January 4, 2019
Son-Mi Lee, Senior Regulatory Advisor, FIF; Christopher Bok, Director, FIF
On December 19, 2018, over 150 FIF industry participants representing broker-dealers, vendors, and exchanges joined the annual FIF year-end event held at Bloomberg’s flagship office located at 731 Lexington Avenue, New York City. Opening remarks were made by Mike Tirello, Global Head of SSEOMS Product Compliance, Bloomberg. Christopher Bok, Director of FIF, reviewed FIF’s 2018 activities, providing an update on FIF’s regulatory-focused working groups, including the Consolidated Audit Trail (“CAT”), the Transaction Fee Pilot, SEC Rule 606 and several other initiatives covered in over 300 meetings held this year.
Tom Jordan, FIF Advisory Chair, led the panel discussion focused on “Non-Discretionary Regulatory Initiatives of 2019.” At first glance, the title leads one to ask -- what exactly does “Non-Discretionary” mean? By “Non-Discretionary,” FIF is referring to regulatory initiatives and other industry projects which must be implemented in 2019.
Panelists Ron Veith, Executive Director, JP Morgan and Mike Tirello, Bloomberg explained that 2019 poses numerous challenges to firms due to several rule implementations that are scheduled to go into effect, including Phase 2a of the CAT, SEC Rule 606, Regulation ATS-N, the California Consumer Privacy Act, as well as potential downstream effects of Brexit, which will require some firms’ compliance, legal, and technology teams to manage these regulatory initiatives in parallel to meet aggressive compliance dates. John Ramsay, Chief Market Policy Officer, IEX, also noted that earlier in the day, the Securities and Exchange Commission approved the Transaction Fee Pilot for NMS Securities which should require that exchanges, at a minimum, comply with certain pre-pilot data collection and reporting obligations in 2019.
Susan Crozier, Director of Product Management and Regulatory Affairs, FIS, noted that in addition to the broader rule implementations scheduled for 2019, firms should also be aware of and allocate resources to other mandates that will affect firms’ compliance and technology staffs in 2019, including those with compliance deadlines in early 2020 which will likely require development work in 2019. These include FINRA’s scheduled termination of the Computer-to-Computer Interface (“CTCI”) Protocol, the Single Security Initiative (“SSI”) that will create new mortgage-backed securities to be issued and guaranteed by either Fannie Mae or Freddie Mac, DTCC’s proposed ACATS Shortened Settlement Cycle, and the GSD Start Leg Repo Initiative. Firms should also be monitoring the final proposal on the SEC’s Regulation Best Interest expected to be finalized in 2019. In the fall of 2019, the Department of Labor is also expected to issue a revised final proposal on the Fiduciary Rule which was previously vacated by the Fifth Circuit Court of Appeals earlier in 2018. These mandates, explained Crozier, will require substantial coding changes and/or system builds that will further stretch limited resources at many firms.
Jim Dolan, Chief Compliance Officer of Luminex and Chair of FIF’s Cybersecurity Working Group explained that while the implementation of regulatory mandates should be a primary focus of the industries’ legal, compliance, and technology staffs, firms must remain vigilant with protecting themselves and their clients from the continued threat of cyber-attacks. Dolan noted that firms should not only invest resources in security designed to protect their technology infrastructure, but also prioritize employee training, education, and the promotion of security best practices to defend themselves from bad actors.
While the panel discussion made clear that the industry will be challenged with managing the implementation of several complex rule requirements scheduled for 2019, panelists emphasized that firms are not alone. To that end, FIF panelists remarked on the invaluable resource FIF has proven to be for member firms in helping to alleviate the pressure and stress caused by such an environment. Through the facilitation of collaborative discussions among subject matter experts representing broker-dealers, service bureaus, execution venues, and vendors, FIF has and will continue to assist its member firms in easing the challenges of multi-layered rule implementations through the sharing of best practice recommendations and guidance.
Further, panelists noted that FIF can also assist firms by providing advice on organizing operations and technology teams to adhere to such strict regulatory timelines and to leverage industry expertise available through FIF and members’ collective expertise to help support and more efficiently implement regulatory mandates. In 2019, FIF expects the collective sharing and leveraging of industry best practices and expertise to be of even greater importance as the breadth and depth of various implementation mandates will require firms to efficiently manage resources well in advance of compliance deadlines. Panelists also emphasized that in such a demanding environment, compliance, legal, and technology staff take all available time off to better maintain focus and avoid burnout since, as Jim Dolan humorously noted “a stressed compliance officer is an ineffective compliance officer.”
In addition to FIF’s role in facilitating the sharing of best practices between FIF member firms, panelists noted that FIF performs a critical role with respect to advocating for its member firms through direct dialogue with the regulators (i.e. through formal and informal dialogue and the submission of comment letters). Historically, Working Group discussions have had direct influence on the resolution of important regulatory uncertainties and revised rule expectations (i.e. the phased-in implementation of CAT) that have further eased compliance obligations.
The event ended with closing remarks from FIF Chairman Leo McBlain, who spoke of the combined effect of two watershed developments – new regulations and advancing technology – that have impacted and will continue to impact the markets. Namely, the National Market System Act, first established in the 1970s, under which the CAT and Rule 606 fall, set the tone of today’s regulatory environment. Likewise, the invention of the stock ticker redirected real-time market data from exchange floors and into microprocessors and servers utilized to facilitate today’s fast-paced electronic markets. McBlain noted that as trading technology and the underlying market structure continue to evolve, developments in these areas will continue to emerge.
After the panel discussion concluded, participants enjoyed an opportunity to celebrate and network with industry colleagues with libations and hors d’oeuvres catered by Bloomberg staff.
POSTED Jan 04,2019