News & Opinion

Given the centrality of regulation to the firm’s information and monitoring services, the changing nature of financial markets these past twenty years and longer, the continuous adaptation of participants to new IT and evolving economies and geopolitics, Thomas Murray has always kept a sharp eye on risk affecting our clients and how its own services have enabled them to assess their appetite for it. When nothing is stable for long, the nature of risk is never fixed, either.

Risk outlook is the central point of the firm’s monitoring and assessment work. As a result of this its first topic at the inception of the business was on defining risks involved in establishing proper bank custody services for US institutional money outflows, and determining appropriate and adequate responses, all as per United States SEC regulation.

MiFID II is much discussed, and rightly so. It is a major capital markets Directive affecting a large chunk of the world’s financial system, with effects that will be felt across the world. How this will play out in a practical sense is one of the unknowns of these coming months and longer. Market professionals appreciate that its precursor, MiFID, came to have a major influence on the way capital markets trading takes place, notably in the fragmentation of Europe’s national equity markets.

And with just over three months before MiFID II comes into force at the start of January, there is indeed much hard preparatory work underway, head-scratching, confusion, repositioning of businesses, and human resources redeployment. Given the changes in trade reporting, the IT component is heavy – and it was difficulties with IT preparations that led to a one-year reprieve.

Today marks an exciting development at Thomas Murray IDS Australia and New Zealand, as we announce the Australian release of our multi-purpose software tool SupplierSelect for Financial Services (SupplierSelect). SupplierSelect is suitable for Australian Superannuation Funds with in-house investment teams and will help them appoint, monitor, and manage financial services providers. It is designed for business leaders as it provides audited transparent decision making.

My colleagues and I have been uniquely privileged to see a wide range of Fund operational challenges on a regular basis. One that is very familiar to us is an Institutional investor making major procurement decisions or monitoring key service providers with the use of an in-house spreadsheet. The administrative challenges of drafting, issuing, re-issuing, and scoring complex due diligence questionnaires and policy reviews can be formidable.

Agreed and launched in 2012, the CPMI-IOSCO Principles for Financial Market Infrastructures (‘PFMIs’) require that all central securities depositories (CSDs), central clearing houses (CCPs), payment systems, and trade repositories perform a very detailed self-assessment of how well they observe these global standards. The self-assessments are meant to be published as a matter of enforcing transparency on these systemically critical systems, and also to reassure the markets and public that these national institutions are meeting a consistent set of minimum standards. The PFMIs are one set of the body of standards orchestrated by the Financial Stability Board on behalf of G20 governments.

Possibly the most complex piece of capital markets legislation to hit the markets since the Dodd-Frank Act in the US in 2010 is nearly upon us, the European Union’s revamping and extending of the Markets in Financial Instruments Directive (MiFID I) promulgated in 2004, with effect in November 2007. That was one very long decade ago, given events in financial markets over the period.

Financial market professionals working in the EU and outside it will be affected, some heavily. Its immediate, most visible impacts are on transaction order transparency pre-trade, transaction reporting post-trade, and the separation of research from bank/broker trading commissions. The changes will likely go further: as with most rearrangements in the intricate chains of financial services, there will be knock-on effects beyond the immediate targets of the authorities, though what they will be is hard to define beforehand.

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