USA financial firms have increased spending on systemic risk mitigation

Coincides with ease in fears of a systemic risk event happening in the next 12 months


A recent survey conducted by The Depository Trust & Clearing Corporation (DTCC) revealed that a vast majority of financial firms have increased spending on systemic risk mitigation. With new regulations being implemented across the board and financial firms getting serious about protecting their clients as evidenced by this report, the embarrassment of being a company who fails their clients and being taken to task in the court of public opinion is also a big deterrent to minimize risk in your corner of the financial world as many people have become much more aware and conscious of the financial system post 2008.

The DTCC Systemic Risk Barometer, a newly branded survey now in its second year, was launched by DTCC to assess and measure the financial industry’s sentiment on significant and emerging trends that impact the safety, resiliency and continued sustainability of the global financial system. The Barometer analyzed the information provided by 218 respondents – up from 80 in 2013 – comprising DTCC clients, including broker/dealers, banks, service bureaus, mutual fund companies, hedge funds and insurance companies. This year, the survey was further extended to regulators, academics and members of research organizations globally. Click here for The DTCC Systemic Risk Barometer Summary Report.

Just 9% of this year’s survey respondents, compared to about 37% in 2013, said they believed the occurrence of a high-impact market event in the next year to be “Likely.” These trends probably have a trickle-down effect and even small firms are looking to make client safety and firm financial health of top priority.

“Of the individuals we polled, 70% reported that their firms had committed more resources into systemic risk management activities over the past 12 months. This trend might indicate that systemic risk protection is becoming firmly embedded in corporate culture and standard business practices,” said Michael Leibrock, DTCC Chief Systemic Risk Officer.

The Top 5 Risks noted by respondents in the report:

  1. Impact of New Regulations
  2. Cyber Security
  3. Significant Business Continuity Event
  4. Disruption or Failure of a Key Market Participant
  5. Major Compliance or Governance Event

It will be interesting to see specifically in the forex industry what brokers and other firms have done to increase health of company balance sheets and ensure each client and trader account is free of any misappropriations and mischief. There is not the kind of systematic risk to the financial system as a whole within the industry but a failure of a large broker could shock the confidence of the public. LeapRate will be conducting some interviews with FX industry executives to see what steps they have taken in the last year to improve client safety, mitigate risks to their balance sheets and thwart potential cyber fraud. Perhaps some of the DTCC trends reported for 2014 have trickled their way down across spectrum of the financial industry.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

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