Minimum of 8 characters and at least 3 of upper case, lower case, number, character and is not similar to any used in the last 12 months.
One of many modern day frustrations is being confronted with this and realising that your “usual” password (or a variation of it) no longer fits the bill. If, like me, you have been presented with this challenge a lot you will find yourself with dozens of passwords.
The principles behind it are sound – a password that is difficult to guess and to hack which means you cannot have used it anywhere else and it must have an element of complexity.
The reality, though, is that increasingly complex password rules have an unintended consequence – they increase the likelihood of someone writing their password down – which defeats the object of the password rule in the first place.
The world of financial regulation also can have some unintended consequences.
In the wake of the financial crisis people seemed to agree on 2 things – banks were too risky and derivatives are dangerous. Therefore it seems completely sensible that regulation since then has moved to try to create less risky banks and safer, more transparent derivatives markets.
The unintended consequence of this though is that prudent users of derivatives (pension schemes) are likely to be penalised. In addition there is a chance that the regulations themselves may actually add risk that the regulations are trying to remove.
Pension schemes today generally have 3 components to their portfolio – Gilts that are safe assets that match their liabilities, growth assets to help repair deficits and derivatives that aim to reduce unwanted risks that are not managed elsewhere in the gilts or growth assets.
As prudent users of derivatives pension schemes have always collateralised their derivatives using their gilt portfolio (the lack of scare stories about pension schemes losing money through the Lehman Brothers bankruptcy is testament to the robustness of this process).
However, new regulations (both derivatives and bank) are essentially pushing the derivatives market to a cash only collateral model. Gilts may well be allowable as collateral but if you want to use them you will be charged more for the privilege.
Therefore pension schemes are faced with the following choices:
- Sell their gilts and replace them with cash
- “Repo” (lend out) their gilts to generate cash to meet collateral calls
Although both of these options provide solutions they both actually add risk.
Replacing gilts with cash means that pension schemes will need to use more derivatives to manage the risks that the gilts were managing – which seems, to me, to be at odds with regulation aiming to reduce derivatives usage
Lending their gilts to another party in return for cash is actually just adding in another exposure to a different party which is at odds with the aim of reducing interconnectedness and systemic risk in the system.
For this reason the industry has been lobbying regulators to take this into account. The pension scheme exemption from central clearing until at least 2017 is an example of a concession but it is unlikely that will go on forever.
So just as there has been a significant increase in secure password storage apps, so the industry needs to shout less at the rules and work more on helping pension schemes think of the best way to work within the rules.