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The Trading Mesh

Power to the People

Mon, 15 May 2017 07:18:26 GMT           

We are clearly at a crossroads in relation to financial regulation. We are at the end of the ‘gentlemen’s agreements’ road characterised most recently by self-regulation and we are now heading down a very different road, as the recent avalanche of regulation (MiFID, MAR and MAD, I am looking at you) shows. I disagreed with the last road and strongly disagree with the new one; mainly because I don’t believe that either achieves the stated aim i.e. investor protection. But it is myopic to just take aim at regulators missing the point; there are regulators, businesses and investors too (and I count myself here) who should take some of the credit.

Regulators

Firstly, while real-time regulatory surveillance is happening, there is an insane amount of information gathering happening. It is a rising and worrying trend. Regulators have conceded that they don’t have anything approaching the capacity to process this information. It is simply stored (hopefully in some sensible format) for a time when it can be either mined for information against whoever tripped the regulatory wire or reported by a third party. But here the horse has bolted and given the size of many of the recent banking failures, this approach should be scant comfort for investors. I will concede that the much larger penalties being imposed have got the businesses’ attention though.

Market Participants

Then we have the market participants loudly moaning and groaning under the weight, the vagaries and the short implementation timescales regulators are imposing. The recent ‘brain drain’ in London has been well documented and it is interesting to me that the rise of the cost and the amount of regulation has had an inverse relationship with the number of senior people in the industry.  Corporate memory is walking out the door and it isn’t being replicated in the way that it should be i.e. digitally.

Operations

Conversations with back of house/ operations personnel have followed similar lines. Ostriches with their heads in the sand and now chickens running around with their heads cut off. Senior personnel are discussing ‘band-aid’ solutions to cope with the upcoming and ‘impossible’ implementation timelines. We disagree with this approach and have been recommending that clients implement enterprise wide data-gathering solutions. Something off-the-shelf that can provide data which can be mined if necessary ‘regulator style’ but can more importantly be the data source for the right systems being put in place. There are systems available which not only create a golden source of information, but are generic enough to span both different departments/regions and which also provide a solid data source for incoming, more specific technology. This is particularly relevant to firms funnelling their information up to a central headquarters.

Investors

Then we have the investors at the centre of the feeding frenzy. Investors who trust us with their money and who are routinely befuddled and belittled by current financial practices. Clearly, through intent or negligence, we don’t deserve that trust. I have blogged previously about the how the Financial Conduct Authority should empower investors so I won’t go into it here but there is much talk about giving power to the people. I would like to see more examples of it happening.

Technology

Clearly, the point is about the sensible use of available technology targeted at the right resource. We have the technology and investors should not only be the ones benefitting from it but also the ones using it to fight their corner. Systems Architect and Data Architect roles are on the rise but they are still woefully under-utilised. If we really are serious about investor protection then we should look clearly at the problem, ignore the noise from all those parties that don’t add value and see where the value really lies.