LONDON, October 31, 2013 — New research by BNY Mellon, the global leader in investment management and investment services, in association with Insurance Risk magazine has revealed increasing concerns over the availability of eligible collateral assets to post as margin as the move to central clearing looms.
Compared to last year, fewer respondents – 44% down from 65% – said they hold sufficient ('enough' or 'comfortably enough') assets of the requisite quality within their investment portfolios to meet collateral margining requirements and other pledges.
Conversely, levels of readiness around the move to central clearing have improved over the past year. Fifty-four per cent (54%) of respondents said they understand the impacts and are working towards operational readiness, compared to just 32% in the 2012 survey.
Last year, nearly half (46%) of those surveyed had either not yet initiated or concluded their impact assessment of the changes mandated by the European Market Infrastructure Regulation (EMIR) and the Dodd-Frank Act, whereas this year that figure stands at 36% – though 21% of respondents said they have yet to launch an impact study.
This year only 10% of respondents said they believed they would not be impacted at all, down from 22% the previous year.
Other key findings in the survey included:
- Two-thirds (67%) of insurers surveyed expect to participate in the new OTC cleared environment, up from 53% a year ago
- Compared to last year, fewer respondents (29%, down from 50% last year) believe their organisation will increase its use of derivatives in the coming year
- The repo market is seen as the most attractive mechanism to optimise collateral and gain additional yield from investment portfolios
Paul Traynor, Head of Insurance Segment, International at BNY Mellon, said: "While more firms are working towards operational readiness, a fifth of those surveyed are yet to conduct their impact assessment and may therefore not be attending to these implications. It is critical for insurers to conduct the necessary assessment as soon as practicable to allow them to plan appropriately for future growth. Indeed, the fall in comfort levels around collateral held that was noted in the survey may be because insurers are now further along in their investigations."
Kurt Woetzel, Head of Global Collateral Services at BNY Mellon, said: "Collateral was always important when it came to obtaining credit, but it is fast becoming the sole determinant of institutions' ability to engage in financial transactions in the cash or derivatives markets. There is a clear expectation that ongoing regulatory reforms we are seeing around derivatives and capital will result in collateral and liquidity shortfalls, as well as increasing both funding costs and operational complexity. Accordingly the demand for fresh thinking and innovative solutions around collateral, notably around aggregation and optimisation, has never been higher."
A complete version of the survey results can be found at www.risk.net/2302849
*Based on estimates of global insurance assets of $24.4 trillion at December 31, 2011 (source The City UK)
Global Collateral Services offers a comprehensive suite of capabilities to help our clients address their collateral, liquidity and securities financing needs. As they face evolving global regulations and rapidly changing market requirements, clients can leverage BNY Mellon's products and services to better manage counterparty and market risk in their collateral transactions, engage in more investment opportunities to help maximize their investment returns and access new financing alternatives. BNY Mellon currently services $2 trillion in global collateral (including tri-party repo collateral worldwide) and approximately $100 billion in assets through its Liquidity DIRECT SM investment portal, and operates one of the industry's largest securities lending programs, with $3 trillion in lendable assets.
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of September 30, 2013, BNY Mellon had $27.4 trillion in assets under custody and/or administration and $1.5 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com or follow us on Twitter @BNYMellon.
This press release is issued by The Bank of New York Mellon to members of the financial press and media. All information and figures source BNY Mellon unless otherwise stated as at September 30, 2013. The Bank of New York Mellon, London Branch, registered in England and Wales with FC005522 and BR000818. Branch office: One Canada Square, London E14 5AL. The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the Federal Reserve and authorised by the Prudential Regulation Authority. The Bank of New York Mellon London branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request.
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