On 22 September Abide Financial co-hosted another industry debate on the reporting challenges presented by impending regulation. The event was hosted in partnership with Corvil and ICAP and attended by 120+ delegates across brokerage houses, banks, asset managers and hedge funds. The event panel represented the spectrum of market participants, moderated by Virginie O’Shea, Research Director at AITE Group. Joining Mark Kelly, Abide’s regulatory expert, on the panel were David Murray, Chief Business Development Officer ofCorvil, Ben Pott, Group Head of Government Affairs of ICAP, Chad Giussani, Head of Transaction Reporting Compliance of Standard Chartered Bank and Clare Galton, Project Manager – Regulatory Programme of Jupiter Asset Management.

In a lively and informed debate, panellists – and the audience – were united in agreement that implementing MiFID II/R reporting compliance by the January 2018 deadline was extremely challenging but, Brexit notwithstanding, remained an imperative.  Panellists observed that since the FCA was leading the charge on regulatory scrutiny, had already shown itself to be the toughest enforcer and had pretty much ‘held the pen’ for ESMA Level 3 Guidance, it was ‘unlikely to be predisposed to relax the rules’.  Panellists also reiterated that markets regulation was driven by a G20 agenda which was unchanged by Brexit.

Having agreed that MiFID investment firms must commit to the MiFID II/R implementation timeline, the debate centred around a number of key challenges:

 

Lack of in house expertise

A lot of new financial regulation has no precedent, therefore a key challenge faced by many market participants is finding sufficient regulatory expertise. Specifically within regulatory reporting knowledge within operations and compliance functions.  Many participants noted the difficulty of identifying and recruiting appropriately skilled internal resources, while others expressed concern that compliance teams juggling with a host of other regulatory obligations might not have fully grasped the potentially huge ramifications arising from non-compliance.   (Not least in financial penalties – over the last few years the FCA has imposed some 14 million GBP in fines on non-compliant reporting firms).

 

Impact on business growth

Another ongoing challenge for market participants is balancing the significant and growing cost of compliance with strategic investment in business growth.  The annual spending by financial institutions on compliance is estimated to be in excess of 70 billion US dollars; this is an ongoing cost. Many firms, small and large, may decide that it is just too difficult and expensive to tackle the complex regulatory reporting challenge in house.  Others, that volumes in certain ‘reportable’ instruments are just too small to warrant investment in building and maintaining a reporting infrastructure, electing instead to exit those businesses.

 

Increased value of external providers

Traditional ‘build or buy’ strategies see companies typically choose to ‘outsource’ non-core (utility) processing functions and shared services to a third-party in order to focus in house effort and resources on core capabilities and profit-generating activity. With regulatory reporting, the rationale is different. In this instance, reporting firms are choosing to outsource to providers like Abide Financial to ‘acquire’ specialist expertise and solutions that it is not efficient to ‘build’ in house. As one panellist noted, ‘it’s just too important to get wrong’; another (in an internal compliance role) that ‘we would like more challenging questions from internal clients [re: readiness for MiFID]’.

 

No regulation is an island

Throughout the debate, panellists and audience members referenced the need to look across regulatory regimes to support effective solution ‘scoping’ and project planning for ‘a massive implementation challenge’.   Many firms look at regulatory reporting as part of a bigger reporting picture that includes client and best execution reporting obligations and sitting alongside MiFID II/R are new accountability and responsibility rules driven by Market Abuse and Senior Manager Regimes. On the subject of proving ‘best efforts’ (Article 15), one speaker observed that a useful definition was ‘we know we have problems, but we know where they are and have a plan to fix them’.

 

Communication and collaboration

Asked what advice they’d give to market participants impacted by new reporting rules, panellists emphasised the value of talking to peers and counterparties and continuous communication to validate different ‘moving parts’ e.g. role of brokers/exchanges.  Another speaker suggested ‘triangulate advice – listen to it all, ideally in one room’. It was also noted that working with others is hugely important, adding that ‘it’s too complex to do it alone’.

 

Summing up, it was noted that ‘this is an unforgiving climate and it is not the end by any means.  Regulation will only get tighter’. 

 

Abide Financial will be running more events on regulatory compliance challenges in the near future.  For more information, or to discuss your regulatory reporting requirements with an expert, contact: advice@abide-financial.com