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The Basel rules are transliterated into European law under article {{crrprov|194}} of the [[Capital Requirements Regulation]]. | The Basel rules are transliterated into European law under article {{crrprov|194}} of the [[Capital Requirements Regulation]]. | ||
=== Industry associations and law firms must do better === | |||
Given how hateful the process of reviewing and applying netting determinations is, it is a mystery of modern finance and an outright failure of free-market capitalism that the process of obtaining these opinions is as much of a bugger's muddle as it is, but it is. Two consituencies, only, gain from the netting opinion process: those law firms who write them, and the industry bodies which have fashioned an entire cottage industry out of commissioning them. Here, in a piece of contrarian advocacy, are some simple steps one could take to make the process better. This might dent the annual revenues of our learned friends, but it is hard to muster any tears about that. | |||
Industry associations: for pete's sake co-ordinate. | |||
* If you are must write a 120-page opinion — and our learned friends would say, “we must: that is what a written and reasoned opinion means”, then at the very least, provide a curt summary at the front including a table with yes/no recommendations. It goes against the grain for lawyers to get to the point, of course, but ultimately their clients must make yes/no decisions based on these opinions, and a screed that labours over [[Aleatory contract|aleatory contracts]], and spends [[Extraordinary rendition|pages defining what company is not]], is if little or no use to that endeavour. How is it any more reassuring for the ongoing stability of the financial system that firms spend their time interpreting not the content of their legal agreements, but the content of ''legal opinions about'' their legal agreements? | |||
*Providing a 120 opinion as a locked, scanned, tiff image that cannot even be searched for words like “aleatory” speaks to a humour of the blackest and most wicked kind. | |||
*The giant financial institutions will wring every penny out of their workforce, but give the industry associations they fund a fairly free pass. You would like to think the FIA, ISDA, ICMA and ISLA would combine their resources in the interests of their largely common memberships, to COORDINATE opinion gathering, since the lions’ share of each opinion (the analysis of insolvency and general application of set off and netting) is common to all of them. But no: not only do they each jealously prosecute their own netting opinion programmes, asking the same qwuestions about the same jurisdictions and same legal entities, ''they don’t even go to the same firms''. In [[Luxembourg]], for example, [[ICMA]] uses [[Clifford Chance]], the German Banking Association [[Allen & Overy]], [[ISDA]] uses Allen & Overy for some and Linklaters for the others. This is wonderful for the worshipful company of [[close-out]] [[netting opinion]] writers, but is hardly value for their clients. Nor do the different entity groups use the same entity categorisations. | |||
So here’s the thing, friends: netting opinions are — to put it bluntly — a paranoid anachronism dating back to the prehistoric time of [[The First Men]], when swaps were new, apparently comprised of fearful magic, and there was terror as to what they could do. Swaps are now part of the fabric of the space-tedium continuum. No insolvency administrator has so much as ''tried'' to pull one apart in 40 years, in any jurisdiction, however ropey its grasp of the principles of sound financial governance.<ref>I know what you are thinking: that shows what a prudent process netting compliance is. May I direct you to my favourite elephant joke?</ref> Yet we contrive to let third-party bureaucrats we have appointed waste our time, resources, risk monitoring capacity and most importantly money, without a second glance? | |||
If we have to have these fantabulous regulations, at least be efficient in how we handle them. | |||
{{sa}} | {{sa}} | ||
*[[Close-out netting]] | *[[Close-out netting]] | ||