Category: Compliance

Uncleared Margin Regulations: Strategize for Upcoming Complexities

We recently discussed the new uncleared margin regulations (UMR) and best practices for successfully re-papering your Credit Support Annexes (CSA’s.) Now that you’re up to speed on what it means for your organization and the steps for re-papering, there is a bit more you should consider when evaluating each agreement. To get you the best advice we teamed-up with experts in this subject in order to bring you all the information you will need to successfully comply.

While adapting to these new regulations, complexity is going to be your greatest obstacle. You will have an increase in the amount of documents and data you need to manage, which means it will also be much more complex than previously creating or editing agreements. You will have to find a better way to manage the additional work required to support this intricate and time-bound project.

Depending upon which strategy you decide to adopt (or are forced to adopt by your counterparties) you may have to amend existing CSAs, create a duplicate to comply with the new regulations, or create a new CSA for the Counterparties (CPs) that want to renegotiate terms.  Whichever strategy you end up with, managing the increasing number of agreements, and managing the legal and collateral terms is going to be a much greater burden for legal and operational departments.

In our upcoming webinar alongside Derivatives Risk Solutions (DRS), we will help you better understand the pros and cons of the strategies available to you, and how technology can help to ease the inevitable burden.

When: Tuesday, September 13th 10:00AM EDT / 3:00PM BST

Webinar: Understand and Comply with WGMR InitiativeRegister Now

*Can’t make it? That’s okay! Register now and receive a link to a recording once it’s completed.

9.thumbnailPaul Nelmes is Exari’s VP of Sales, Financial Services. Reach out in the comments or on twitter @Paul_Exari.

 

How Enterprise Contract Management Can Help with Uncleared Derivatives Regulations

Business as usual is no longer an option for banks.

With the new margin requirements for uncleared derivatives, it’s time for banks to buckle down and revise existing, or re-paper  their CSAs to be  compliant. These regulations are meant to promote central clearing and reduce the risks associated with trading. In an attempt to avoid a financial crisis another financial crisis the regulators are making sure there are more stringent rules around how much collateral has to be posted, who holds it, and how it is managed.. They’ve increased the threshold for uncleared swaps as well as the types of assets that are eligible as collateral for variation margin (VM). Furthermore, non-cash assets that qualify as initial margin (IM) can qualify as VM in trades depending on the counterparties.

Per regulation, all Credit Support Annexes  have to be revised or re-papered by the deadline, March 2017. Banks now have to start re-papering all their complex agreements in order to continue trading- business as usual. This task will be time consuming and will probably  involve heavy negotiations with counterparties, but can be greatly accelerated with technology to help with the re-papering process

Have you been putting this off? If you estimate that this is going to be a complicated and time consuming task, (you’re right), but delaying the process will reduce the time you have to negotiate and finalize your CSA’s.  If you don’t have the manpower to handle this task, there are options:

  1. You could outsource this work
  2. You could hire a third party firm that will take it off your hands, or
  3. You could automate the process with a little help from a purpose-built solution

The good news is you still have options. If you’re interested in learning more about what would work best for your firm, here are a few resources for you to consider:

Have a look and think it through, but keep in mind the clock keeps ticking and before you know it, it will be March.

Click the link to learn more about our re-papering solution.  

9.thumbnailPaul Nelmes is Exari’s VP of Sales, Financial Services. Reach out in the comments or on twitter @Paul_Exari.

 

Brexit-Induced Contract Uncertainty: What Can You Do Today?

The guessing game is over.  Brexit is official.

Pretty soon, the United Kingdom will no longer be a member of the European Union.  Which means that lawyers around the world are scratching their heads about what it means for their clients, their firm or their company.  Is it cause for panic, or a storm in a tea-cup?

One way to answer this question is to focus on what Brexit means for your existing contractual relationships. Which contract terms just became a whole lot fuzzier, and does it really matter?  Some have suggested that ambiguity around “English” governing law will complicate dispute resolution.  Others think that force majeure provisions may trigger a wave of unexpected contract termination.  But a more immediate concern may be the impact of Brexit on territorial rights and restraints in commercial agreements.

If a distribution agreement gives your company exclusive rights in the “European Union”, you may soon be losing a big chunk of your market.  If you have “European Union” non-compete language with a vendor, they might soon be free to set up shop in London.  And if you’ve agreed not to move data or assets outside of the EU, your British operations may no longer qualify.  In all scenarios, the first step is to find these potential problems and assess how painful they are.  From there you can devise a strategy of renegotiating, repapering or restructuring before Brexit officially kicks in.

Of course, those of you with Exari Contracts have already done all this analysis and can enjoy a few days off at the beach.  Perhaps a nice beach somewhere in Europe, while you still have the chance.

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Jamie Wodetzki is Exari’s Co-founder and Chief Product Officer. Reach out to him in the comments section.

