The findings show the two largest fines imposed by the US Office of the Comptroller of the Currency (OCC), for multiple compliance failures including KYC, AML and risk management.

A civil penalty of $75 million was levied against a tier-1 US bank’s “failure to meet remediation milestones and make sufficient and sustainable progress towards compliance with a 2020 Consent Order” The regulator noted that “While the bank’s board and management have made meaningful progress overall, including taking necessary steps to simplify the bank, certain persistent weaknesses remain, in particular with regard to data.”

The findings highlight an 87% rise in AML-related fines, which totalled $113.2 million. Transaction monitoring and SAR breaches saw fines soar to $30.5 million, up from $6 million in the previous year. Similarly, penalties for non-compliance with regulations concerning politically exposed persons (PEPs) hit $26 million, while KYC-related fines doubled to $51 million.

Banks bore the brunt of these enforcement actions, incurring fines of $136 million, followed by digital asset providers with $49.3 million, payments firms at $40 million, and private banks at $32.1 million.

Rory Doyle, Head of Financial Crime Policy at Fenergo, emphasized the urgency for financial institutions to bolster their compliance frameworks. “With regulators deploying advanced technology to detect and penalize misconduct, the surge in enforcement actions we’ve seen in the first half of 2024 is likely just the beginning,” Doyle remarked.

The findings note that historically, second half of the calendar year sees an uptick in enforcement actions, with financial institutions often looking to quickly settle fines with regulators ahead of year-end reporting.

Doyle further warned that as the year progresses, institutions that fail to fortify their defences could find themselves facing hefty fines. “The importance of integrating smarter financial crime technology cannot be overstated, especially as the industry grapples with a talent shortage in this critical area,” he added.

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By Suman Rao, UK Managing Director, Avaloq.

A year on from the implementation of Consumer Duty, its impact on the UK wealth management industry has been undeniable, causing a positive cultural shift across the industry as firms modify their practices and behaviours to ensure they provide fair value for clients. Navigating the regulation’s requirements has also brought challenges, and applying Consumer Duty principles consistently across value chains has proven to be complex and time-consuming.

Impact on client relations

Consumer Duty has reshaped client relations by making ongoing advice reviews crucial and extending compliance to closed products, necessitating re-engagement with inactive clients.

The role of technology in compliance

Technology has been crucial in aiding Consumer Duty compliance, enabling firms to evidence the value they deliver to clients. It has been particularly important for firms in the lead up to the 31 July Consumer Duty annual board report deadline. These reports – in which firms are required to demonstrate they are complying with the regulation and delivering good outcomes for clients – have led to an increasing emphasis on CRM systems for capturing and using data within the advice journey. With firms expected to identify issues and areas for improvement, they are required to consolidate large amounts of data, likely turning to their data warehouses as the only place to get a holistic view of this information.

As wealth managers look to evolve their Consumer Duty compliance and deliver long-term value to clients, it is important that they regularly assess their progress, using means such as the annual mandatory board reports to establish what they could be doing to better serve their clients. In addition to this, they should speak to their clients to determine the level of engagement they desire and provide options in the preferred format.

Wealth managers should also look to leverage technology for compliance with Consumer Duty. For example, technology can allow firms to enhance their client portal, enabling clients to use self-service features without needing to speak to an adviser, while providing advisers with access to a 360 view of their clients and their portfolios.

Additionally, firms should evaluate the integration of their CRM systems to support clients more effectively. Improved CRM integration would enable wealth managers to enter data into a single system, creating a more streamlined experience for clients.

The outlook for closed products

As we approach the deadline for the implementation of Consumer Duty for closed products and services, firms should now have a view of their clients with closed products – and should have developed a strategy to ensure that these are assessed, and that clients are receiving fair value.

Looking ahead, wealth managers will need to focus on putting these strategies into action. In some cases, this may involve re-engaging with the client, and this might require recruiting additional staff to support with ongoing advice reviews.

In addition, firms still reliant on legacy systems for closed products may need to embark on a data migration exercise to ensure all products are on the same systems and that clients with closed products can be serviced consistently.

The post Consumer Duty is Transforming Wealth Management but there is Still Work to be Done appeared first on A-Team.

By Kifaya Belkaaloul, Head of Regulation, NeoXam.

With just over 150 days until the Packaged Retail and Insurance-based Investment Products regulation (PRIIPs) changes, the financial industry must confront a looming implicit costs conundrum – and fast.

The update to the regulatory framework on January 1 seeks to ensure that asset servicers undertake a more detailed and standardised approach to calculating implicit costs. It is difficult to argue with the EU’s rationale behind the change. In an era for markets regulation characterised by transparency, these hidden costs – which are often buried within the fabric of highly complex financial instruments – are inherently opaque.

Demystifying them seems a sensible move, at least on paper. In practice, it presents a major challenge for asset servicers and may prove insurmountable if the necessary precautions are not taken well ahead of time.

Time to choose

Historically, implicit costs have been difficult to quantify for asset servicers, let alone disclose with precision. Using the updated PRIIPs method, referred to as the ‘full PRIIPS’ or ‘arrival price’ method, implicit costs are calculated as the difference between an asset’s arrival price, also known as its mid-price, and its execution price. These costs stem from various sources, such as bid-ask spreads and the impact of trades on market prices. Accurately capturing them requires detailed historical trade data.

Asset servicers have traditionally relied on people to provide the necessary oversight and elbow grease to manage and report this data. But this approach is fraught with the potential for mistakes and inconsistencies. Human error, varying interpretations of data, and the sheer volume of information to be processed can lead to inaccuracies that undermine trust in the disclosed figures. In a landscape where precision is paramount, the traditional methods simply cannot meet the heightened regulatory expectations. To put it frankly, the change presents a fundamental choice for asset servicers: embrace automation or risk obsolescence.

Automated systems can process vast amounts of data with unparalleled speed and accuracy, ensuring all relevant information is captured and analysed consistently. By leveraging advanced algorithms and machine learning, patterns and anomalies that might evade the attention of human analysts are easily identified. This not only enhances the reliability of cost calculations but also ensures disclosures are consistent and transparent.

