NEW YORK, NY and LONDON, UK / ACCESSWIRE / June 10, 2019 / New research from Luxoft, a global digital strategy and engineering firm, has revealed that Tier-1, Tier-2, and Tier-3 investment banks are overconfident for the European Union's (EU)'s new Securities Financing Transactions Regulation (SFTR), which comes into force next April. Almost all (99 percent) senior compliance professionals responsible for implementing the regulation who responded are confident they will meet the requirements, yet Luxoft's Regulatory Outlook Report shows that this confidence may be misplaced.
The report shows 98 percent of Tier-1, Tier-2, and Tier-3 investment banks will be relying on systems and process infrastructure used for past regulations such as EMIR to comply, yet the vast majority – 74 percent – acknowledge that SFTR compliance will require a much more complex IT infrastructure than EMIR or MiFID. Furthermore, almost three quarters (72 percent) agree that SFTR implementation will be more costly than EMIR or MiFID, with 30 percent saying the cost of hiring new talent will be the most expensive aspect. Despite these issues, fewer than half (48 percent) have conducted a cost benefit analysis of the regulations or set up a planning committee (46 percent), centralised their SFT reporting (39 percent) or hired a trade repository (TR) (26 percent).
"SFTR is the most demanding piece of transaction reporting regulation the sector has seen, and firms seem overconfident on delivering on the requirements when there is a vast amount of work to be done, with very little time to spare," said Geoff Hutton, EMEA Regulatory Specialist of Financial Services at Luxoft. "Our research suggests that the industry's confidence can be attributed to banks' experiences with previous transaction reporting requirements and existing infrastructures. Some of the groundwork from these regulations will help firms to comply, but SFTR presents a completely different set of challenges. Capturing the data required and putting in place the processes and technology to report efficiently will be a huge and costly challenge which firms are not prepared for."
Senior compliance professionals in the investment banking sector remain largely positive on the role and impact of regulation, with only 40 percent reporting 'regulatory fatigue' at their firm. Furthermore, 78 percent of firms recognise that investment in compliance for regulatory initiatives such as SFTR makes their market position stronger and more resistant to new entrants, and brings some business opportunities such as streamlining in-house processes (62 percent), improving the use and risk management of collateral (58 percent) and boosting the transparency of funding (57 percent).
"Compliance burdens have soared over the last decade and SFTR will add significant pressure to firms which, coupled with Brexit constraints, could leave many vulnerable to costly regulatory risks," Hutton added. "With the 2020 deadline fast approaching, banks should start establishing SFT activities, understand trigger events and report types, and decide how they will build or outsource their software solutions. By effectively implementing SFTR, not only do firms mitigate future risks but they could also realise the business benefits that this new regulation brings."
Luxoft (NYSE: LXFT) is a global technology services and consulting partner that provides bespoke technology solutions to customers in 22 countries across five continents. Founded in 2000, Luxoft combines engineering excellence with deep industry expertise to deliver and implement technology solutions that drive business change.
Through a combination of strategy, consulting and engineering services, Luxoft's global teams use technology to enable business transformation, enhance customer experiences and boost operational efficiency. With over 280 active clients, Luxoft specialises in automotive, financial services, healthcare, life sciences, telecommunications and other industries. For more information, please visit www.luxoft.com and follow us on Twitter and LinkedIn.
About the report
The research was conducted by Censuswide on behalf of Luxoft, with 331 senior compliance professionals in Tier-1, Tier-2 and Tier-3 investment banks responsible for implementing SFTR. Censuswide abide by and employ members of the Market Research Society which is based on the ESOMAR principles.
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