Regulatory reporting costs: Why the industry has reached its tipping point and how firms can take control

As year-end approaches many firms will draw a sharp intake of breath at their regulatory compliance spending, with costs having increased by 60 percent since 2008, amounting to an overall 8 percent tax on firms, according to a recent report.

A tipping point has been reached when it comes to excessive spending on regulatory reporting software for different regimes and trading desks. Reducing the total cost of ownership for regulatory reporting and cultivating the intelligent flexibility required to adapt to future changes are now top priorities.

This year has seen major deadlines for Consolidated Audit Trail (CAT), Monetary Authority of Singapore (MAS) OTC Derivatives reporting and Securities Financing Transaction Regulation (SFTR) amongst others. These regulations present their own unique challenges – CAT reporting, for example, involves such large volumes of orders that even an error rate of one percent can have catastrophic cost and resource consequences. That’s why firms have been pushing to drive their error rates down below 0.01 percent.

But these regulations have in common the involvement of multiple systems and data feeds from across the enterprise, a high degree of complexity and a need for quality data that firms can stand behind. Compliance demands that organisations overcome challenges around data fragmentation, a lack of transparency, and duplication of effort and information.

The next 12 months will see regulatory changes including the CFTC rewrite for the Dodd Frank act, updates to EMIR REFIT reporting  and a third consultation paper for proposed changes to MIFID II reporting, as well as the CSDR deadline in February 2022. There are also new validations for the aforementioned MAS regulatory reporting just one year after the go-live date, which is a sign of how fast things are moving. The increasing adoption of ISO 20022 is likely to bring further complexity.  Firms which take a more strategic approach now can avoid the need for expensive tactical point solutions and multiple complex projects both next year and in the future.

Regulators have also indicated that they will be scrutinising the quality and accuracy of submissions more closely. Both ESMA and Bank of England have announced a focus on this area, with other regulators expected to follow. 2020 also saw National Competent Authorities (NCAs) impose fines of €8.4m for MiFID II reporting breaches. This regulatory attention is likely to increase costs and workloads further as firms grapple with inaccurate or incomplete data and system complexities.

If a strategic approach is the answer to minimising the costs and complexity associated with regulatory reporting solutions, what should firms do next? The simple, cost-effective option is to bring in a regulatory partner with the capability to not only simplify your reporting but also ensure that you have 100 percent confidence in it. Your partner checklist should include:

• Multi-jurisdictional reporting – reducing cost means avoiding tactical point solutions and projects for every regulatory change.
• Real-time reconciliation and reporting capabilities – expectations for real-time reporting will only increase over the coming years.
• Full connectivity – as reporting obligations increase so does your need to connect with multiple regulatory endpoints, trading venues and counterparties. Connectivity is expensive to manage in-house and ties up your technical specialists with responding to constant changes and standards updates. Look for a vendor who can take this off your plate.
• Regulatory seal of approval – for certain regimes, e.g. Consolidated Audit Trail, the regulator has appointed registered agents or similar, who are uniquely positioned to support your requirements.
• Data oversight and transparency – data lineage between reporting activity and data source is crucial for reducing errors, whilst visualisation and dashboards take your reporting from check-box exercise to strategic value add.
• Data quality assurance – reconciliation, data quality checks, exception management and matching rules are all key to navigating complex reporting and ensuring that the data you are delivering is 100 percent complete and correct.

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To discover how Gresham is reducing regulatory reporting and compliance costs for firms across the globe, click here.

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