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. 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 percent based in Africa and just over two percent in Asia.
The findings are fresh too: the survey was conducted between September and November 2019, at a time when the Consolidated Audit Trail loomed large for trading entities, adding to what still felt like an enormous compliance workload for those affected. And many are still reeling from the introduction of the Markets in Financial Instruments Directive (Mifid II) – two years ago. Almost 70 percent of those surveyed said that 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 – and 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 shouldn’t 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. Over a third (39 percent) of respondents can see that the solution starts with a more holistic, consolidated approach to trade data. Having a single ‘golden source’ of data has to be the answer to ending duplication and delays, and that a regtech 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.
Download a copy of the full report here
Mike Bagguley is a respected financial markets industry leader and a board advisor to capital markets data automation specialist Inforalgo. He was formerly COO at Barclays International. www.inforalgo.com