Goldman Sachs, HSBC, Barclays, BNP Paribas, and another undisclosed bank are forming a consortium to adopt a common global approach to disclosing clients’ stock positions. The aim of this initiative is to minimize the risks associated with under-reporting, especially in scenarios where investors engage in short bets or build stakes using derivatives. These actions typically trigger regulatory requirements for investors to report their securities holdings once specific thresholds are breached, necessitating complex and time-consuming analysis of the rules.
The banking consortium is collaborating with RegTech specialist Droit to develop a tool named Endoxa, designed to streamline the compliance process and reduce costs. RegTech solutions have gained popularity among financial institutions, as they help automate compliance tasks and enhance efficiency.
Pete Chisholm, Global Head of Position Regulatory Reporting at Goldman Sachs, emphasized that this initiative is the first bank-led consortium aimed at addressing global rules on disclosure reporting. The goal is to ensure that all banks worldwide interpret and apply these rules consistently, reducing the risk of market data inaccuracies due to a lack of commonality.
Kara Lemont, Global Head of Financial Markets Compliance at BNP Paribas, stated that the consortium should reassure regulators and legislators that rules are being applied uniformly.
The consortium intends to work with Droit and a law firm to develop a standardized digital, machine-readable code that members can implement to ensure consistent compliance. The group is optimistic that other banks will join over time, leading to greater harmonization in how reporting rules are applied across the industry.
The move towards a standardized approach to disclosure reporting aims to provide retail investors with the assurance that every bank is making disclosures on the same basis, promoting a level playing field in the financial markets.
In recent times, there have been instances where investors accumulated significant stakes in publicly-traded companies within the regulatory framework but surprised other market participants. By establishing common interpretations of the rules surrounding disclosures, Endoxa aims to reduce the likelihood of such surprises and enhance transparency.
While Endoxa’s members retain the flexibility to assist clients in building positions confidentially, the consortium will collaborate with legal experts and regulators to establish precise interpretations of disclosure rules.
Droit founder and Chief Executive Brock Arnason expressed the belief that this partnership could address various industry challenges and ultimately reduce risk, making organizations safer. However, financial risk consultant Mayra Rodriguez Valladares suggested that regulators should closely scrutinize such consortiums, as banks collectively deciding how to interpret rules may warrant further examination.
In conclusion, the formation of a banking consortium to establish a common approach to disclosure reporting is a significant step toward improving transparency and reducing compliance costs. It remains to be seen how regulators will respond to this initiative and whether it will lead to increased standardization in the financial industry’s approach to reporting rules.