A system risk survey conducted by Depository Trust and Clearing Corporation (DTCC) has shown a doubling of the number of industry participants worried about risk in central counterparties (CCPs) with the onset of central swaps clearing.
The survey, published last week by the DTCC, has found 18% of respondents, up from 8% in 2013, fear clearing houses may become single points of failure in a similar way to banks’ housing of swaps positions they were unable to unwind during the financial crisis.
Michael Leibrock, chief systemic risk officer at the DTCC, told theTRADEnews.com the results showed a growing concern amongst participants as crucial elements of the US Dodd-Frank Act and European market infrastructure regulation are implemented.
“The results reflect a growing concern about the impact of central clearing of OTC derivatives as CCPs will house a greater amount of risk, increasing the potential for these entities to be a single point of failure,” Leibrock said.
The 2014 survey is the second annual systemic risk questionnaire the DTCC has compiled and was based upon 218 responses from DTCC clients including broker-dealers, banks, buy-side firms, and this year also included responses from regulators and academics.
Regulatory change ranked as the top risk for 37% of respondents and 82% of respondents listed regulation as a ‘top five’ risk across both this year’s survey and in 2013.
Leibrock said the degree of change the industry continues to face in adapting to new rules could be broken down into three central risk concerns.
First, the increased costs associated with human and technology resources to implement change; second, a concern there will be unintended consequences when rules are implemented; and third, that risk managers focused on change will not fulfill their core roles.
“Firms have described an ‘eye off the ball’ risk, where many have the same number of resources to meet this current wave of post-crisis regulation, so the core function of monitoring risk in the market and at the firm level is impeded,” Leibrock said.
In addition to regulatory change, the results showed an increase in cyber security concerns ranked as the second most common risk to the system. Also, this year showed a reduction in fears about the future of the Eurozone, which only 15% of firms said would break up, compared to 37% in 2013.