Compliance and beyond

The benefits of automation also extend beyond mere compliance. For asset managers, gaining access to accurate and reliable cost information fosters greater trust and confidence. They can make more informed investment decisions, knowing that the cost data they rely on is both precise and consistent. This, in turn, strengthens the overall integrity of the financial markets, promoting a healthier investment environment.

In addition, automation frees up human resources to focus on the more strategic elements of their role. Rather than being bogged down by the humdrum of data processing, analysts can concentrate on higher-value activities, be it interpreting trends, refining investment strategies, or enhancing client relationships. This shift not only enhances operational efficiency but also delivers greater value to clients.

Some will inevitably argue automation comes with its own set of challenges. Securing the funding for its initial implementation and upkeep springs to mind. But these costs are dwarfed by the benefits. After all, the alternative – continuing to rely on manual processes – risks non-compliance with regulatory standards, potential penalties, and a dent to client trust, not to mention brand credibility.

The upcoming PRIIPs regulation amendments must be viewed as a clarion call for asset servicers to modernize their operations. Reliance on human oversight is no longer sufficient to meet the demands of the new regulatory landscape. Automation offers a robust solution, enhancing the reliability of cost calculations and disclosures, while fostering greater trust among asset managers. As we march towards this new era of financial transparency and accountability, embracing automation is not just an option; it is a strategic necessity.

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The Federal Reserve and Office of the Comptroller of the Currency (OCC) jointly imposed the penalty on the international banking group after it was found to have put in place insufficient data management risk controls. Further, the group was told to hold quarterly checks to ensure it has safeguards in place.

The action has been seen a warning that regulators will take a tough stance against data management failings that could have a detrimental impact on banks’ clients and their business. Charlie Browne, head of market data, quant and risk solutions at data enterprise data management services provider GoldenSource, said the fine shows that there can be no hiding bad practices.

Greater Scrutiny

“Citigroup’s fine should be a warning to other banks and institutions who may have believed their insufficient data and risk controls could fly under the radar,” Browne told Data Management Insight. “It’s time to adapt, or be forced to pay up.”

Financial institution’s data management structures are likely to come under greater regulatory scrutiny to protect customers as more of their activities are digitalised, as artificial intelligence is incorporated into tech systems and amid growing acceptance of crypto finance.

As well as data privacy protection measures, organisations will be expected to tighten controls on many other data domains including trading information and ESG reporting. The fallout from the collapse of Silicon Valley Bank last year will also put pressure on lenders’ solvency requirements and crisis management, processes that are heavily data-dependent.

Data Care

Browne said the penalty imposed on Citigroup showed that institutions had to take greater care with their data and controls models because regulators are very aware of how important digital information is to the efficient running of all parts of an enterprise’s operations.

This fining of Citigroup demonstrates the very real costs associated with banks not being on top of their risk controls and data management,” he said.

“It’s a bold statement from the US rule makers that banks showing complacency about their data issues will be met with regulatory action. Regulators globally are now coming to the understanding that it’s fundamental that financial institutions have effective data management strategies.”

While breaches of Europe’s General Data Protection Regulation (GDPR) and anti-money laundering rules have already been at the root of fines imposed on banks and financial services firms, penalties related to operational use of data are expected to grow.

For example, institutions interviewed by A-Team Group have regularly said they are closely examining the data privacy and IP implications of using outputs from generative AI applications. The concern they have is that the content generated will be in beach of copywriter material on which the model has been trained.

Non-Negotiable

Browne’s comments were echoed by the found and chief executive of Monte Carlo Data Barr Moses, who said that as data needs become central to firms’ operations, “data quality becomes non-negotiable”.

“In 2024 data quality isn’t open for discussion — it’s a clear and present risk and it needs our attention,” Moses wrote on LinkedIn.

Browne said that ensuring compliance will require strenuous efforts by organisations to go deep into their data capabilities and processes.

“Data quality and accessibility are, rightly, front of mind, however, it’s also vital that banks consider concepts like data governance and data lineage when assessing the efficiency of their systems and adequately managing their risk. Being able to track data back to source is an important tool that rule makers are increasingly looking to demand of banks, visible in regulations like the ECB’s Risk Data Aggregation and Risk Reporting (RDARR) measures.”

The post Citigroup Fine Shows Importance of Having Robust Data Setup appeared first on A-Team.

This webinar brought together experts from the practitioner and RegTech communities; Jehangir Abdulla, Head of Back Office Development at Schonfeld Strategic Advisors LLC., and Joshua Beaton, Head of Non-Financial Regulatory Reporting (NFRR) at Wells Fargo.

The RegTech sector was represented by Paul Rennison, Director Corporate Strategy at deltaconX, and Fausto Marseglia, Head of Product Management, FRTB and Regulatory Propositions, LSEG Data & Analytics.

The first webinar topic kicked off with an audience poll asking, “What is the state of play on regulatory reporting at your organisation?”

The poll results (‘Good, a number of improvements required’ at 64% and ‘Okay, lots of improvements required’ at 27%) were largely aligned with panellists’ observations where financial institutions are facing regulatory challenges on multiple fronts.

The state of regulatory data and reporting has been characterized by continuous change and increasing complexity. Financial institutions face a relentless flow of new regulations and rewrites of existing ones, creating a constant state of flux. This situation is compounded by frequent regulatory exams and inquiries, making this “the new normal” for the industry.

The 2007-2009 financial crisis and the following recovery period led to a global surge in financial regulations aimed at ensuring market stability and consumer protection. The resulting changes in policy, processes and new internal controls created a significant increase in the volume of data that global financial institutions must process.

These changes are happening whilst compliance teams are operating with finite resources, and the challenge is balancing mandatory regulatory changes with other critical business improvements. These global regulatory rewrites stretch the industry’s capacity to comply within tight timelines.

The lack of consistency across the regulatory jurisdictions adds significantly to the complexity of an already fragmented process. In one case, a lack of clarity on precisely what’s being asked is creating stress on the system.

“Regulators themselves are trying to figure out what this means for them in certain cases. Case in point, the MAS in Singapore is going live with the rewrite in October, and we’re three months away, and they’re still releasing new specs of what they want, which is a challenge, because you’re chasing a moving target at that point.”

