David Poole COO of ClientKnowledge
David Poole COO of ClientKnowledge

Regulatory Arm-Wrestling: Can the FX market strike a balance?

The market environment and events over the last two years have brought regulatory concerns around the world's financial services into the spotlight. There is more scrutiny over the general architecture of the market than before the credit crisis. The regulatory concerns around FX have yet to move beyond political rhetoric into hard business practicalities. At the moment FX feels hard done by. The industry sees itself as having ridden the credit crisis with a robust infrastructure and a self-regulated concern that combines STP efficiencies with broader concerns for systemic risk as part of the natural evolution of the business model.

Certainly the professional trading market can point to many examples of efficiencies that have reduced the settlement, credit and execution risk. For example, prime brokerages monitor credit and settlement risk on high volume hedge fund trading, CLS has answered Herstatt risk and CME provides a solid central clearing solution. The key question remains whether or not such a globally active, high volume industry can oversee itself within the current framework or will it need to alter the balance between imposed regulation and self-regulation?Within the corridors of power the concern is that the very same self interest that appears to have kept FX from systemic risk has created bloated back office processing and unmanageable and undetected systemic risk. The argument is not that FX should be excluded as a special case from the review of industry regulation, but that as part of that review it needs to be recognized that FX has the key risk management and reporting pillars to build on. The industry expertise and...continued

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