Standardization Through Regulation Is Key to Progressive Digital Transformation

CJ Emson

Updated May 8, 2023

Not so long ago, we were making trades on the phone, email had barely been invented and the idea of the superspeed at which we currently book, execute and settle trades was the thing of myth and fantasy. Now regulation and innovative new solutions using technology like Distributed Ledger Technology (DLT) are serving as tools to deliver standardization and resolve huge issues which plague the financial system.

Regulation has been a constant driver for change in the financial system since 2008, and has delivered huge benefits, often long overdue. At best regulation seeks to standardize, at worst to curtail. The focus of regulation in our sector, in Europe specifically, seeks to progress regional standardization, in turn fostering innovation towards an interoperable and scalable future across the EU financial system. For us, standardization goes hand in hand with innovation with one invariably driving the other. Formalizing standardization through regulation, accepting there will be regional variation, enables a best in class understanding of what processes continue to serve the system and where interconnectivity, both in and outside of a firm, would add benefit. Those processes which no longer serve the system and require replacement or retirement can also more easily be identified through standardization. EquiLend has consistently standardized our builds with interoperability built into all of our solutions and often, they are also agnostic to provider.

The past 20 years have been transformative for all sectors and people. Mass adoption of digital in every corner of our lives has driven demand for technology which creates efficiency. The first iteration of automated systems was revolutionary in their day but now cumbersome and costly, we now largely find these once frontrunners referred to as legacy systems.

We are now reaching a tipping point where the cost of supporting inefficient systems is more expensive than investing in new technology which will future proof a firmConsider, for example, that approximately 48% of the UK Government’s annual tech budget of £4.7bn is spent on supporting outdated legacy systems; and this is a picture replicated in most sectors. Firms risk being exposed to security risks, suffering poor data quality and impaired productivity from demotivated employees who are spending untold man hours on inefficient workarounds.  

Each of these risks are drivers for our latest innovation, 1Source, which focusses on eradicating reconciliation breaks. This issue was identified as the most pressing remaining complication in the securities finance industry by our working group, which encompasses some of the biggest names in securities finance.

In the status quo, trade details and lifecycle events are each separately input into each counterparty’s system. “Breaks,” where those details are mismatched, are rampant: as many as 30% of transactions will eventually experience a break, according to our data. 1Source will create one central record of each transaction, updated in real-time as lifecycle events take place, keeping both parties aligned, always. 

EquiLend 1Source, a build based on distributed ledger technology (DLT), will serve as a “single source of truth” for all transaction information on an ongoing basis. In line with the forward march of regulation and standardization, 1Source further fuels the collective goal of making our industry ever more efficient and takes into account regional variation in applicable regulation.

The technology which powers change today may one day be seen as obsolete. The rules and connections which underpin such technology will not. The time and cost investment already committed by market participants in meeting the future head on is indisputable evidence that we are on the precipice of a new and more efficient era for securities lending.  

Who We Are

EquiLend is a global financial technology firm offering Trading, Post-Trade, Data & Analytics, RegTech and Platform Solutions for the securities finance industry. EquiLend has offices in North America, EMEA and Asia-Pacific and is regulated in jurisdictions around the globe.