Good governance key to international collateral requirements

Fund managers will need to have good governance in place to deal with the new collateral requirements of global regulators, if they plan on performing international deals. 

Since the 2009 G20 meeting in Pittsburgh, regulators around the world have been urged to implement collateral management measures to increase the transparency of the OTC (over the counter) derivatives market and reducing the counterparty risk.  

While new rules have yet to be implemented by the Australian Securities and Investments Commission (ASIC), Paris-based senior business developer at BNP Paribas Securities Services, David Beatrix, warned local managers would need to comply with collateral management regulations in overseas markets they trade in. 

“Each organisation needs to put in place a governance [process] ahead of the implementation to make sure that there is global coordination to keep all the impacts [of the regulations] on the radar,” he said. 

“There’s a big concern over cross-border aspects of those rules, because the OTC derivatives market is a global market [and] countries such as Australia have 70 per cent of the trades that are dealt with on a cross-border basis. 

“[As a result] Australian entities have to look at what’s coming out from ASIC for what is dealt with on a local basis, between two Australian entities, and also have to care about the effects of the US and European regulations when they deal with US persons or European financial counterparties. 

“Even though they [Australian entities] are not under the supervision of the European regulator they could be caught by clearing obligations, because they deal with European counterparties.”