After more than a decade of intensifying regulatory scrutiny, and calls for greater transparency across financial markets, it is striking that so many capital markets participants are still mired in compliance-related IT and data complexity without an end in sight. Ultimately, this is because they have not solved some fundamental trade data management issues and until they recognise and address this, their pain will not be alleviated.
There can be no clearer evidence of this than a new research report from bobsguide, in partnership with Inforalgo, Meeting the challenges: Compliance and obligations across regulatory regimes. The report explores the major compliance burdens facing market participants within some of the most prominent regulatory regimes, and how firms are dealing with them. Half of respondents were based in Europe, almost a third in North America, eight per cent based in Africa and just over two per cent in Asia.
The findings are fresh too: the survey was conducted between September and November 2019, at a time when the Consolidated Audit Trail (CAT) looms large for trading entities, adding to what still feels like an enormous compliance workload for those affected. Meanwhile many are still reeling from the introduction of Mifid II – two years ago. Almost 70 percent of those surveyed said, of all the recent regulatory demands, this had had the most significant impact on their firm over the last 12 months.
Same complaints, different context
What strikes me most about the findings, however, is that they tell a story that hasn’t changed over the years – namely that regulatory compliance is a huge headache, an unsustainable cost, and something which steals resources from the business. On a scale of one to ten – with ten being most concern, one being no concern at all, over half of the respondents rated operational cost and risk linked to compliance as eight or above (no-one rated this as a non-issue). And three-quarters scored the associated demand on resources along the upper end of the scale.
Market participants have clearly had enough – lamenting that new rules and updated requirements keep coming, and that timeframes for compliance seem to be getting tighter – so that they are struggling to keep up.
The reason affected organisations are struggling so much with all of this is that they have not yet found a viable, long-term solution which transcends the specific demands of individual regulations. So, as each new set of demands is laid out, they have to go back to the drawing board and define a new compliance-oriented IT/data preparation project. And as it is, firms are already struggling with the complexity, cost and maintenance demands of their existing technology stack!
Other concerns that emerge from the report are the growing expectations for real-time trade reporting, something which presents all sorts of problems when data needs to be pulled from multiple different sources, checked and prepared. But in the digital age, this kind of thing really oughtn’t to be an issue.
The holy grail: a ‘golden’ data source
Encouragingly, though, the realisation is dawning on the industry that there has to be a better way forward, and over a third (39 per cent) of respondents can see that the solution starts with a more holistic, consolidated approach to trade data: that having a single ‘golden source’ of data has to be the answer to ending duplication and delays, and that a Reg Tech solution that delivers this would be something they’d consider. Given that the reporting of a trade is the first post-trade outcome, it makes sense that this must drive the golden source. All data-related activity from that point should be on a ‘read-only’ basis.
Certainly, there is little point regretting the regulatory burden: it will only continue to evolve and expand. The solution is to get ahead of what’s coming, via a single regulatory data coordination, reconciliation and reporting ‘engine’ where everything happens. A platform where rules can be absorbed and added to swiftly and painlessly -negating separate projects, and associated reconciliation and maintenance work, each time new requirements are issued from the markets.
In this day and age, compliance is best delivered via a ‘shared utility’-based approach (regulatory data management & reporting ‘as a service’). This can take the strain, offering a means of rationalising – rather than adding to – existing technology estates, and freeing up market participants to get on with the business of trading.
The new bobsguide/Inforalgo market study is a thorough and timely report that gets to the heart of modern-day compliance issues, and which will resonate loudly with anyone grappling with soaring costs and concerns – whether around FINRA CAT connectivity, residual Mifid II challenges or data management issues more generally.
To download a copy of the full report, Meeting the challenges: Compliance and obligations across regulatory regimes, visit https://inforalgo.com/meeting-the-challenges-report/
- Mike Bagguley is a respected financial markets industry leader and a board advisor to Inforalgo, the STP specialist for capital markets. He was formerly COO at Barclays International. www.inforalgo.com