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A broad alliance of financial industry associations are calling for a renewed, industry-led
adoption of innovative technologies, enhanced standardisation and digital formatting in the wake of COVID-19.
In an open letter to the Financial Stability Board, International Organization of Securities
Commissions, and the Basel Committee on Banking Supervision, eight trade bodies argue that
markets are facing “new paradigm shift” created by new tools, such as artificial intelligence and distributed ledger technology, along with rising consumer demand for more inclusive digital
services.
In response, the letter’s signatories, including the International Securities Lending Association, the International Capital Market Association and the International Swaps and Derivatives Association propose a threefold approach to address the challenges ahead: standardisation, digitisation, and distribution.
The other signatories include the Australian Financial Markets Association, the London Bullion
Market Association, the International Islamic Financial Market, and the Association of German
Banks.
Together, they say standardisation is needed to develop common models for financial
transactions and processes, rather than the existing system of unique representation sets for
individual firms and infrastructure providers.
The letter advises the three organisations to work with relevant authorities to align data
standards and legal documentation to establish improved efficiency and consistency in
regulatory requirements.
To promote digitisation, the associations highlight the importance of transferring industry-
standard documentation into digital formats and legal agreement data models to ensure
connectivity across asset classes and wider financial markets.
Thirdly, the letter recommends the distribution of new standards at an industry-wide level
through an inclusive governance framework to aid the development, operation and maintenance
of mutualised technology standards.
“None of this is possible without the industry-led development of enhanced standards and
distribution of these standards in digital formats that allow direct deployment within these
technologies” the letter explains, adding that “the involvement and commitment of regulatory
authorities” is also “critical to the success of these principles and objectives”.
The need for this initiative first came from the swathe of post-crisis regulation which “caused
large amounts of unstructured data and bespoke, paper-based contracts, with inconsistent
reporting requirements complicating the situation, leading market participants to examine how
they can utilise new technologies to improve the existing data and systems,” the associations
say.
The letter further suggests that the COVID-19 pandemic “has highlighted the urgency of these
efforts”.
While markets continued to function well, the significant increase in market volatility experienced at the outset of the pandemic placed existing infrastructure under considerable strain, the letter notes.
More fundamentally, it continues, the pandemic is now challenging established consensus
around how trading and operations should function, with many firms now seeking to accelerate
plans for greater digitisation and automation within their operating models.
