A new approach
03 May 2018
Walter Kraushaar, head of advisory services at Comyno, explains how regulatory requirements and new digital platforms can help to break down silos in the securities finance industry
Image: Shutterstock
Like many other global businesses, the securities finance industry has been debating and discussing for a long time about how to overcome internal silos. Silos can occur in global corporations or start-up ventures with as little as 10 employees. Regardless of the size, silos are counterproductive to an organisation’s need to succeed in a rapidly changing world.
It’s also important to realise that silos can be vertical or horizontal. Business units divided, for example, into asset classes can lead to high barriers between them or senior leadership and can be completely isolated from lower management levels. As a result, an organisation split into silos cannot react quickly to upcoming opportunities that arise in a fast-paced digitalised business landscape, which makes it difficult to execute productive decisions about how to change in order to seize these new opportunities.
In general, silos cut off communication between different business/product/asset class units. Silos create an extremely high loyalty to the immediate unit, which at the same time prevents building trust outside of one’s own silo hindering other business initiatives within the firm, which might negatively affect one’s own business line but would benefit the global organisation. As a result the silos become inwardly focused on maintaining the internal status quo thus losing contact with the ‘outside world’, resulting in missed opportunities and new market developments.
Silos make it extremely difficult for a company to comply with the increased regulatory reporting requirements. After the global financial crisis, the Financial Stability Board, the European System of Financial Supervision and the European Commission started various initiatives with the aim of looking at measures to generally improve the transparency and monitoring of non-bank alternative credit provision (or shadow banking), aside from the general new capital related banking regulations like liquidity coverage ratio (LCR), net stable funding ratio business (NSFR), the second Markets in Financial Instruments Directive (MiFID II).
In an EU context, this has resulted for the securities finance industry in the regulation on transparency of securities financing transactions, and of reuse of collateral with Íø±¬³Ô¹Ï Financing Transactions Regulation (SFTR), which came into force on 12 January 2016.
The above mentioned requirements are meant to create transparency for the regulators as well as automatically create transparency for the securities finance firms themselves. The new regulations help unintentionally to overcome the established silos as they have to be performed across asset classes, products, business and reporting lines.
SFTR will help any company to ‘merge’ their own product silos through integrated reporting disregarding the current silos. In other words, for the first time, regulatory reporting requirements will push any securities finance business to integrate which will, in turn, reveal new opportunities of allocating and optimising the firm’s collateral and assets thus creating new business opportunities and a new way of monitoring and managing risks and capital.
As a further result the European Íø±¬³Ô¹Ï and Markets Authority is required to produce regulatory technical standards and implementing technical standards for the securities finance business, which requires also a new approach towards digitalisation and securities finance information technology.
The SFTR aims to enhance transparency and enable regulators to better monitor risks by:
Introducing reporting requirements for securities financing transactions (SFTs)—similar to those already applicable to derivatives transactions under the European Market Infrastructure Regulation
Introducing limitations on the reuse of collateral (not just in the securities financing markets but also in the wider collateral markets—thus, the application of these limitations is wider in scope than to just SFTs)
Also Article 4 of the SFTR sets out the transaction reporting and record keeping requirements. For example, the conclusion, modification or termination of an SFT must be reported to a trade repository, which is in accordance with the SFTR
Comyno has taken a new approach on how to collect, display and merge the required information and has developed a platform-based environment, which can be used and connected via various adaptors (interfaces) to almost any given securities finance infrastructure.
While banks, their counterparties, trading venues, collateral services providers, central counterparties (CCPs), asset servicing providers, depositories and even TR’s are all working on isolated IT systems with mostly proprietary interfaces, huge budgets are necessary to make straight-through processing (STP) happen with internal software developments while strengthening the silos at the same time.
Without automating the whole transaction chain, both on trading as well as on the collateral side, it’s hardly possible to make profit anymore while at the same time being obedient to the regulators.
Comyno’s C-One suite solves exactly those issues, by providing out-of-the-box but configurable connectivity to the securities finance market players combined with covering repo, securities borrowing and lending, derivatives and collateral trade flows to fully automate a modern securities finance desk including regulatory reporting out of one hand.
It also provides real-time front-to-back STP software that facilitates the interaction with third party service providers, automates manual processes, improves efficiency and helps mitigate operational risk, as well as having intelligent, highly-configurable data enrichment and linking capabilities that can be adapted in line with your business needs.
With the help of this platform, we are able to provide customised reporting and inventory management for securities finance market participants across all asset classes and connect them to various CCP’s, agent lenders, tri-party agents as well as asset managers.
