If the heavy compliance burden wasn’t already overwhelming financial institutions and broker-dealers, the accelerating shift to near real-time reporting is tipping many over the edge.
For me, this was the most striking finding from a new research report, Meeting the challenges: Compliance and obligations across regulatory regimes, published late last year by bobsguide in association with Inforalgo. The study points to intensifying urgency to be able to report trades almost as they happen: a scenario traditional processes and IT systems were not normally designed to support.
The requirement for prompt transaction declarations is already manifest in Europe’s Markets in Financial Instruments Directive (Mifid II). This sets out an expectation that trading venues and certain categories of investment firm must publish volume and price information within a matter of minutes of a completed trade of equity or similar products. In the US, meanwhile, broker-dealers preparing to comply with new FINRA Consolidated Audit Trail requirements are also working towards much tighter reporting timeframes than previously expected.
It’s no coincidence that there has been a surge of interest in trade data management and reporting solutions that can capture and process data in real time. Historically, banks have performed trade data validation and internal data enrichment primarily as a finance or risk administration task – a tying up of loose ends at the close of the trading day. As a result, reporting has typically been a long and protracted process.
But current regulatory demands blow all of that out of the water. In my career I have been responsible for many back-office technology components, so I know first-hand the intricacies of preparing and validating data and how long this can take, and it is not something that will be tolerated in the new decade ahead.
Rolling risk management
The report references the need for a definitive ‘golden source of data’ in the future, so that any authorised user can see the totality of their transactions with specific entities, and slice and dice them, at a glance – whatever the differing teams or locations involved in brokering individual trades.
This, in turn, requires proper integration between systems – which isn’t easy to achieve without a change of approach. This needs to be towards a more holistic and consistent approach to integrating, managing, visualising and reporting trade data from a wide range of sources and platforms. This needs to be a flexible capability too, able to accommodate both trading platforms in use today, and those that might be added in the future.
This inherent reporting agility and continuous line of sight across trading activity is something that regulators, without spelling it out, expect now. For them, compliant trade reporting should not be a box-ticking exercise, but rather an integral part of continuous internal risk management – where insights into anomalies are immediately visible and flagged, rather than stumbled upon at the tail-end of the day.
If capital markets participants prioritise only one transformation in 2020, reviewing trade data reporting strategically has to be the way to go.
The worst-case scenario if banks and financial institutions fail to report completely, accurately and on time is huge fines, loss of reputation and even the loss of their licence to operate. All of which are completely avoidable.
You can download a copy of the full report, Meeting the challenges: Compliance and obligations across regulatory regimes here
About the author
Over a prestigious career making strategic IT decisions in financial services, Alastair Brown has been CEO of Lombard Risk and CIO of RBS International Banking, and held a number of senior business and technology roles in the RBS Global Financial Markets division. In June 2019, he joined the board of advisors to capital markets data automation specialist Inforalgo. Alastair is also executive chairman at DTSQUARED, an independent data consultancy, and board advisor to SaaScada, which helps organisations rapidly build and launch financial services. www.inforalgo.com