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Regulatory intelligence

Transformation: The automation of regulation and compliance

Marion Leslie  Managing director, Thomson Reuters Enterprise proposition

Marion Leslie  Managing director, Thomson Reuters Enterprise proposition

Fifteen years ago, Thomson Reuters enabled the transformation of the financial services industry through the aggregation of the world’s financial exchange data feeds into one consolidated feed. With it came the recognition that machines and applications would be equally important consumers of data, as humans are.

The aggregated real-time exchange feed enabled financial institutions to create systems, applications and processes to automate trading activity at scale.

Today, our biggest consumers of data are machine applications. The focus is to reduce the total cost of ownership, create scale and agility, and continue to favour those providers who can serve the breadth and depth of the enterprise data needs through the provision of consistent content at scale.

Notably, there are some areas of business that have not yet gone through that level of industrialisation, automation and transformation.

Much has been written about the regulatory burden firms face post-financial crisis. The cost of compliance for the top 15 banks is estimated to be upwards of $12 billion. The highest component of compliance cost is labour, with those top 15 banks estimated to have hired approximately 95,000 compliance staff (in total) to cope with the challenge.

Unsurprisingly, our labour market was not prepared for that level of demand. Graduates in financial market regulatory compliance simply don’t exist. The result is a growing issue of availability of high-quality skills and experience. Some firms have begun to implement in-house compliance training programmes, and there is widespread acknowledgement that careers are being fast- tracked, with accompanying risks of inexperience and knowledge gaps. Thomson Reuters “Cost of Compliance 2016” shows that two-thirds of firms are expecting skilled staff to cost more.

The cost of compliance for the top 15 banks is estimated to be upwards of $12 billion.

There are countless driving forces making regulation and compliance the next targets for automation. The manual nature of the current approach to compliance is in itself creating risk, and there are not enough people with the skills to manage the processes sustainably. The budgets spent on compliance postcrisis are not sustainable – the hit squad on the high-profile and costly regulatory projects needs to become part of the business-as- usual activity, with a cost profile more in line with standardised operational processes.

Regulatory compliance is an activity that is growing fast and has not yet matured. It is on the cusp of industrialisation and automation. The response of throwing money and people at the challenge is a tactical one. The regulatory volume and burden are not going to diminish. We are about to witness a transformation.

As a result, the role of the compliance officer is changing dramatically too. Gone are the days when the compliance officer sat in a corner office, producing a summary of regulatory change periodically for discussion by the board. A monthly summary is already out of date and runs too many pages. In short, the compliance officer with a subscription to a desktop is a thing of the past. Now we must all be in compliance. Now everyone in the firm needs access to instant and targeted regulatory information impacting their particular areas of business. Everyone needs to know the latest timelines for MiFID II and the latest pronouncements of regulators. Regulatory updates are now news, alerts move markets and compliance is now business. Responsibility for delivering against the regulatory requirements is devolved to the business lines – compliance can’t possibly manage it all, and now tracks against a dashboard for reporting purposes. Business leaders are challenged with growing business lines and maintaining margins, whilst delivering on regulation.

Just as we once aggregated data from more than 200 exchanges worldwide into one real-time exchange feed, we now have aggregated information from more than 650 regulatory bodies and 12,000 rulebooks into one consistent, taxonomised source. Content is interoperable, thanks to our unique taxonomy developed in partnership with major industry players. The difference, of course, is that regulatory content is unstructured, but the challenge is the same. How do you get regulatory content to flow under the floorboards of the major financial institutions, driving applications and operational processes just as financial data? The parallels with market data don’t stop there – regulatory changes and alerts enable the swift response to announcements; benchmarks and indices show consensus on the mapping of regulatory requirements; predictive analytics and indicators enable firms to assess impacts and plan risk mitigation; Artificial Intelligence (AI) permits the mass processing of regulatory information; and consistent taxonomy and tagging allow the scale sorting of requirements to enable firms to respond with scale solutions for regulatory themes across the globe, rather than individual solutions for individual regulations.

It is here that unstructured content meets structured data.

Creating order from chaos, the understanding of the impact of regulatory change on specific areas of business in a tagged and taxonomised way, allows firms to map regulatory change to assets, understanding how a regulation might impact certain holdings, assets and liabilities. Unstructured regulatory content becomes data. Interoperability of taxonomy between unstructured regulatory content and structured market data becomes invaluable.

It was always just about the data.

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