A group of five banks, including Goldman Sachs and HSBC, have agreed to establish a uniform global standard for revealing clients’ stock holdings. Participants in the group believe the move will increase openness and reduce costs.
The group—which also includes Barclays, BNP Paribas, and one other bank—is developing a mechanism to reduce the dangers of under-reporting, particularly when investors make so-called short bets or increase their stakes via derivatives.
When certain thresholds are crossed, regulators require investors to register the securities they own, which necessitates a sophisticated and time-consuming review of the regulations. There may be errors and fines if there is an opportunity for interpretation.
Banks have been investing in “RegTech” to reduce the expenses associated with following such regulations through automation.
The five banks are currently attempting to streamline processes and cut costs while collaborating with RegTech expert Droit.
Pete Chisholm, Global Head of Position Regulatory Reporting at Goldman Sachs, told reporters that Endoxa is the first bank-led consortium to address international regulations on disclosure reporting.
There is “a risk that the market data the public relies on could be inaccurate because of the lack of commonality,” Chisholm said, adding that “this is about whether all the banks across the world understand the rules exactly the same.”
The plan should ensure legislators and regulators that laws are being applied uniformly, according to Kara Lemont, global head of financial markets compliance at BNP Paribas.
Barclays and HSBC spokespeople confirmed that the banks are members of the group but would not provide any other information.
The banks will collaborate with Droit and a law firm to create a standard digital machine-readable code that consortium members can use to enforce uniform compliance.
Members of Endoxa believe that as more banks sign up, the application of reporting regulations will become even more uniform.
Retail investors anticipate that all banks disclosing this information will be doing so on an equal footing. This will guarantee that everyone abides by the same set of regulations, he said.
SURPRISING STAKES
In some recent instances, investors have accumulated sizable interests in publicly traded corporations that, while legal, caught other market participants off guard.
Despite the fact that Endoxa’s members are still free to assist clients in developing private positions, the consortium will work with attorneys and regulators to come to an exact understanding of the regulations governing disclosures.
“We think this relationship can be expanded to address many of the problems the sector is having. Ultimately, this will lower risk and make enterprises safer, according to Brock Arnason, founder and CEO of Droit.
It may not be appropriate for banks to band together to decide how to interpret rules, according to Mayra Rodriguez Valladares, a financial risk expert at MRV Associates who educates bankers and regulators. She added that regulators should constantly monitor such actions.