The EMIR Refit introduced enhancements and simplifications in regulatory requirements, focusing on data quality and promoting data standards like ISO 20022. It also emphasizes the principles of simplification and proportionality, making compliance more manageable for smaller entities.

However, the implementation has been challenging, expensive, and time-consuming, with persistent data quality and testing issues. Despite its best efforts, the industry has not significantly improved its ability to handle these changes efficiently. The process has exposed the need for readiness and proper control mechanisms to handle regulatory updates.

New Approaches

Jehangir Abdulla describes the importance and advantage of focussing on data quality and standards as a business value driver and more than a compliance requirement.

“One of the challenges that we see with data quality is that we are collecting data specifically for regulatory reporting. The approach that we want to take is having multiple eyes inside the organisation looking at the same data.”

“So, when you have your backtesting algos looking at the same data that is being reported, because ultimately the compliance data of today is the backtesting data for tomorrow. When you’re using the same historical prices for your research, when your portfolio management systems are looking at the same data that is being used for regulatory reporting.”

“And lastly, when your risk management systems are al looking at the same data, you kind of have several iterations where people are going to tell you when ‘this data looks incorrect’. So, as you iterate, you start to improve the quality of the data that’s being reported to the regulators. I believe that’s the new approach.”

“And ultimately, looking at compliance and regulatory reporting, not as a cost centre, but as a means of generating alpha, generating revenue by using this for research and using this for backtesting, etc.”

One of the upsides from the regulatory rewrites is emerging data standards across the jurisdictions. This opens up opportunities for firms to accelerate their data quality and standardisation efforts. Paul Rennison notes that “there are a lot of institutions that have multiple different suppliers on multiple different processes and controls for what is now becoming a very similar data set, because we’ve got the common data elements, and we’ve got the harmonization and standardization across the rewrites.

Deployment Choices

A second audience poll asked, “What types of technologies and solutions is your organisation implementing or considering as a means to improve regulatory reporting? (Multiple choices)”

Poll results were varied but two clusters emerged with 36% preferring a single internal digital platform for automation with 27% considering outsourcing some or all of the regulatory reporting workload.

Implementing RegTech solutions should be done cautiously, involving compliance teams from the start and maintaining open communication with regulators. Failures of communication between implementation teams and business stakeholders are frequently observed omissions in projects that run into trouble.

Fausto Marseglia stresses the importance of maintaining an open dialogue with regulators. “It’s important to maintain open communication with regulators to make sure that you understand; sometimes there are issues in terms of interpretation of the rules. And it’s important that you get feedback from the regulators, you maintain this open communication with them.”

A phased approach is recommended, starting with lower-risk regulations and expanding gradually. Continuous monitoring and feedback collection from all stakeholders are crucial to ensure solutions meet compliance requirements.

Regular compliance audits and maintaining alignment with regulatory expectations are also important. Institutions should plan strategically and engage external experts when necessary to support the implementation process.

Business Benefits

Modernizing regulatory reporting offers several benefits, including reduced complexity, lower costs, improved agility and decreased risks. Improved data quality enhances confidence in reported data. Standardizing data definitions and workflows across different jurisdictions reduces complexity and the potential for errors and omissions to creep in.

The modernization process, though challenging and ongoing, ultimately supports better operational efficiency and operational business agility. Upgrading data management infrastructure should be evaluated through the wider lens of enhanced business value.

A third audience poll asked, “What extent of business and operational benefits does your organisation gain, or expect to gain, from modernising regulatory reporting?”

Poll results indicated a lot of potential for improvement with significant operational benefits at 64%, some business benefits at 55%, significant business benefits at 27% and some operational benefits at 27%.

Key Takeaways

Practitioners working on regulatory data and reporting should focus on several key strategies to ensure effective compliance and operational efficiency. First, it is crucial to thoroughly understand and continually improve the control framework. This involves identifying and addressing gaps in the system and maintaining a process of continual improvement. By doing so, organizations can enhance their compliance processes and better manage regulatory requirements.

Developing strong relationships with business stakeholders is another critical aspect. Ensuring that these stakeholders understand the risks associated with compliance is essential for securing their support. Effective communication and collaboration with business units can help in aligning compliance efforts with broader organizational goals, thus fostering a more cohesive approach to regulatory challenges.

Lastly, the principle of “always be remediating” should be a guiding mantra. Identified issues should be addressed promptly to prevent backlogs and ensure timely resolution of compliance problems. Regulators don’t expect perfection, but they do expect a proactive approach to managing and correcting issues as they arise.

The post A-Team Webinar: Best Practices in Regulatory Reporting – Data Quality, Standards and Stakeholder Communications appeared first on A-Team.

The facilities are aimed at helping firms address the post-trade implications of a Securities and Exchange Commission (SEC) July 2023 rulemaking that mandated central clearing for a wide range of U.S. Treasury (UST) securities transactions including cash, repurchase agreements (repos) and reverse repos.

The UST market sees daily transactions averaging over $700 billion in cash and $4.5 trillion in financing, making it vital for U.S. government funding, monetary policy, and as a safe haven for global investors. The market has grown rapidly and disproportionately where currently, 87% of this trading activity is cleared bilaterally.

Several liquidity events over the past decade highlighted vulnerabilities in the treasury market where the systemic risk of a non-participant failing required mitigating. The SEC’s final rule, adopted in December 2023, aims to expand central clearing to mitigate such counterparty and systemic risks.

The new rule seeks to transition a substantial portion of the daily US $4.9 trillion treasury market activity to central clearing through a central counterparty (CCP). Currently, the only authorised CCP for the UST market is FICC. However, other CCPs have expressed interest, among them London Clearing House (LCH).

Tools of the Trade

The first of the new FICC tools, a Capped Contingency Liquidity Facility (CCLF) Calculator, is designed to increase the transparency into the financial obligations associated with membership in the FICC Government Securities Division (GSD).

The CCLF is a critical risk management facility designed to provide FICC with additional liquidity resources to meet cash settlement obligations in the event of a default by the largest netting members (see DTCC Risk Management Tools). By allowing firms to estimate their potential CCLF obligations, the calculator aids in better liquidity planning and risk management. This can make FICC membership more attractive and manageable for a broader range of market participants, including smaller institutions and buy-side firms.

