In the current blizzard of regulation, will firms use 2017 to adopt a strategic and harmonized approach to data management so they stop ‘firefighting’ and focus on efficient compliance?
After years of relentless pressure to comply with a revolving door of regulations, — from capital and liquidity management through to Know Your Customer, AML and now MiFID II — firms are quite understandably looking to tap into the benefits of a more strategic regulatory data management approach.
A recent report by Thomson Reuters showed that within two years close to 90% of organizations (comprising leading investment banks, asset managers, asset servicers and insurers) will attempt to tackle regulatory data challenges in a more strategic and systematic manner.
By identifying and leveraging the data commonalities that underlie multiple regulations, firms can better organize their regulatory data, optimize compliance workflows, and leverage additional benefits such as lower costs, greater efficiency and enhanced business insight.
Given the sentiments outlined in our research, I expect a shift towards a more consolidated regulatory data management approach to be a defining trend of 2017.
Watch video: How can you stay one step ahead in a highly risky and complex regulatory world?
Total cost of ownership
Data underpins every financial risk assessment and every regulatory filing.
The middle and back office will remain centre stage for the foreseeable future as firms redefine their core business activities and begin a concerted effort to ‘take stock’ of their regulatory data, and look for innovative ways to source, manage and store it in a bid to reduce the total cost of ownership.
The themes of transparency, accurate risk reporting and increased investor disclosure have been central to a number of regulatory regimes introduced since the financial crisis.
Last year, we saw regulations such as AIFMD and Solvency II underscore the need for firms to source highly granular pricing and reference data to support exercises such as daily NAV calculations, accurate financial statement reporting and timely risk reporting.
In the United States, we saw SEC money market reform take effect and bring about a sea change in the way our mutual fund customers conduct daily valuations and reporting.
MiFID II impact
From a regulatory standpoint, 2017 will be the year of MiFID II.
MiFID II officially comes into effect in January 2018. It may be European legislation, but it will have far-reaching global effects on all market participants involved in the dealing and processing of financial instruments, as well as command significant changes to business and operating models, systems, data, people and processes.
Transparency and accuracy are central to MiFID II. Demonstrating clear and compliant behavior at every phase of a trades’ lifecycle (be it pre, trade or post trade) will be critical factors in successful implementation.
Best execution and investor protection are also key to the MiFID II regime. Best execution rules will extend beyond equities to include most asset classes, meaning the pressure is on for firms to establish, agree on and most importantly, document evidence of best execution at every stage.
Similarly, firms will need to develop new internal and external procedures to comply with rules pertaining to investor protection, particularly the advice they provide on more complex, riskier investments.
Regulatory data is at the heart of compliance with MiFID II and I’m pleased to share the ways we will be helping customers meet their MiFID II challenges.
In Europe, middle and back office teams will further contend with the increasingly stringent Liquidity Coverage Ratio and High Quality Liquidity Asset requirements of Basel III.
In America, evaluated pricing will remain the focus, as consolidation among fixed income evaluated pricing vendors drives funds with municipal securities to source secondary evaluated pricing sources.
Last but not least, I am keen to see how the regtech revolution continues to unfold, and how it will impact our customers and the wider industry in 2017.
In recent months, I’ve seen innovative regtech firms leverage exciting cloud-based technologies to help customers deal with a range of regulatory challenges.
From compliance risk analysis tools, to online fraud prevention solutions and trade data tracking technologies, regtech start-ups are ‘ones to watch’ as they continue to disrupt and change the way banks address their most important obligation: compliance.