Regulatory compliance: quality data holds key to keeping regulators happy

By Paul Bebber
9 May 2018

If front-office performance can make your firm, then regulatory and compliance fails can break it.

We may see some rowing back in the breadth and volume of industry regulation (most notably in the United States) as the post-financial crisis regulatory agenda splinters. But that’s unlikely to provide much meaningful relief for the wealth and investment management community.

For one, there will still be a diverse array of complex and far-reaching laws and regulations to navigate—not least around client suitability, GDPR, AIFMD, UCITS, MiFID II, EMIR and FATCA/GATCA.

Plus, any divergence in global norms for example, in countries’ approaches to OTC derivatives reforms, means any internationally active firms will have to understand and address a further raft of idiosyncratic national rules.

All of which makes ready access to clean, timely and appropriate data, provided through an efficient and scalable infrastructure, even more important.


Regulatory data demands

While the current regulatory framework is diverse, complex and at times conflictory, there are some common themes.

For instance, many of the post-crisis regulatory initiatives are aimed at enhancing transparency and limiting risk. That puts the onus on:

  • Having accurate, fingertip access to customer, position, transaction and exposure information.
  • Ready sourcing of robust asset and liability valuations.
  • Producing extensive and frequent report filings.

To complicate matters, in many cases the data must be enriched to meet the specific filing requirements of each regulation, which often vary from country to country. Plus the rules frequently include tough audit trail obligations, requiring firms to prove the data’s accuracy, show where it comes from, and track any subsequent movements and changes.

The new MiFID II transaction reports are just one example of the growing data demands asset managers face. The reports, which have to be sent to the competent authority no later than the evening of T+1, contain up to 65 fields that firms must complete on all trades across asset classes. Under MiFID I there were just 24 fields. Penalties are also on the rise, with suggestions firms in some jurisdictions could see a 50% increase in the fine per breach.

Then there is the EU’s General Data Protection Regulation, which takes effect on 25 May. It marks a sea change in European data laws, with the introduction of stringent rules for how asset and wealth managers must handle and protect their clients’ data. That includes non-EU investment managers and AIFMs if they target consumers in the EU.


Best practices for regulatory compliance

So what does all this mean for the investment management community?

In short, every piece of data within an asset or wealth management firm has to be high quality. That tangle of legacy systems, solution interfaces and manual processes will no longer do the job. Instead, it requires an integrated data infrastructure, with a single, centralised and controlled data source at its heart to deliver the timely, accurate and transparent data regulators demand.

The infrastructure should also be extendible, enabling firms to meet their future regulatory and compliance obligations, without having to start a fresh data management project every time a new piece of legislation or regulation is introduced.

The result will be a more efficient and cost-effective environment that reduces operational risk, as well as potential regulatory, legal and reputational risks.

In today’s regulatory driven world, investment managers can afford nothing less.