It is fair to say, that the urge to overcome the old silos in the securities finance business, driven by regulatory changes, can turn into a long-term benefit to an organisation if it sees it as an opportunity to digitalise the business and uses the new technics and platforms to revamp their digital strategy.
It’s also important to realise that silos can be vertical or horizontal. Business units divided, for example, into asset classes can lead to high barriers between them or senior leadership and can be completely isolated from lower management levels. As a result, an organisation split into silos cannot react quickly to upcoming opportunities that arise in a fast-paced digitalised business landscape, which makes it difficult to execute productive decisions about how to change in order to seize these new opportunities.
In general, silos cut off communication between different business/product/asset class units. Silos create an extremely high loyalty to the immediate unit, which at the same time prevents building trust outside of one’s own silo hindering other business initiatives within the firm, which might negatively affect one’s own business line but would benefit the global organisation. As a result the silos become inwardly focused on maintaining the internal status quo thus losing contact with the ‘outside world’, resulting in missed opportunities and new market developments.
Silos make it extremely difficult for a company to comply with the increased regulatory reporting requirements. After the global financial crisis, the Financial Stability Board, the European System of Financial Supervision and the European Commission started various initiatives with the aim of looking at measures to generally improve the transparency and monitoring of non-bank alternative credit provision (or shadow banking), aside from the general new capital related banking regulations like liquidity coverage ratio (LCR), net stable funding ratio business (NSFR), the second Markets in Financial Instruments Directive (MiFID II).
In an EU context, this has resulted for the securities finance industry in the regulation on transparency of securities financing transactions, and of reuse of collateral with Íø±¬³Ô¹Ï Financing Transactions Regulation (SFTR), which came into force on 12 January 2016.
The above mentioned requirements are meant to create transparency for the regulators as well as automatically create transparency for the securities finance firms themselves. The new regulations help unintentionally to overcome the established silos as they have to be performed across asset classes, products, business and reporting lines.
SFTR will help any company to ‘merge’ their own product silos through integrated reporting disregarding the current silos. In other words, for the first time, regulatory reporting requirements will push any securities finance business to integrate which will, in turn, reveal new opportunities of allocating and optimising the firm’s collateral and assets thus creating new business opportunities and a new way of monitoring and managing risks and capital.
As a further result the European Íø±¬³Ô¹Ï and Markets Authority is required to produce regulatory technical standards and implementing technical standards for the securities finance business, which requires also a new approach towards digitalisation and securities finance information technology.
The SFTR aims to enhance transparency and enable regulators to better monitor risks by:
Introducing reporting requirements for securities financing transactions (SFTs)—similar to those already applicable to derivatives transactions under the European Market Infrastructure Regulation
Introducing limitations on the reuse of collateral (not just in the securities financing markets but also in the wider collateral markets—thus, the application of these limitations is wider in scope than to just SFTs)
Also Article 4 of the SFTR sets out the transaction reporting and record keeping requirements. For example, the conclusion, modification or termination of an SFT must be reported to a trade repository, which is in accordance with the SFTR
Comyno has taken a new approach on how to collect, display and merge the required information and has developed a platform-based environment, which can be used and connected via various adaptors (interfaces) to almost any given securities finance infrastructure.
While banks, their counterparties, trading venues, collateral services providers, central counterparties (CCPs), asset servicing providers, depositories and even TR’s are all working on isolated IT systems with mostly proprietary interfaces, huge budgets are necessary to make straight-through processing (STP) happen with internal software developments while strengthening the silos at the same time.
Without automating the whole transaction chain, both on trading as well as on the collateral side, it’s hardly possible to make profit anymore while at the same time being obedient to the regulators.
Comyno’s C-One suite solves exactly those issues, by providing out-of-the-box but configurable connectivity to the securities finance market players combined with covering repo, securities borrowing and lending, derivatives and collateral trade flows to fully automate a modern securities finance desk including regulatory reporting out of one hand.
It also provides real-time front-to-back STP software that facilitates the interaction with third party service providers, automates manual processes, improves efficiency and helps mitigate operational risk, as well as having intelligent, highly-configurable data enrichment and linking capabilities that can be adapted in line with your business needs.
With the help of this platform, we are able to provide customised reporting and inventory management for securities finance market participants across all asset classes and connect them to various CCP’s, agent lenders, tri-party agents as well as asset managers.
It is fair to say, that the urge to overcome the old silos in the securities finance business, driven by regulatory changes, can turn into a long-term benefit to an organisation if it sees it as an opportunity to digitalise the business and uses the new technics and platforms to revamp their digital strategy.
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