First, there is overall shrinkage in the global financial sector. Weak economic growth and higher capital requirements in the wake of the global financial crisis are forcing financial institutions to review their business models and restructure. Redundancies have been outpacing new hires by roughly two-to-one. Financial institutions have been particularly pressured to consolidate activities in trading and securitisation, which have higher capital charges. Asian finance continues to grow. This is a solid story for another two decades at least, with increasing trade flows, rapid urbanisation and infrastructure development, as well as rising middle-class affluence and wealth creation in the region. Thirdly, however, against this global and regional backdrop, there is a driving force that is transforming activity across all financial markets, and that is technological change. As early as the 1990s, technology has been transforming the way financial institutions competed and did business. But a bigger wave is coming. The relentless advance of computing power and internet speed has meant that many more financial transactions can now be done at lower cost, faster and to an increasing degree, automatically. In wholesale markets, electronic platforms are now dominant. This is most clearly seen in the FX industry, where 74% of global FX trading volume is executed electronically today, up from single digits in the early 2000s. The exponential growth in use of mobile devices is leading to profound changes in how financial institutions interact with their customers. Meanwhile, the potential for data analytics is leading to increasing sophistication in financial research and risk management.

The fewer alternatives available, the more serious the liquidity bottlenecks and counterparty risks. An additional aspect relates to the network. It comes into play when a system is the connecting link between other systems, such as in the case of the central counterparty SIS x-clear, which links the trading platform virt-x and the securities settlement system SECOM. The failure of such a connecting link can significantly affect operations at the upstream and downstream systems, even if the link itself is only of minor direct relevance to the market participants. Our analyses led to the conclusion that the following systems should be classified as systemically important: the interbank payment system Swiss Interbank Clearing (SIC), the securities settlement system SECOM, the central counterparty SIS x-clear and the multi-currency payment system Continuous Linked Settlement (CLS). PostFinance is not classed as systemically important. This may be surprising given the economic significance of postal payment transactions, but it is a direct result of the existence of alternatives, ie bank payment transactions, which are instantly available should the postal payment system experience any serious problems. Of the systemically important systems, CLS has been exempted from the minimum requirements as it is already adequately overseen by the Federal Reserve Bank of New York and because the exchange of information between the New York Fed and the National Bank runs smoothly. By strictly avoiding duplications, we can reduce the burden of oversight, ie the density of regulation, also in the case of SECOM and SIS x-clear.