What will 2025 look like for the post-trade sector? According to advisory firm Firebrand Research, nationalism will get in the way of harmonisation, operational resilience will continue to be tested, and settlement costs will come into question. In its latest report titled “Local interests versus global intentions”, the firm shares these and eight other predictions for the new year
Nationalism does not play nice
Elections in 2024 have indicated a growth in nationalist sentiment in many major markets, observes the report. With nationalist agendas come regulatory divergence – spelling competitive advantages for national players but increased cost and complexity of compliance for global firms.
There is a tendency for firms to “press pause on major spending items during times of uncertainty”. These major expenditures include core infrastructure upgrades and legacy replacement projects. The report states, however, that “many in the market recognise that these projects are long overdue”, with upcoming market structure changes such as T+1 putting pressure on firms to modernise.
Prioritising resilience
On resilience, the report writes, “The prevalence of outages within the financial services community over the last few years and especially for financial market infrastructures (FMIs) has compelled many of the regulators across the globe to prioritise operational resilience regulation into 2025.”
It describes the Digital Operational Resilience Act (DORA) as “by far the most comprehensive set of operational resilience requirements”. A recent dry run exercise by the three European supervisory authorities (ESAs), however, has shown that the industry is “largely under-prepared” for DORA requirements to come into force on 17 January 2025.
The report predicts that 2025 will be “a quiet year” for enforcement. “EU regulators will take a while to police non-compliance”, it writes. “Operational resilience regulation is a work in progress for regulators as well as the industry”.
The price is not right
T+1, whether it’s in regions that have already completed the transition or in regions that are considering it, has “thrown a direct spotlight on settlement costs”. In the EU, “the high cost of CSD services in particular has been a matter of much debate”.
More competition would result in a reduction in the pricing of settlement services. This could be realised by “compelling more interoperability across the region, so that there is more choice between CCPs and CSDs in a cross-border context, or the introduction of a specific competition policy by the regulators”.
Other predictions mentioned in the report are the increase in AI risks; evolution of hybrid cloud and open source; focus on data access; increased prominence of crypto; challenges to the buy-side and private assets; complexities in T+1 transformation; Asia’s leadership in sustainable finance; and collateral inefficiency highlighted by clearing.
