The recent A-Team webinar “Best Practices in regulatory Reporting” identified data quality, adoption of standards, and transparent stakeholder communications as recurring themes in an effective regulatory reporting strategy for today’s complex and rapidly changing regulatory environment.
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.
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