Chapter 3
Regulatory landscape
Summary
Our research highlights the early impacts firms are experiencing as Basel III comes into full effect. Respondents reported increased engagement with market participants such as hedge funds and a strategic focus on favourable liquidity venues to optimize capital and reduce gross exposures.
A clear emphasis has emerged on real-time capital drag and timing metrics, along with a sharpened focus on counterparty and capital efficiency during trade execution.
To mitigate regulatory pressures, firms are turning to advanced technologies. The most widely adopted solution is data analytics for risk modelling and scenario testing (62%).
Predictive analytics for anticipating regulatory shifts and automated compliance reporting are also seeing growing uptake.
In parallel, the transition to T+1 settlement is having a moderate impact across the industry.
Most notably, it is affecting risk management (18%) and operational efficiency (15%). Interestingly, 14% of respondents reported minimal impact across all three core areas - risk, operations, and liquidity -suggesting that firms are experiencing the effects of T+1 in divergent and firm-specific ways.
How is your organization leveraging advanced tech to lessen the impact of regulatory changes? (Respondents were asked to select all that apply)
Data analytics for risk modelling and scenario testing
Predictive analytics for anticipating regulatory changes
Automated compliance reporting and monitoring systems
Natural Language Processing (NLP) for regulatory document analysis
AI-powered regulatory change analysis and interpretation
Cloud-based platforms for flexible data management and accessibility
Blockchain technology for secure data storage and auditing
Robotic Process Automation (RPA) for streamlining compliance workflows
Algorithmic trading surveillance and compliance tools
Developing internal regulatory technology teams and expertise
All of the above
How much of an impact has the shift to T+1 had on operational efficiencies, liquidity management and risk exposure for your trading operations?
Primarily impacted liquidity management
Primarily impacted exposure risk
Primarily impacted operational efficiencies
Minimally impacted all three areas
Moderately impacted all three areas
Impacted operational efficiency and liquidity more than risk
Impacted liquidity and risk more than operational efficiency
Significantly impacted all three areas (operational efficiency, liquidity, risk)
"I'm surprised more people were not already operating on a T+1 basis already. We've been living in a T+1 world for a long time on U.S. Treasuries. The biggest impact has been that if the US is at T+1, but everyone else is T+2 and T+3, it causes problems for global portfolios. It also causes issues with regards to the timing of flows. I'd say it has impacted some operational efficiency and liquidity more than risk."
Neal Rayner, Head of U.S. Fixed Income Trading, Janus Henderson
