Financial Markets had a lot to contend with in terms of working practices during 2020. In 2021 we are likely to see increased rigor in the regulatory sphere.
Whether you take the short or long-term perspective, this was always going to happen.
2020 saw some leeway introduced by regulators like the FCA in the UK and the SEC in the USA. It was the only reasonable thing to do when it became clear that traders, among other regulated staff, would have to work from home, and existing compliance protocols would be rendered temporarily unfit for purpose. The relaxation was pragmatic but not permanent. We reported back in summer 2020 that senior financial technology managers expected a test case to come along soon and set compliance expectations at the expense of an unfortunate bank. The fact that this hasn’t materialized yet probably says more about COVID’s impact on the regulators themselves rather than the verity of the prediction.
Now, although the crisis is far from over, the remote working paradigm has stabilized, and regulators will seek to apply higher standards of governance. Last week, the UK’s FCA body released a statement underlining the requirement for robust policies under its SYSC 10A controls sourcebook that specifically included “policies and procedures adopted for home working arrangements.” By specifically naming messaging tools like WhatsApp it has implied that applications that can’t be effectively supervised for compliance shouldn’t be used. This puts banks in a difficult position, especially as remote working continues.
Long-Term Compliance Cycle
From a longer-term perspective, we have seen four years of regulatory roll-back in the US under the stewardship of SEC Chairman, Jay Clayton. While his activity was not laser-focused on the trading floor, his tenure saw the lowest number of insider trading charges since the 1980s before he stepped down on Dec 23rd last year. New nominee, Gary Gensler, is a notoriously tough and scrupulous regulator who elevated the profile of his CFTC role when serving between 2009 and 2014. During that time, he clamped down on unregulated activity in the “Wild West” derivatives market with legislation that was drawn into the Dodd Frank act. He also turned his attention to the swap market and was instrumental in investigating the manipulation of London’s LIBOR – the interbank offered rate.
The Future of Trading Floor Compliance
JP Reis has always taken the view that the long-term trajectory of regulation is towards a wider scope and more rigorous enforcement. MiFID II was the last big milestone in this trend. 2021 is set to feel like a threshold moment too, even if much of the immediate activity will be to get governance, transparency and investor protection back to where it was pe-COVID and, in the USA, pre-Clayton. As the FCA made clear, regulations concerning trading communications are not limited by device or application. We will continue to support trading organizations as they seek to implement compliance solutions that demonstrably enable chronological trade reconstruction across multiple channels.