The calculator helps firms anticipate and plan for the liquidity commitments required under the new SEC clearing mandates. By providing upfront attestations regarding their ability to meet CCLF obligations, firms can ensure they are prepared to comply with the expanded central clearing requirements for U.S. Treasury securities.

Tim Hulse, Managing Director of Financial Risk & Governance at DTCC, emphasized that VaR is a key risk management concept and a primary component of GSD’s Clearing Fund requirements. The calculator uses historical data, volatility, and confidence levels to estimate VaR, thus enhancing market transparency. It allows market participants to calculate potential margin obligations for given positions and market values using FICC’s VaR methodology.

Hulse highlighted the urgency of evaluating firms’ risk exposure with the expansion of U.S. Treasury Clearing, noting that the VaR calculator offers increased transparency into these obligations.

These tools are public and not restricted to member firms This means that as firms consider their optimal approach to access central clearing for compliance with the the new clearing rules, these risk tools can provide the necessary transparency and support as firms evaluate the different types of membership and models with GSD.

The SEC has introduced several measures to make FICC access more inclusive. FICC offers multiple membership models, including Netting Membership, Agented Clearing, Sponsored Membership, and Centrally Cleared Institutional Triparty (CCIT) Membership, catering to a wide range of market participants from large banks to hedge funds. The SEC has provided temporary regulatory relief to address custody and diversification concerns for registered funds.

CCIT membership primarily benefits institutional cash lenders such as corporations, asset managers, insurance companies, sovereign wealth funds, pension funds, municipalities, and State treasuries. It allows these entities to engage in tri-party repo transactions with enhanced risk management and operational efficiency provided by FICC. The central clearing of these transactions helps reduce counterparty risk, ensure the completion of trades, and potentially offer balance sheet netting and capital relief for participants.

The Securities Industry and Financial Markets Association (SIFMA) is actively coordinating multiple work streams that involve both buy-side and sell-side members. These efforts aim to accelerate the necessary transitions for the clearing mandates. Key aspects include engaging with the SEC and other regulatory agencies to address market access issues, particularly for registered funds and margin transfers, which are crucial for ensuring a smooth transition to central clearing.

Developing an operations timeline with key milestones is another critical task. This timeline will guide the transition to full central clearing by June 2026 for repos. Addressing issues related to market plumbing and connectivity is also vital to support the increase from 13% to 100% clearing. This involves ensuring that all participants can effectively connect to and use the central clearing infrastructure.

Regular communication with market participants is planned to keep them informed about progress and strategies for meeting the clearing deadlines. This will include updates on the status of various strategies and the overall progress towards the deadlines. SIFMA will also engage in regular discussions with the SEC and other agencies to ensure they are aware of the progress and any potential needs for timeline adjustments or phased rollouts.

Legal and enforceability issues will be addressed by obtaining netting enforceability opinions in relevant jurisdictions to support large-scale clearing. This step is closely tied to the development of market standard documentation. Additionally, new documentation approaches that leverage modern communication methods will be evaluated to increase efficiency.

Stakeholder engagement is essential to confirm the status of various strategies and ensure alignment with the clearing deadlines. SIFMA plans to reach out to market participants regularly to keep them informed and engaged. This will help ensure that all participants are on track to meet the clearing mandates.

Lastly, future planning includes preparing for additional publications and podcasts to keep the membership and broader public informed about ongoing efforts around Treasury clearing. This will ensure that everyone remains updated on the progress and any developments related to the central clearing mandate.

The post DTCC FICC Releases Tools to Help Firms Address Incoming SEC Central Clearing Mandate appeared first on A-Team.

The RegTech Insight Awards recognise established providers and innovative newcomers that offer solutions that are successfully improving firms’ ability to respond effectively to evolving and ever more complex regulatory requirements across the global financial services industry. Winners are selected by A-Team Group’s independent, expert advisory board in collaboration with its editorial team.

Chris Dingley, chief executive of Single Rulebook, spoke to RegTech Insight about the importance of winning this award and explained why and how Single Rulebook was developed and outlined the benefits it can deliver.

A-Team: What does winning A-Team Group’s 2024 RegTech Insight Europe award for Best Solution for Regulatory Change Management mean to Kaizen?

Chris: We are delighted. It’s recognition for all the hard work and effort that our team has made over the last year to develop the platform further and it also recognises the unique Law Compare solution that we have developed with Linklaters, which makes it easier for firms to manage not only regulatory change but also differences in regulation across jurisdictions.

A-Team: What types of capital markets clients does Single Rulebook work with?

Chris: Single Rulebook is a software solution that enables clients to search, share and manage regulatory rules on one digital platform. It was established with the aim of making regulation manageable and easy.

Through powerful and dynamic rule maps, Single Rulebook’s user interface promotes collaboration, and information sharing.

It is especially helpful to banks, asset management companies and law firms – enabling them to work more efficiently with changes and updated to financial regulation. More than just a search tool, the platform also integrates with a client’s own systems and delivers an audit trail of regulatory change and decision making, saving time and cost.

A-Team: What challenges are these clients facing?

Chris: There are three main challenges:

• Ever-changing and new regulations: Global regulation is continually evolving. Not only are new rules introduced but existing rules are continually tweaked and updated. It can be time consuming trying to locate a specific piece of regulation and ensuring it’s the most recent version.
• Sharing and collaborating effectively on regulation: Legal interpretations of regulatory rules need to be kept up to date, shared and communicated across large organisations which can become unmanageable and a company’s view of regulation can change over time.
• Keeping an audit trail of regulatory interpretations and implementation: Firms must demonstrate compliance with each applicable rule and their pathway to regulatory compliance. Some leeway is provided in the initial period after a new piece of regulation is introduced, however regulators’ expectations become more stringent over time and it’s important to be able to demonstrate immediate compliance to auditors and regulators. Spreadsheets and email chains are not effective tools for showcasing a firm’s regulatory interpretations and the implementation of rules. It’s important to demonstrate operational change and regulatory compliance efficiently and Single Rulebook can do this digitally and in real-time.

