals with a basis for the use of visualisation techniques in macro prudential oversight communication procedures.

11:50 SWIFT’s Bontemps rounds up the CFL presentation: “If you try to define a CFL for the whole industry it is too large a scope,” he warns.  “You need to start smaller.  Ask yourself why you are doing this and start from the fundamentals, define it and only then proceed.”  How do you solve this?  “Well, you need communities of interested parties working together, while also keeping projects at a manageable number and focused on the technical migration tasks.”

11:30 Next Academic research presentation: Common financial language. This research investigates the idea of a common financial language (CFL).  It examines the concept and the much harder practicality of CFL adoption in order to improve efficiency, risk and data management.  Considering that there is no such thing as a common financial reality there are numerous hurdles to overcome.  The panel presenting and debating this research is made up of:

  • Alistair Milne, Loughborough University School of Business and Economics
  • Malcolm Chisholm, Inc
  • Yves Bontemps, SWIFT

11:28 WebFilings’ Yount gives the regulatory point of view: She rightly asks: “What are the right size and shape of standards: do they need to be more rigid in certain instances as with LEIs for instance?”

11:15 Columbia Business School’s Morsfield: “Full circle of stakeholders need to be at the table all the time in any standardisation effort.” Well said!

11:02 Academic research presentation: A critical and empirical examination of four currently used financial data collection processes and standards, examining:

  • FIXML for Trade Capture Reports for the US CFTC.
  • XBRL for portions of US Securities and Exchange Commission (SEC) corporate financial submissions (10-K and 10-Q).
  • Swap Data Repositories – (a) US CFTC / DTCC (Real-time Dissemination Dashboard); (b) CME Group; (c) ICE.
  • ISO 20022 and its use by various financial industries for data exchange

The panel presenting this research, which aims to help solve data analysis problems, is made up of:

  • Suzanne Morsfield, Columbia Business School
  • Steve Yang, Stevens Institute of Technology
  • Susan Yount, WebFilings LLC

11:00 Running a little late here but next up is the real meat of ‘The Future of Financial Standards’ event – three sequential academic research presentations, sponsored by The SWIFT Institute.  The research papers examine financial data collection processes; the possibility of a common financial language; and macro prudential oversight and systemic risk surveillance.

10:54 In response to Leibbrandt’s questioning, Commissioner O’Malia says: “Data quality harmonisation cannot wait”.  True, but regional differences still exist.  A role for global standards here surely?

10:51 Q& A: Commissioner O’Malia: “It’s going to be a big challenge…we’ve got HFT in the market too now and a duty to fulfill our surveillance and resiliency obligations.”

10:48 Q& A: Keynote speech: SWIFT CEO, Gottfried Leibbrandt, is questioning Commissioner O’Malia about his keynote speech, asking about the way forward.

10:44 Technology, allied to agreed standards, can bring clarity, says O’Malia.  The trick, as Nate Silver might have it in his book, is to differentiate between ‘The Signal and the Noise’ in a big data world.

10:41 The role of standards and technology, especially big data, in potentially bridging the gap between desired outcomes and reality is being examined by Commissioner O’Malia, and the difficulty of collaboration highlighted.  The supporting role of technology in helping to set and enforce standards is vital, he says.

10:39 CFTC Commissioner O’Malia: “Risk knows no boundaries.  We shouldn’t either…it is even more important as the reporting obligations started under EMIR last month.”

10:35 The gap between regulatory intent and regulatory outcome is being touched upon by O’Malia.  The ‘law of unintended consequences’ anyone?

10:32 CFTC Commissioner O’Malia: “I was in Europe yesterday for a meeting.  We agreed to recognise each other’s swaps data formats. This will enhance cooperation and allow us to implement the G20 reform agenda.”

10:25 CFTC Commissioner O’Malia: “In a world where data is king regulators too must become early adopters of technology and standards.  The technology of yesterday won’t help us.  It’s data Darwinism out there…we can’t see the London Whale in the data [at the moment].”

10:16 Keynote speech: CFTC Commissioner O’Malia: “Extremely timely conference as for the past year we’ve had swaps reporting in place … we’re struggling.”  The Dodd Frank regulatory challenge is on-going it seems.

10:10 First up after the morning introductions is one of the highlights of the day, Commissioner Scott O’Malia of the US Commodity Futures Trading Commission (CFTC), giving the keynote speech.

10:08 Professor George Gaskell: “We value the link between academic research and practice and hope this will be the start of a productive relationship between the SWIFT Institute and LSE.”

10:00 Welcome by SWIFT CEO, Gottfried Leibbrandt, and Professor George Gaskell, Pro-director of Planning and Resources at the London School of Economics (LSE) and Political Science.  We’re underway.

0941 Everyone is gathering for coffee here at Level 39 in Canary Wharf, UK, ahead of ‘The Future of Financial Standards’ one-day event put together by The SWIFT Institute, the Standards Forum and the LSE.  Caffeine and croissants are being consumed ahead of a full day’s debating.  The focus of today’s event is on standardisation in the financial industry.  It is bringing together academics and financiers to try to bridge the gap between regulatory intent and desired outcomes, diminishing the threat from the ‘law of unintended consequences’ by sharing research, best practice and ideas about how to achieve universal standards… Searching for the Holy Grail today here people!