NEW YORK & LONDON–(BUSINESS WIRE)–According to a recent survey of banks’ legal and regulatory operations executives, an overwhelming number of respondents noted a concerning lack of clarity around margin mandate regulations and compliance requirements. Indeed, 84% of respondents are concerned about their ability to understand new margin mandate deadlines, given evolving regulatory compliance windows. Among that group, 32% are very concerned. Perhaps most telling, a full 94% of respondents are concerned about their ability to comply in time to meet the deadlines, (among that group, 39% are very concerned).
The results shine a light on the massive undertaking before the banks and their general lack of readiness to effectively comply with new mandates. As such, the EU’s recent decision to postpone its first margin deadline until 2017 may be welcomed by the industry. Despite the lack of preparedness, however, the findings do suggest that respondents believe margin mandate regulations will be either very effective or effective in mitigating risk (61%).
The survey, Are Banks Ready? Managing Margin Mandates, was released today by Axiom, a leading provider of technology-enabled legal and contracting services. The survey sample includes a majority of the G15 dealers and other banking professionals with direct responsibility for margin mandate deadline compliance.
“While the findings reveal an encouraging level of confidence in the regulation’s ability to strip superfluous risk from derivative trading, it also illuminates an even broader degree of concern around the banks’ ability to meet the now looming deadlines,” said Mathew Keshav Lewis, Co-Head of Axiom’s Global Banking Practice (US). “And, we believe, the concern is justified given the unprecedented scale of the contract review, negotiation, renegotiation and general repapering this particular regulation necessitates.”
Added Barry Quinn, Co-Head of Axiom’s Global Banking Practice (UK): “The level of concern is also justified given that the EU delay, while warranted, has made many banks pump the brakes on their regulatory planning efforts, which can further complicate response to now differing regional deadlines. And, failure to comply with those deadlines doesn’t simply mean extra fines, it means derivative trading ceases.”
Yet, despite acknowledging the enormity of the task before them, 1/3 of respondents (33%) have not yet started planning for deadlines that, at most, are less than a year away. Among those that have started, planning is largely limited to the budgeting and resourcing phase (67%), rather than the contract review and repapering stage.
“The bright side,” continued Quinn, “is that many respondents recognize the unprecedented scale of the effort before them and are trying to be proactive in their regulatory response.” To the end, 71% seek repeatable processes that can be used for future regulatory compliance responses.
“That forward-looking perspective will serve them well,” said Lewis. “Initiating margin mandate compliance with a model that relies on process and technology will pay dividends down the road. Banks can begin to create a powerful data store, which can be reused for future regulatory compliance needs. Banks would be wise to start that process now, not only to meet the near-term compliance deadlines, but to proactively put themselves in a position to satisfy future demands.”
Additional Findings:
Preparedness:
Only 22% of companies have begun the process of bucketing (collecting contracts to prepare for the implementation of initial margin and variation margin requirements)
Only 12% have started counterparty outreach
Budgetary/Resourcing:
32% are allocating under $500,000 for Variation Margin repapering requirements
15% are allocating from $500,000 to $999,999 to repapering
18% are allocating between $1m-$2m to repapering
6% are allocating over $2m to repapering
29% have yet to decide re: repapering allocation