A-Team: How does Kaizen help customers address these challenges?

Chris: Single Rulebook provides one digital source for regulatory research, making life much easier for legal and compliance teams, with employees able to retrieve regulatory text and rules quickly and efficiently.

Single Rulebook uses natural-language processing to improve many workflows and processes so that regulatory opinion and interpretations can be shared and accessed digitally on one common platform. It provides the functionality to annotate regulation so that the company’s approved stance can be accessed by all team members.

In 2023, we developed Law Compare in conjunction with Linklaters to support their in-house teams and provide their clients with quick and easy access to regulatory comparisons and guidance on the differences and changes brought about by diverging EU and UK MiFID II regimes.

The online Law Compare tool provides a single authoritative source of the most up-to-date regulation and guidance, and offers full coverage of EU and UK MiFID II regimes, from Directives, Regulations, Regulatory Technical Standards to Level 3 guidance, with the potential to extend to other areas of regulation. The legislation hosted on the Single Rulebook platform is complemented by Linklaters’ guidance which provides an invaluable record of the firm’s legal views, interpretation and comments relating to specific provisions and areas of EU-UK divergence.

A-Team: How will you develop the solution over the next year?

Chris: The year ahead will see further regulatory change across many global regulations, particularly in the UK and Europe, with the EMIR Refit and upcoming amendments to MiFID II.

It’s essential that firms can not only keep abreast of these changes but also compare versions. We’re looking forward to continuing to help our clients manage regulation and make it easier for them to navigate the changes ahead. We also have lots of exciting developments and new projects in the pipeline for Single Rulebook, which we will be sharing over the course of the coming months.

The post Kaizen’s Single Rulebook Wins Award for Best Solution for Regulatory Change Management in A-Team Group RegTech Insight Awards Europe 2024 appeared first on A-Team.

Financial institutions now face the challenge of updating their systems, policies, processes and procedures to meet these new regulatory demands, proving once again that in the world of global finance, change is the only constant.

The MiFIR Refit introduces several key changes and updates to the existing framework, aimed at enhancing transparency, improving data quality, and optimising market operations. The implementation is being phased in over a two-year period.

The regulation became official with its publication in the Official Journal on April 14 and entered into force on May 4.

One of the immediate and most debated impacts of this regulation is the prohibition on brokers accepting Payment for Order Flow. This ban is designed to eliminate conflicts of interest, ensuring brokers act in the best interests of their clients.

Another immediate change is the elimination of annual best execution reports for execution venues. This is being replaced by a new consolidated tape system, which will provide comprehensive market data, including the best bid and offer information.

By May of 2025, several significant milestones must be achieved:

ESMA will complete its 12-month assessment of the inclusion of Alternative Investment Fund Managers (AIFMs) and management companies in the scope of transaction reporting

Trading venues and systematic internalisers (SIs) must comply with real-time data access requirements to ensure all market participants have timely access to crucial trading information.

Financial institutions must be ready to adopt standardized reporting formats by this date.

The development and implementation of Regulatory Technical Standards (RTS) by ESMA is another critical aspect of the MiFIR Refit. These standards, which will manage trading halts, price collars, and other market structure enhancements, are expected to be developed and implemented by November 4, 2025.

The consolidated tape system (CTS) is a major structural change and is targeted to be fully operational by May 2026. The initial setup and framework for data submission by contributors and the selection of consolidated tape providers (CTPs) will occur over a two-year period ensuring a smooth transition to the new system. CTPs will provide a unified source of trade information by asset class.

In summary, the MiFIR Refit introduces a structured implementation schedule with key milestones designed to enhance market transparency, data quality, and operational efficiency. Financial institutions and market participants must adhere to these timelines to comply with the new regulatory framework.

Enhanced Regulatory Oversight

The scope of transaction reporting under MiFIR is expanded to potentially include Alternative Investment Fund Managers (AIFMs) and management companies. ESMA will assess this inclusion over the next 12 months.

Investment firms can now act as designated publishing entities for specific financial instruments, improving the clarity and responsibility of transaction reporting. ESMA will maintain a public register of these entities.

Prohibition of Payment for Order Flow (PFOF) prohibits brokers from receiving fees, commissions, or non-monetary benefits from third parties for order execution or forwarding. This aims to eliminate conflicts of interest and ensure that brokers act in the best interests of their clients.

While the prohibition took effect in May, Member States may exempt firms under their jurisdiction from this prohibition until June 30, 2026. Regulatory authorities will monitor brokers’ activities and impose penalties for non-compliance. Brokers must also provide clear and transparent disclosures about their order execution policies.

The introduction of a consolidated tape for each asset class will provide necessary market data, including best bid and offer information, replacing the need for separate reports. As a result, the requirement for execution venues to publish annual best execution reports has been permanently suspended.

Pending Standards

ESMA is consulting on three new regulatory technical standards (RTSs) under the MiFIR to enhance market transparency and data quality. The first standard focuses on pre- and post-trade transparency for non-equity instruments such as bonds, structured finance products, and emissions allowances. This standard aims to ensure timely and clear trade information for stakeholders while balancing the need for real-time transparency with the ability to defer publication when necessary.

The second standard mandates that pre- and post-trade data be made available on a reasonable commercial basis (RCB). This is to ensure that market data is accessible, fair, and non-discriminatory. The consultation includes discussions on the cost-based nature of fees and the applicable reasonable margin, aiming to make this data affordable for users while maintaining fair access.

The third standard addresses the obligation to provide high-quality instrument reference data suitable for both transaction reporting and transparency purposes. The proposed amendments aim to align this data with other relevant reporting frameworks and international standards, thereby improving data quality and consistency across the board.

At this time, feedback from stakeholders is still being collected, and ESMA will publish a final report and submit the draft technical standards to the European Commission by the end of the fourth quarter of 2024. This review process is crucial for ensuring that the technical standards effectively support the regulatory objectives of MiFIR.

Market Structure Enhancements

ESMA is developing RTSs to manage trading halts, price collars, and other market structure enhancements ensuring better market stability during volatility. These are planned to be rolled out by November 4, 2025.

