In the ‘post-crisis’ environment of the last couple of years (almost a decade to be more accurate), investment firms are constantly trying to catch-up with the regulators’ growing appetite to increase market transparency and customer protection by collecting transaction data, tighten reporting regulations with ever increasing amounts of data.
There is a solid, undisputable title for this trend – REPORTING – the very foundation of all regulators’ and supervisors’ monitoring, decisions and practices.
“Nothing new under the sun”, you might say. “This is exactly what regulators do. They are technocrats that demand reports." Think again.
Despite the fact that reporting in various forms has been always around, some of the new regulations require data in a way which brings new meaning to the term “regulatory reporting” and takes it into a different realm. Reports will have to be:
- Granular and detailed
- With highest possible level of straight through processing (STP)
- Timely (near real-time in some cases)
The combined requirements are currently one of the biggest challenges in the industry, so much so that they are entirely shaping and transforming financial institutions and companies around the world.
The new framework being created has many impacts, from business (What to offer?), via process and IT (How to manage the product?) to customers (Why and to whom to offer it?). On top of which everything has to be reported, stored and easily trailed, such that proper reporting creates transparency and confidence.
Bored already? Or do you believe this doesn’t concern you? Then here is a brief test. Do any of the mind-boggling acronyms listed below look familiar to you?
ESMA, OFAC, MiFID, EMIR, MiFID II/MiFIR, MAD/MAR, Dodd-Frank, CRD IV, IFRS, SFTR, FATCA, RTS/ITS
If your answer is “No”, well lucky you, or where have you been burying your head in the sand?
If, on the other hand, your answer is a wholehearted “Yes”, then welcome to this brave new world, take comfort in the fact that you are not alone.
From one perspective, the reporting requirements could be considered as a “language”. It eases communication between various parties, e.g. companies, regulators, customers, counterparties, and alike. And, like every other language, it requires several components in order to be fully understood:
- Grammar (the rules list above)
- Teachers (the competent authorities)
- Students (financial institutions, companies and customers)
- Communication tools and media (systems, reports and information)
Clearly, there has never been such detailed and far-reaching regulation covering investment and capital market products and activities as with MiFID II, which will come into force starting January 2018.
Over and above MiFID and EMIR, there is the ‘transparency of securities financing transactions and of reuse and amending Regulation (EU) 648/2012’ (SFTR), which comes in response to the need for improved transparency of the securities financing markets and is expected to come into force in 2018, too.
The fact that there was a ‘last minute’ postponement (shifting the deadline from 2017 to 2018) by ESMA and the EC speaks for itself – a massive change in regulatory reporting is on its way and will affect investment products and instruments at an unprecedented scale.
Currently, only ‘spot FX’ is out of the reporting scope, while all other (especially the complex ones) financial instruments and products will have to be reported in one way or another. There are more than 600 data elements which have to be reported under the different regulations, in some cases in near real-time.
The clocks of all stakeholders involved will have to be synchronised to ensure that the word ‘real-time’ has the same implications for all segments in the chain. In order to satisfy the substantial amount of details required, the ‘reporting subjects’ have to produce ‘ex-ante’ and ‘ex-post’ reports, as well as inducement registers, investment advice protocols, product governance documents, meeting minutes, phone conversations records, etc.
The party doesn’t stop there – information has to be properly stored for several years.
So, it will come as no surprise that the entire investment industry - firms, regulators, trading venues and trading repositories are talking about, and preparing for, the new reporting rules. They all have to invest in IT systems, data collection and warehousing, process redesign, product management, staff training and education.
The upcoming reporting requirements will demand that financial instrument producers, distributors, market venues and other establishments profoundly review their procedures, systems and models, ensuring they can respond adequately to the pre-, during- and post-trading business requirements.
If you aren’t ready yet – get cracking and adjust before January 2018.