Chased by the Regulatory wave!

by Mikael Englund on October 26, 2011

There are some noteworthy aspect of the upcoming regulatory jungle. When analysing future business cases for new OTC-derivative products, you need to consider sections on future regulatory impacts!

To give an example, the EMIR regulations stipulate a lot of detailed rules, for example actual exchange of collateral, most likely on a daily basis, this already might deter some of the potential counterparties. Then around the corner lures MIFID2 that may require that your OTC-derivative product is standardized “enough” and hence should be traded on a market place, for example a “request for quote” market place. This may, as intended, push spreads and margins on the products down – and therefore influence the business case. Another regulation that is coming is the Capital Requirement Directive IV (CRD IV) which will among others penalize all OTC-derivatives trades that are not centrally cleared. Indications are that we may see rises in 5-15 times the capital charge under Basel II.

All in all, the recommendation is to first take regulatory aspects into business considerations and secondly – to look at the coming regulatory changes from a holistic perspective – it may be costly to look at each part isolated from the others!

About Mikael Englund :

Mikael Englund is a senior change management consultant with 15 years experience of management consulting at banks, financial institutions and corporate treasury units.

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