We live in a globalized world. Globalized communications, globalized cultures, globalized politics and, especially, globalized commerce. The financial barriers between countries and continents have continued to fall over the decades; and, today, more than any other point in our history, the worldwide capital markets that govern trading and commercial activity – across the United States, Europe and Asia – are more interconnected than ever before.
Knocking down these barriers means encouraging trading between the U.S., European and Asian markets, and deepening the ties that bind the worlds capital markets. But, it also means – or rather it has to mean – that all traders, regardless of region or country of origin, must operate on a level playing field.
Regulations do just that. But, because theres no universal regulatory standard, these regulations can end up differing between regions and between markets. For instance, the rules that traders in the European markets play by often dont match up with the rules that traders in the U.S. market operate under.
These clashes in regional rules make capital market regulations on a global level something of a mess and increases the costs of complying with these differing regulations. But, it doesnt have to be that way.
Clashing Regulations Lead to Compliance Headaches and Rising Costs
Trading firms already have to abide by a host of regulations within their own regions. In the U.S., you have Dodd-Frank and the Volcker Rule banning U.S. banks from proprietary trading. In the EU, MiFID II and Brexit are both poised to make major changes to regional trading workflows and infrastructure. This is just the tip of the iceberg. The proliferation of regulatory requirements inside each regional market already impacts everyone operating in a given region. When you consider that these firms also operate globally, introducing an entirely new dimension of conflicting compliance problems, traders can quickly find themselves needing to comply with multiple sets of regulations.
Those multiple regulatory requirements mean multiple solutions for achieving compliance. Multiple solutions, in turn, mean multiple costs. There needs to be a way for traders and capital market firms to harmonize their compliance solutions spend, so that theyre reaping a better return on their regulatory investments and arent being buried by an increasingly tangled web of regional and global rules.
Deploying in the Cloud for Global Regulation Compliance
Traders operating in multiple markets need efficient and flexible solutions that allow them to comply with regulatory requirements across different regions. Currently, this is achieved with dedicated solutions deployed in dedicated locations. But, that creates regulatory siloes around each market; it gives international traders more hoops to jump through, and runs contrary to the whole idea of globalized capital market activity. And, it does nothing to solve the escalating problem of needing to deploy and fund several different technology solutions for complying with different sets of regulations.
Solving that cost crunch means investing in a single flexible solution that reconciles and satisfies those regulatory requirements, as much as possible. That sounds daunting, but its not impossible. Cloud-based solutions, in particular, provide a new way of increasing the efficiency of regulatory spend on technology, hence making compliance across regions more economical. In addition, current technology allows for flexible and secure connectivity to reach such cloud-based solutions. The use of SDN and the availability of next-generation extranets greatly enhances the users experience without unnecessarily increasing their spend.
Cloud-based deployment models and extranets facilitate the provisioning of managed solutions from fintechs and regtechs. Such managed solutions will provide traders with an efficient globalized platform, enabling a simple, more flexible approach to satisfying compliance requirements across all regions. This kind of ecosystem, driven by the cloud and the extranet, can service the globalized set of regulations that todays traders need to comply with to participate in tomorrows capital markets.
The Way Forward
Financial trading will only continue globalizing. Thus far, the regulations around trading have not scaled up in kind, and it has turned the practice of regulatory compliance into a complicated and expensive effort that varies from region to region.
But, technology can provide the way forward, bridging the gap between global trading and differing regional regulations to ensure everyone is abiding by their specific requirements, without breaking the bank in the process. To ensure this, the infrastructure around how compliance is achieved needs to be simplified.
Breaking down the siloes between regional regulations, and enabling a technological model that facilitates global compliance, is the key to our industrys future – and an ecosystem approach is our way to get there.
Ralph Achkar is Director of Strategic Alliances, Capital Markets,Colt Technology Services
