Overhauling regulatory reporting systems – a unique window of opportunity

It’s been a busy few years for firms with regulatory reporting obligations. Across jurisdictions and types of institutions, regulators have stipulated new and/or enhanced reporting processes. Most recently, after years of work, SFTR went live and just this month the final phase of MAS reporting began. Looking forward to 2022, SFTR’s scope will be expanded; CFTC and JFSA are undergoing a rewrite, and the EMIR refit is looming for early 2023.

In most cases, firms have implemented transaction reporting based on existing systems and processes, and there’s been little time to think on a strategic level about the issues thrown up by reporting requirements. However, we believe now is the time to take a breath – financial institutions have an opportunity to pause, look upstream, and consider what they can do to make compliance with changing regulatory reporting requirements easier, as well as better positioning themselves to leverage these requirements for their own benefit. We’ve identified five reasons that, together, mean many institutions now have the perfect opportunity to do things better, benefiting both themselves and the wider market.

  1. There’s a gap

With SFTR bedding in (bar the recent exit of one trade repository and schema changes coming in early 2022) and MAS behind us, there’s a short gap before the next set of reporting requirements – the CFTC rewrite, JFSA rewrite and the EMIR refit – are implemented. For years, firms have been on the back foot as they attempted to create solutions for new or changing regulations, with the corresponding challenges of how to adapt teams, processes, and data. But there’s now a window of opportunity.

  1. Market consistency

The challenges faced by many firms are very similar. Complexity, fragmentation, and uncertainty are the three constants when considering transaction reporting obligations. Firms need to navigate changing technology, market and regulatory uncertainty, and there are challenges inherent in managing and using the massive volumes of data involved, much of it held across different siloes. As they do so, there are more opportunities than ever to benefit from shared learning.

  1. Industry-wide initiatives are now part of the process

When transaction reporting was first introduced, firms were still figuring out what it meant and also navigating corresponding seismic shifts, for example to initial margin and mandatory clearing. Sharing information and best practice simply wasn’t considered sensible: indeed many firms sought to establish competitive advantages through their own projects. But time has changed this, with firms increasingly seeing the benefit of a more collective approach. This accelerated during the SFTR implementation, when an industry-wide culture shift took place and collaboration really took hold: banks, asset owners, industry bodies, and vendors worked together to establish best practices for UTI exchange and discuss challenges, creating a mindset in which surfacing and sharing problems is no longer seen as giving away proprietary  information. And, increasingly, this approach is being seen as a way to combat not just the specific challenges related to reportable datapoints but also to deal with uncertainty and complexity around understanding and translating regulators’ varying and sometimes unclear requirements.

  1. The cloud is no longer scary

The industry’s approach to cloud computing has dramatically shifted, offering an entirely new environment in which to consider transaction reporting, and the processing and management of data. It goes without saying that this has been a game changer, and most firms have now implemented cloud-related policies and become more comfortable with enhanced cybersecurity requirements. As the cloud becomes more integrated, this smooths the way for firms looking for more efficient systems, increasing their ability to access external solutions and offering the power needed to process huge amounts of data in a cost-effective and scalable way. Centralised cloud solutions also allow firms to better understand how they perform on different KPIs relative to their peers, and to thus make more informed decisions on where and how to spend their limited remediation budgets.

  1. Technology continues to improve

It may seem obvious, but huge advances in technology are transforming the process of implementing trade and transaction reporting processes. And, thanks in part to AI and machine learning techniques, the technology is becoming far more flexible and intuitive. Today, many of the tools being developed to manage one regulatory process can be adapted or reused for new or changing regulations. An excellent example is how the work done on matching and pairing in SFTR may be being retooled for use in the EMIR refit.

How to open the window

While it’s unsurprising that firms are currently thinking about CFTC, JFSA and EMIR, it’s clear that the environment in which they’re doing so looks nothing like it did when these requirements were first applied. At this point, taking a stand-alone approach to any new regulation, whether that’s a firm or regime level, is likely to be counter-productive, expensive, and risky. Collaborative approaches, adapting existing processes, engaging with the wider market, and exploring best-in-breed technology will be key differentiators in terms of the effectiveness, long term benefits and cost of implementing new reporting requirements.

With a gap before things get extremely busy again, we recommend that firms take the time to review their existing solutions with an eye on how these can be streamlined and the benefits maximised. Importantly, part of this process needs to be defining what they’re looking for going forward – increased automation, a single dashboard across regimes, reduced costs, better analytics, and near-real time updates are all items on our clients’ wish lists. Armed with this review, firms will be in a much better position to work out what they should do next and take a holistic approach to their reporting obligations ahead of implementing 2022 and 2023’s requirements.

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Charlie Bedford-Forde
About the author: Charlie Bedford-Forde
Charlie Bedford-Forde serves as Executive Director and Head of Sales for IHS Markit’s Global Regulatory Reporting Solutions business in EMEA. He has deep expertise in repo, securities lending, collateral management, transaction reporting and post-trade services and joined IHS Markit to lead the SFTR sales campaign in 2017. Prior this, Charlie spent 10 years at the Deutsche Boerse Group, working in a range of sales and relationship management roles at Clearstream, most recently as Co-Head of Global Securities Finance Relationship Management. He holds a Bachelor’s in Politics from Queen Mary, University of London and a Master’s in Capital Markets, Regulation and Compliance from the ICMA Centre at the University of Reading.