What is remote booking and why banks are now going away from it

When trader hired by one legal entity is taking positions or managing risk in different legal entity  registered in different jurisdiction, this practice is called remote booking. It is trader hired by Singapore legal entity is booking trades in UK entity and both legal entities are under umbrella of one big investment bank.

Investment banks typically book most of their Asian trading in their London subsidiaries,which offers several benefits relating to capital efficiency, staffing and operations. 

Under the UK’s capital rules, banks are able to achieve significant savings through hedging and netting, identifying and cancelling out trades that offset one another, such as a short and a long position in the same stock. This process, which is more effective when a large number of trades are held in the same place, reduces the overall risk profile of the book and therefore the capital that must be held against it.

Typically, US banks book all non-US trades in London, while European banks book all European and Asian trades there. Some Asian banks, including Japan’s Nomura, also have big London booking centres. By funnelling trade flow back to London, global banks have also been able to minimise the amount of capital they have had to allocate to their Asian legal entities. Keith Pogson, managing partner, Asia Pacific financial services, at Ernst & Young in Hong Kong, said: “In Asia, many international banks have historically made vehicles capital-light – as they act as agents.”

Regulators are now not happy with this practice as they can't effectively control someone sitting in other jurisdiction and taking risk in entities registered in their jurisdiction. It becomes more important when portfolio size of these foreign banks are comparable to local investment banks.
The most immediate regulatory pressure, however, is from the UK’s Financial Conduct Authority, which is growing increasingly concerned by the volume of foreign-originated trades held in its jurisdiction. UK regulators have asked foreign banks to setup UK CRO if not already. 

Several banks are believed to be building new booking hubs in Asia which is understood to be undertaking a huge project to restructure its legal entities and booking hubs. These projects, which would involve legally transferring trades booked in London to new Asian entities, are hugely complex and the banks are understood to be doing intensive scenario analysis. It depends on lot of factors such as for which products you have licence to trade in that region, what are the region's guide line for calculating and reporting risk. 

With these developments booking practice is changing from hub to local.