In particular, de Vitry noted that accounting guidelines such as FASB 133 are too strict when it comes to gaining hedge accounting for risk management activities. “I am aware of some clients who have decided not too hedge their energy exposures simply because they would not gain hedge accounting,” he said.
“We should not underestimate the potential for regulation to affect markets for better of worse,” he added. “Ill-thought-out regulation can have unintended and adverse consequences such as the removal of business operations to offshore locations.”
De Vitry also urged delegates to get involved with industry bodies, such as the International Swaps and Derivatives Association, to protect the industry from over-zealous regulation. De Vitry was elected to Isda’s board of directors last month.
Although regulation still poses a threat, de Vitry did point out that the entrance of banks to the energy trading market will aid liquidity and stability. He noted eight banks which have recently entered the market – such as ABN Amro, Well Fargo and Macquarie – and eight other banks – such as Bank of America, JP Morgan Chase and UBS – that have upped their presence in the trading market.
The week on Risk.net, December 9–15 2017Receive this by email