17 Mar Futures Industry Association Give up Agreement
The Futures Industry Association (FIA) has recently announced that it will give up an agreement that was designed to promote harmonization of global derivatives rules. This move is expected to have far-reaching implications for the financial industry, particularly in the area of regulatory compliance.
The agreement in question is the International Swaps and Derivatives Association (ISDA) Protocol, which was established in the aftermath of the 2008 financial crisis. The protocol was designed to standardize documentation for over-the-counter (OTC) derivatives trading, making it easier for market participants to comply with global regulatory requirements.
However, the FIA has now decided to withdraw from the protocol, citing concerns that it has become overly complex and burdensome for firms to comply with. The decision has been met with a mixed response, with some industry experts welcoming it as a positive step towards simplifying regulatory compliance, while others worry that it could increase fragmentation in the derivatives market.
One of the main concerns raised by the FIA is the fact that the ISDA Protocol has become increasingly complex over the years, with new provisions and requirements being added regularly. This has made it difficult for small and medium-sized firms to keep up with the changes, and has also led to a situation where there are now multiple versions of the protocol in use.
Another issue raised by the FIA is the fact that the ISDA Protocol is not a legally binding agreement, meaning that there is no guarantee that market participants will actually comply with the requirements it sets out. This has led to a situation where some firms have chosen to ignore the protocol altogether, further adding to the complexity of the regulatory landscape.
Despite these concerns, some experts have warned that the FIA`s decision could have negative consequences for the derivatives market. For example, the withdrawal of the FIA from the ISDA Protocol could lead to a situation where different market participants are using different versions of the protocol, leading to confusion and potentially increasing the risk of regulatory non-compliance.
Ultimately, it remains to be seen what impact the FIA`s decision will have on the derivatives market and regulatory compliance more broadly. However, it is clear that the move is indicative of wider concerns around the complexity of regulatory requirements in the financial industry, and the need for greater standardization and simplification of these requirements going forward.