The Good, the Bad, the Ugly & the Technology Icing on the Cake: Highlights from ISDA AGM 2018

Topics: Client Relations, Financial Crime, Government, Legal Executive Events, Midsize Law Firms Blog Posts, Regulation & Compliance


MIAMI — The 33rd International Swaps and Derivatives Association’s (ISDA’s) Annual General Meeting (AGM) held last week, kicked off with a congratulatory note from keynote speaker Bill Coen, Secretary General of the Basel Committee on Banking Supervision, praising the significant level of improvement within the derivatives arena since the global financial crisis a decade ago.

Coen took a moment to remind the derivatives community of the tireless fault lines that have since been addressed, working to leave no stone unturned. A continuation of this positivity echoed in the keynote speeches on the AGM’s second day, with Craig S. Phillips, Counselor to the Secretary in the U.S. Treasury Department, referring to a re-balancing requirement for the industry rather than deregulation. With 65% of the derivatives community optimistic about the future of the industry, according to the recent ISDA Future of Derivatives Survey, it seems this balancing act is in full swing.

How optimistic is this future? Let’s start with benchmark reform — with 53% of respondents rating this as still a significant challenge for the industry, the atmosphere of the room felt surprisingly uplifting. It’s apparent that now, with a wealth of information post-crisis, is a timely opportunity to re-visit the fundamental objectives in what is to be achieved.

…And Now for the Challenges

Transparency doesn’t necessarily mean stability — can we categorically focus on both?

With that recognition of our journey of historical hardship duly noted, there is no time like the present to focus on the less digestible and uglier features of the industry. While these are nicely mapped out ahead of time, there is still an abundance of uncertainty!

Two-thirds of respondents to the ISDA survey rated regulatory compliance as the most challenging for their business — not surprising considering Initial Margin (IM) is lurking around every corner annually until 2020! ISDA representatives speak of the importance of the “simple” steps on how to prepare for IM, but are we taking into consideration how to even start to identify whether your clients have hit that $8 billion threshold? Have you explored alternative methods to see if those are more effective in ensuring this threshold is not breached — non-deliverable forwards (NDFs), for example?

Two-thirds of respondents to the ISDA survey rated regulatory compliance as the most challenging for their business — not surprising considering Initial Margin (IM) is lurking around every corner annually until 2020!

Still, two of the most challenging aspects from our perspective are, one, the volume of work and the additional complexity this carries and two, the requirement for custodians in addition to counterparties.

Consider this — the IM plate is spinning, preparations are underway, and now another spinning plate is added: Brexit. Less than half (44%) of respondents think Brexit will be much of a challenge; and on its own, that could be true. Though two spinning plates and only enough resources available for one does paint a pretty ugly picture. Two of the industry’s most prominent challenges with over lapping deadlines are not a common occurrence! So, why are we waiting? If the consensus in Miami was anything to go by, it seems many respondents are waiting out of a desire for additional guidance before starting, or to avoid the wastage of funds and resources spent on a redundant route.

The Solution

A piece of advice offered from the event: Don’t wait, and take a more fluid approach. This was something that J. Christopher Giancarlo, Chairman of the U.S. Commodity Futures Trading Commission said in his keynote speech — now is the time to take out the “hard plugs” and replace them with true variables. This relates not only to the adoption of technology, but the approach we take in dealing with the “known unknowns.”

And Treasury’s Phillips voiced a similar message about collaboration. The disconnect between regulators and the market is unnecessary, because either side can drive better collaboration, he noted, adding that it’s about mindset.

Giancarlo agreed. How does the financial industry get to be like Google and Amazon, he asked. We need the recourse, but mostly we need the mindset that will have us re-wiring ourselves for a more positive future.

So, don’t wait! The plates are spinning and the clocks are ticking down.

For further insights, our team of expert panelists discuss what is driving financial institutions to get a handle of their data and some of the pitfalls to avoid when managing your financial contract data — watch on-demand now!