Enhanced disclosure requirements for commodity derivatives is introduced to curb speculative activities and improve market oversight.

The Double Volume Cap (DVC) mechanism under MiFIR has undergone significant changes aimed at enhancing market transparency and simplifying the regulatory landscape. The updated MiFIR now introduces a single volume cap set at 7% for trading under the reference price waiver. This replaces the previous double volume cap system, which had separate thresholds for individual venues and the entire EU market. By consolidating the thresholds into a single 7% cap, the regulation aims to reduce complexity and ensure a more straightforward approach to monitoring and controlling dark trading activities.

Changes to systematic Internalisers (SI’s) quoting obligations will require technology updates to ensure compliance with new minimum quote size requirements and facilitate better pricing transparency.?Equity SIs must now make public firm quotes based on a minimum size determined by regulatory technical standards (RTS). Non-equity SIs are no longer obligated to publish firm quotes but may do so voluntarily.

Improved Data Quality and Transparency

The regulation requires real-time publication of data to ensure all market participants have timely access to the same information, crucial for making informed trading decisions and maintaining a fair market.

Trading venues and SIs must ensure the accuracy, completeness, and consistency of their data, covering transaction details, order book data, and post-trade information. The introduction of standardized reporting formats is designed to create a more transparent and cohesive market environment.

MiFIR Refit enhances the scope and consistency of transaction reporting by introducing new data fields and aligning reporting standards across EMIR, SFTR, and MiFIR. This standardization facilitates easier comparison and consolidation of data across different platforms.

Technology Impacts

The consolidated tape is a significant component of the MiFIR Refit, aiming to aggregate trade data from multiple sources into a single, unified view for each asset class. This initiative is designed to enhance market transparency, reduce information asymmetry, and improve the quality of market data available to investors.

As of now, the groundwork for the consolidated tape initiative, including the legislative framework and initial criteria for CTP selection are in place.

The consolidated tape system is expected to be fully operational by May 4, 2026. This timeline allows for the necessary steps to be completed, including the selection and approval of CTPs, the setup of data submission frameworks, and the establishment of robust data aggregation and dissemination systems.

Financial institutions will need to update their reporting systems for real time processing and to accommodate new data fields and harmonized reporting standards across EMIR, SFTR, and MiFIR.

The MiFIR Refit and MiFID II updates represent significant steps towards a more transparent, resilient, and competitive financial market environment in the European Union. Financial institutions must adapt to these changes by enhancing their governance frameworks, streamlining reporting workflows, improving data management practices, and updating their technology infrastructure to comply with new regulatory requirements. These efforts are intended to provide a more efficient and investor-friendly market landscape.

View our full agenda and more details here.

The post Navigating the MiFIR Refit in 2024 appeared first on A-Team.

“It has been a humbling period for many firms, dealing with the isolating challenges of adapting to the EMIR Refit” says Paul Rennison, Director, Corporate Strategy at deltaconX, and a panelist on A-Team’s upcoming Best Practices in Regulatory Reporting webinar on July 16.

According to Rennison, deltaconX has its origins in a post-trade project that led its founders to conclude that the back office should be built around data rather than around process. The developers decided to build a regulatory reporting tool from the bottom up that was based on data and configuration rather than coding and adding regulation after regulation.

Fast forward to today, and the company boasts a diverse client base of primarily sell-side firms as well as buy-side institutions, energy companies, and large corporates with a core focus on OTC derivatives markets. The company has a strong presence in Europe and is expanding in Asia-Pacific with plans for the US and Canada next year.

“On the financial side, we’re very strong in the debt asset class DAC area,” says Rennison, “because that’s where we’re born out of – Switzerland. We develop and support the product from Vienna, Austria. The only deviation we’ve had from our core focus is on money management reporting (MMSR). Some of our German, Austrian and Danish banks want us to do this reporting into their central banks. So, we’ve extended the model to become a one stop shop for their reporting within that data set.”

The company has grown organically reaching what Rennison describes as a “tipping point” in 2023, with the addition of global energy giants BP and Shell along with regional banks Helaba, Raiffeisen and Nykredit and banking groups like SDC and BEC in the Nordic region. The company doubled in size last year.

The company also white-labels its services through two major solution providers, Simcorp and Finastra. “Reg reporting is a low margin business relative to risk management or treasury management systems,” says Rennison, “so this makes economic sense to them and its good business for us and some clients never see deltaconX, it’s a pure white label service.”

Blended Skillsets

Compliance and regulatory data systems are complex, and their work often considered unglamorous. Yet the expectation is that their systems will function flawlessly at all times. Failure in controls not only escalates costs and stretches resources but also attracts the attention of regulators, leading to significantly higher operational costs and potential fines.

Rennison describes the typical scenario, “When the controls fail and things begin to unravel, your costs spiral, your resources are already stretched, and you appear on the radar of the regulator, and next you’re in the spotlight of the regulator. And once you’re in that spotlight, your costs become multiple times the costs to operate in compliance. And that’s before the fines kick-in.”’

Understanding the urgency of their clients’ needs in markets operating on T+1 and T+0 schedules, deltaconX ensures direct access to knowledgeable professionals without offshoring triage or using scripts. This approach guarantees that clients reach the right person immediately, facilitating swift issue resolution.

For the core team, deltaconX recruits individuals from banks and other reporting firms, leveraging their deep regulatory reporting experience. The team, characterized by empathy and deep domain knowledge, handles the interpretation of regulatory changes and their integration into deltaconX’s data schema. They also possess strong technology skills, enabling a blend of technical and regulatory expertise that becomes crucial in high-pressure environments.

This blended role, which integrates deep technical, compliance and regulatory skills, is unusual in the regulatory reporting industry. Rennison underscores this as a key differentiator – “The difference is one of those things that’s almost intangible until you need it, and then it becomes very tangible, and very addictive. Our ability to resolve issues swiftly in a T+1 environment through a single point of contact crystalises our value and makes our service incredibly sticky.”

Foundational Technology

Built from the outset on a cloud-native architecture, the deltaconX platform offers scalability, cost control, and continuous updates, which are essential for managing complex regulatory requirements.