The Changing Role of Compliance within Financial Services Firms

It was a beautiful afternoon in Boston as Chief Compliance Officers from the area convened to discuss the changing role of compliance at their financial services firms.  The venue, Top of the Hub, is situated at the highest point in Boston – amazingly appropriate given the conversation quickly gravitated towards visibility and the difficulty of transforming ISDA Masters & CSA’s into data that can be more easily analyzed and operationalized.

Conversation was lively with several topics resonating with all participants.  A significant theme of the conversation was around the changing role of compliance within the business.  Compliance leaders are now asked to sit at the negotiation table with clients and have become a key member of the team.   With the regulators playing a more resident role in corporations, compliance has become a more visible component of daily activities.  There was a general theme that the integration of compliance into the business functions has also integrated the role of Chief Compliance Officer.

When speaking about ISDA Master Agreements, many felt that this was an area for ongoing automation and restructuring.  Specifically, the harmonization of the ISDA-related data would reduce cost and risk for many firms.  The advent of tools in this area is an opportunity for the teams to improve their process.  The process of collecting the ISDA detail is very manual today. Once automated, however, this data would better enable companies to address questions regarding most favored nation clauses and other contract call outs.

The general consensus is that there are many regulations for the buy side firms to cover. It is easy for things to fall through the cracks as many companies cannot cover all regulations with a SME.   The attendees discussed that the maturing of the processes was key to success, with several recommendations offered.  Three of these suggestions included:

  1. lobby ISDA collectively to request more structure,
  2. designate key staff members to be SMEs in areas of greatest concern and,
  3. agree on a standard CSA

The attendees discussed how to best direct their limited resources, thus being a main concern. One recommendation was to provide incentives to the organization for meeting guidelines.  A detailed conversation was held recommending teams to review the operations logs on a regular basis to spot check for any opportunities open for improvement.  

Firms at the table had many different types of risk: fiduciary vs. deposit risk, while some companies were faced with both risks and answered to multiple regulatory bodies, that often had conflicting recommendation or reporting.  Additionally, the impact of international regulation was discussed as an area of rapid change that is also causing workload on these teams.  

Overall, there seemed to be consensus about ways to improve:

  1. Implement a central repository for all important agreements
  2. Capture key contract terms related to risk and compliance
  3. Provide proactive visibility for business users that quantify the indicators they find most valuable

The event ended strong with many of the participants exchanging cards and committing to continued sharing of best practices.  Many thanks to the participants for such a lively discussion and to Exari for hosting an amazing event!

9.thumbnail Patricia Flynn is a Compliance/Big Data Consultant. Reach out in the comments or on her Linkedin .

How Financial Services Maintain Customer Loyalty Through Compliance

All companies – from retailers to hedge funds – know that customers are their number one priority. Client obligations are always the first concern as customer satisfaction is the only reliable road to growth. The 2013 Lloyd’s Risk Index cited “loss of customer” or “abandoned transaction” as the second-most-critical business risk (ahead of cyber risk and behind taxation). First of all, we all know that it is far more expensive (according to some studies up to 10 times more) to acquire new customers than it is to retain existing ones. So businesses spend enormous amounts of time and resources developing initiatives to keep customers coming back.

While companies prioritize customers by striving to drive loyalty, Forrester believes they fail to take into account those associated risks that end up driving customers away. As cited on CFO.com, a Forrester report says that the “discrepancy” between concern for loss of customer and the priority given to the mitigation of related risks “illustrates the growing gap between strategic business priorities and antiquated risk assessments. Companies with high-value brands may explain in detail their customer satisfaction and brand-loyalty strategies in annual reports, but rarely do they consider the risks that might crush these priorities.”

Where should you start in the battle to reduce the risks associated with customer attrition? The first place is to look at why customers leave. Clients will pull their money out of banks and funds when they do not have complete trust in the institution, and trust depends on maintaining promises and a good reputation.

It should come as no surprise, then, that your contractual obligations to clients are of the utmost importance in earning and preserving trust. A disappointed client is a disloyal client. But more than client attrition, failure to adhere to client obligations can trigger severe penalties such as expensive and distracting legal action, regulatory fines, and crippling brand damage.

Reputation remains a critical element of maintaining client loyalty. Indeed, insurers now offer policies that indemnify against profits lost due to brand damage. Financial services firms and banks risk reputational damage through poor performance, fraud, and, most importantly, compliance failures. In this post-GFC era, as government and industry regulatory bodies impose more and ever-changing regulatory and reporting burdens on firms, the media and regulatory bodies scrutinize compliance more than ever. Failure to comply with regulation send unequivocal messages to clients that the firm may be unreliable or, worse, unable to handle responsibilities.

How can you be in complete control of your regulatory and client obligations? Easy – it’s all in your contracts. Having complete control over and visibility into your contract portfolio means you’ll never miss a commitment. The only way to have a truly uninterrupted view of all of your contractual obligations (and rights) is to utilize a Contract Lifecycle Management (CLM) tool that analyzes contract data, tracks milestones, and sets up triggers so you never miss a commitment.

For more on how CLM helps asset managers and investment managers reduce risk, click here.

To download an illustrative case study on how one asset manager uses Exari CLM for obligation and regulation management, click here.