Ramann Bhavani, TCS Financial Solutions
The failure of a large US based investment bank due to the subprime crisis in 2008 and the collapse of the largest broker in many commodity exchanges brought into focus the interdependence of the world’s financial markets. It led to the need for higher levels of transparency, segregation of assets, increased regulation and improved access to the securities of regulated financial institutions—in the event of an intermediary failure.
In 2014, findings by regulators on two large global custodians provoked an industry-wide discussion in the intermediation of securities transactions and the risks posed to regulated financial institutions in areas such as sanctions compliance, money laundering, terrorist financing and tax evasion. Compliance has become a significant focus of the financial services industry with:
- Increased focus on sanctions enforcement and counter-terrorism measures.
- Concerns about the lack of transparency in securities holding chains leading to adoption of new standards in regulation.
The industry has also realized that development of compliance monitoring practices in securities settlement could lead to significant operational costs and friction, if not accompanied by appropriate cross-industry standards.
The Need for an Industry-Wide Structured Approach to Financial Crime Compliance:
In May 2014, the International Securities Services Association (ISSA) decided on three key drivers to address financial
crime compliance in securities custody, settlement and distribution of securities and investment funds, which are:
- To provide a meaningful and substantive framework to guide custodians and fund distributors in the application of the IOSCO [International Organization Of Securities Commission] Principles of 2004 on Client Identification and Beneficial Ownership for the Securities Industry.
- To address issues raised by recent enforcement actions with a view to minimizing any gaps between market practices and the expectations of regulatory and enforcement authorities;
- To articulate a securities equivalent to the Correspondent Banking Principles of the Wolfsburg Group in order to define a set of standards to manage/operate omnibus accounts as well as to address those specific characteristics of conduct risk in the securities field, which are absent in high value payments processing.
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