“It’s not a lift-and-shift ported into Kubernetes on a hope and a prayer” says Rennison, “This gives us the elasticity to scale and control cost and be in a continuous release cycle. We do six planned releases a year.”

This cloud-native approach allows deltaconX to stay ahead of regulatory changes, whether initiated by regulators or required by Trade Repositories (TRs) or other agencies, without being constrained by clients’ operational cycles.

Data Lineage and Audit

deltaconX has decided to partner with a specialist data provider to handle the new unique product identifier (UPI) requirements. Rennison described the process to RegTech Insight.

“Layered within this wave of refits is the OTC reference data chain including the unique product identifier (UPI). We partnered with RegTech DataHub for this. They take data from Anna DSB and capture and other sources of public domain data. They’ve built a highly performant and referenceable repository of that data.”

Rennison continues, “We send an excerpt of the data on every trade, and they qualify the ISIN and the UPI and enrich where necessary. It’s the first time we we’ve had to move outside of the core data schema and partnering with a specialist solution provider made sense.”

deltaconX goal is to achieve near-full validation on schema and Regulatory Technology Standards (RTS) for supervisory authorities, ensuring the accuracy of all data elements, including counterparty data. deltaconX captures data at the field level and tracks changes, maintaining a fully auditable lineage for each trade. This includes reconciliation and records of every file returned by the TR.

Every record returned, including reconciliations, is identified, allowing clients to compare their submissions with those of their counterparties, even when different TRs are involved. The data remains permanently on the system, fully auditable, which is another advantage of being cloud-native, eliminating the need for facilities like Iron Mountain.

Staying Focused

DeltaconX’s concentration on regulatory transaction reporting over the past decade, with no diversification into other products, ensures focused expertise and uninterrupted development investment. As an owner-managed company with no external investment or debt, deltaconX maintains significant freedom to navigate financial challenges and align closely with customer needs.

The post Addressing the Global Refit with deltaconX appeared first on A-Team.

The categories and scope of regulatory data requirements have expanded considerably in response to rapid market developments and growing regulatory scrutiny. It is no longer enough to present a set of numbers. Regulators want to know the origins of the underlying data, how that data was selected, how it was vetted and the lineage back through transformations to a certified provisioning point or other auditable record. Above all, regulators want to see evidence of a robust, principles-based approach to regulatory data management.

Faced with this increasingly onerous regulatory data environment, data managers are assessing how the new breed of AI technologies can make a difference.

Trade Data

Trade reporting involves providing detailed information on trading activities across the financial markets, such as equities, derivatives, fixed income securities and newer alternative and crypto markets. This data ensures transparency and helps regulators monitor market activity. Under MiFID II, ESMA requires firms to report trades to Approved Reporting Mechanisms (ARMs) within a specified timeframe. In the U.S., the SEC’s Consolidated Audit Trail (CAT) requires broker-dealers to report comprehensive trade data to facilitate market oversight and analysis. Similarly, the U.S. Commodity Futures Trading Commission (CFTC) requires firms to report swap transactions to Swap Data Repositories (SDRs), ensuring transparency in the derivatives market.

Audit Data

Audit trails are comprehensive logs that provide a traceable history of transaction status changes and changes to data, ensuring accountability and transparency. These logs are essential for regulatory investigations and compliance verification. The SEC mandates that firms maintain detailed audit trails for all transactions as part of their recordkeeping requirements. Similarly, the CFTC requires firms to maintain audit trails for all futures and options trades to ensure transparency and compliance with regulatory standards.

Customer Data

Know Your Customer (KYC) data involves collecting and verifying the identity of clients to prevent money laundering, terrorist financing, and other financial crimes. This includes personal identification information, financial status, and transaction history. The Financial Conduct Authority (FCA) mandates strict KYC procedures as part of its Anti-Money Laundering (AML) regulations. In the U.S., the Securities and Exchange Commission (SEC) requires broker-dealers to adhere to the Customer Identification Program (CIP) rules under the Patriot Act, ensuring proper identification and verification of their clients.

Risk Data

Risk data encompasses information related to an institution’s exposure to various types of risk, such as credit, market, operational, and liquidity risks. Regulators use this data to assess the resilience of financial institutions and the broader financial system. The Basel Committee on Banking Supervision (BCBS) outlines principles for effective risk data aggregation and reporting in BCBS 239. Originally targeted for 2016, the fact that the market has yet to fully comply with BCBS 239 underpins the data challenges that remain. But more on BCBS 239 later.

Compliance Data

Compliance data includes records that demonstrate an institution’s adherence to regulatory requirements, such as AML measures, sanctions compliance, and tax reporting. This data ensures that institutions are operating within the legal and regulatory frameworks set by authorities. For example, FINRA in the U.S. requires firms to maintain comprehensive records of their compliance activities and report any suspicious activities through Suspicious Activity Reports (SARs). Similarly, the ESMA requires investment firms to comply with the Market Abuse Regulation (MAR) by reporting any instances of market manipulation or insider trading.

Operational data

Performance data

Performance data includes financial metrics and reports such as profit and loss statements, balance sheets, and capital adequacy ratios. This data is crucial for assessing the financial health and stability of institutions. The SEC requires publicly traded companies to submit quarterly and annual financial statements as part of their regulatory filings. In Singapore, the MAS mandates that banks provide regular updates on their financial performance, including capital adequacy and liquidity coverage ratios, to ensure they maintain sufficient capital buffers.

Incident Reports

Incident reporting includes information on any incidents or breaches, such as cybersecurity incidents, fraud, or operational failures. This data is critical for regulators to understand the impact of such events and to take appropriate action. The UK Financial Conduct Authority (FCA) requires firms to report significant operational incidents, including IT failures, under its Incident Reporting Rules. FINRA requires firms to file suspicious activity reports (SARs) when incidents of financial crimes like money laundering or insider trading are suspected. The Monetary Authority of Singapore (MAS) also has stringent requirements for reporting cybersecurity incidents, ensuring that financial institutions promptly notify the regulator of any significant breaches.

Marketing, Corporate and Communications Data

Information communicated in advertising, promotional and marketing materials is subject to regulatory oversight to ensure that the information is not misleading or makes unrealistic promises or guarantees. The company’s annual report, 10K and quarterly filings are all subject to regulatory scrutiny. This category of regulatory data will include a considerable amount of text-based information including statements by the officers and board, auditors reports and statement of financial condition.

