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Regulatory Risk

How can RegTech ease the risk management burden?

Clare Koehler

31 Oct 2017

Cables run into the back of a server unit inside the data center of Equinix in Pantin, near Paris, France, December 7, 2016. REUTERS/Benoit Tessier - RC113C466560
Photographer: Benoit Tessier

MiFID II highlights the value of RegTech solutions that allow financial institutions to bring their whole risk ecosystem on to a single connected platform. However, the benefits go beyond just risk management.

When trying to make sense of risk and the challenges that come with regulatory compliance, firms need to assess their entire risk ecosystem from operational risk to quality compliance and sustainability.

However, attempting to evaluate risk throughout the different sectors of an enterprise can prove challenging, particularly if there is a lack of cohesive data platforms across the enterprise.

Discover more about how Thomson Reuters can help you prepare for MiFID II

In order to standardize data, companies are turning to RegTech solutions for a multi-source integrated risk intelligence system that can help connect the dots between different sections of an enterprise, and work to a common standard.

The chance to understand these developments in more detail drew a large number of financial firms and compliance experts to the recent RegTech Summit for Capital Markets in London, an event at which Thomson Reuters was one of the sponsors.

RegTech conference

Read report — MiFID II Market Readiness Report

As Gareth Evans, Managing Director, Enterprise Risk Management at Thomson Reuters, told the audience, RegTech “is very much about community and continuity across a business”.

RegTech efficiency

With the ability to continuously monitor risk, RegTech can help shift the compliance burden from the company and its employees, supporting operations from a regulatory standpoint while also helping to increase production and efficiency.

As many large companies struggle with collaboration, RegTech can cut through internal organizational challenges by providing a single connected risk platform.

The risk ecosystem
Graph demonstrating the Risk Ecosystem

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Consolidating data across a single system allows for better utilization of data while simultaneously reducing costs by removing the need for multiple platforms.

MiFID II reporting obligations

The January 2018 MiFID II deadline is rapidly approaching, and with it new requirements for data reporting. To meet compliance standards, firms look to RegTech for quality data collection and third party reporting through an Approved Reporting Mechanism (ARM).

MiFID II widens the scope of existing reporting obligations, and reporting incorrectly leaves firms subject to massive fines.

Using an ARM to report trade transactions helps to shift some of the reporting burden away from firms while also providing data validation by collecting from multiple sources.

Reporting through an ARM
Reporting through an ARM

Read report — MiFID II Market Readiness Report

However, an ARM can be a regulated entity as well as a commercial entity and firms have to be cognizant of potential reporting inaccuracies or violations under new regulations.

“A trade can be valid but can still be wrong under MiFID II,” said Ian Rennie, who is Director of Kaizen Reporting and has extensive experience working in regulatory change and control delivery at UBS and more recently, HSBC.

Relieving the MiFID II burden

The biggest challenge of MiFID II is its sheer complexity.

To make sense of the multitude of regulations, firms need to bring together not only their transaction reporting, but also their communications, emails, counterparty data, and reference data.

With the increase of artificial intelligence, firms have access to reliable innovative technology that can help to normalize their data within a short period of time to become compliant with the approaching MiFID II deadline.

Enhanncing Artificial Intelligence

Find out how Thomson Reuters can help you get access to financial reference data, LEI profiling, applications and solutions for MiFID II transaction reporting

MiFID II is also pushing a move towards working externally with vendors to address the complexity of the regulation.

Rather than attempting to create expensive and time-consuming solutions in house, financial firms can shift risk management to expert RegTech companies who are able to organize their data and standardize reporting processes.

Compliance through collaboration

With new regulations looming in the future, the financial industry is being forced to juggle risk and compliance issues with their everyday business challenges.

Gareth Evans quote

Read report — MiFID II Market Readiness Report

Embracing RegTech not only helps shift the regulatory burden off firms, it also helps to drive down costs by consolidating data through single reliable systems.

Working with RegTech is about collaboration rather than competition.

Compliance ultimately benefits firms and their customers by improving the customer experience, protecting their data and creating a secure and successful market.

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