Clearly, this set of data types represents a wide spectrum of characteristics that needs to be embraced by any regulatory data management approach. Practitioners are recognising that GenAI and LLMs can be deployed differently from traditional regression, clustering and early NLP models, allowing them to address the entire regulatory data spectrum.

AI for Regulatory Data Management

Whilst AI has been used in some way at each stage of the regulatory data life cycle from sourcing and collection through transformation, reporting and archival, Generative AI (GenAI) and Large Language Models (LLMs), represent significant advancements over previous generations of AI, offering enhanced capabilities in several key areas.

These advancements are already delivering substantial performance improvements in several regulatory data use cases by providing more sophisticated, context-aware, and efficient solutions. The main capabilities of GenAI and LLMs that set them apart from their predecessors are contextual understanding, normalisation and transformation and, lineage and transparency.

Contextual Understanding

Unlike earlier AI models, which often struggled with context and nuance, GenAI and LLMs excel in understanding and generating content based on context. This ability allows them to perform complex tasks such as analysing and summarizing vast quantities of text-based information, generating coherent narratives, and understanding nuanced queries.

This deep contextual understanding is a crucial step up in capability for applications like natural language processing (NLP) and conversational AI, where understanding the subtleties of language is essential.

Firms are already seeing substantial improvements in productivity and efficiency in text use cases like scanning for and interpreting regulatory changes and text-based information for streamlining KYC, Onboarding and scanning for AML violations and exposure to Politically Exposed Persons (PEPs).

Other use cases are content oriented with GenAI and LLM’s ability to generate well formatted ‘boiler plate’ regulatory narratives for Suspicious Activity Reports (SARs), 10Qs etc. Another text-based use case is horizon scanning for changes in regulatory text, translating and interpreting their impact and highlighting any required policy. AI-powered language translation has reached a level of accuracy for compliance demands with firms seeing dramatic improvements in accuracy and productivity.

Normalization and Transformation

GenAI and LLMs bring significant improvements in data normalization and transformation processes. They can be trained to accurately map and convert data between different formats, ensuring consistency and integrity across diverse datasets. This capability is essential for applications requiring standardized and aggregated data for regulatory compliance and analysis.

Lineage and Transparency

Maintaining clear and accurate data lineage is crucial for regulatory compliance and data governance. GenAI and LLMs provide robust capabilities for tracking and documenting the history of data transformations and movements. This transparency ensures that organizations can demonstrate compliance and maintain high standards of data governance.

GenAI and LLMs can offer substantial improvements over previous AI generations by providing enhanced contextual understanding, efficient data processing, improved accuracy, advanced data normalization, and comprehensive data lineage capabilities. But these improvements come at a cost. GenAI and LLMs are resource intensive and should be deployed carefully. Use cases that reduce repetitive manual efforts such as reviewing large volumes of text or, where sampling methods can be replaced by comprehensive scans are ripe for GenAI.

AI-Enabled BCBS 239

The Basel Committee on Banking Supervision (BCBS) has outlined principles for effective risk data aggregation and risk reporting – see BCBS 239. These principles, while initially focused on risk data, can be adapted to apply more broadly to all regulatory data. Additionally, GenAI technologies can accelerate compliance with these principles by enhancing data quality, accuracy, and management.

Principle 1: Governance

Strong governance frameworks should be established for all types of regulatory data, not just risk data. This includes setting clear policies, procedures, and accountability for data management across the organization.

GenAI can enhance governance by automating the documentation of data governance policies, ensuring consistent application across different types of data. GenAI can also assist in monitoring compliance with these policies in real-time, providing alerts and recommendations when deviations occur.

Principle 2: Data Architecture and IT Infrastructure

Data architecture and IT infrastructure should support comprehensive data management capabilities, ensuring that all regulatory data is accurately captured, stored, and processed, even during times of stress or crisis.

GenAI can help design and maintain a robust data architecture by optimizing data storage and retrieval processes, reducing redundancies, and enhancing data integration from multiple sources. This ensures data availability and reliability across different regulatory requirements. BCG highlights that AI can bring efficiency and accuracy to data management tasks that traditionally required significant manual effort – see The Solution to Data Management’s GenAI Problem? More GenAI.

Principle 3: Accuracy and Integrity

All regulatory data should be accurate and reliable, pre-processed and/or aggregated largely through automated processes to minimize errors. This principle ensures that data used for compliance and reporting is dependable.

GenAI agents can automate data validation and error correction, significantly enhancing the accuracy and integrity of regulatory data. These models can detect anomalies and inconsistencies in real-time, reducing the likelihood of errors in compliance reporting. GenAI can streamline data cleaning processes by generating code for parsing, formatting, and identifying data quality issues.

Principle 4: Completeness

Regulatory data management should capture and aggregate all material data across the organization. This includes data from various business lines, legal entities, and other relevant groupings to identify and report exposures, concentrations, and emerging risks.

GenAI can enhance data completeness by automating the aggregation of data from diverse sources, ensuring no critical information is omitted. These technologies can continuously monitor data inputs to verify that all necessary data is captured and integrated accurately.

Principle 5: Data Lineage and Transparency

Maintaining clear and accurate data lineage is essential for all regulatory data, enabling organizations to trace the origins, movements, and transformations of data throughout its lifecycle.

GenAI can generate detailed data lineage reports automatically, providing transparency and traceability of data processes. These reports help organizations demonstrate compliance with data governance standards to regulators. The ability to document and audit data transformations effectively ensures that organizations can respond to regulatory inquiries with confidence and clarity.

Back to Principles

The industry has struggled to fully implement BCBS 239 and we’re well past the original 2016 target date. But, GenAI and LLM technologies offer real potential for the industry to make significant progress on BCBS compliance and regulatory data management in general.

By leveraging these technologies, organizations can build robust data management practices that can keep pace with and anticipate changes in regulatory requirements and improve overall operational efficiency. Best-practices for standards follow a principles-based approach and so should regulatory data management if GenAI is to deliver on its potential.

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