New year, New Regulations, New Challenges
With the year of MIFID II behind us, firms can now start looking ahead at what’s coming next over the horizon. Well, almost. The MIFIR compliance date may be past us, and the go-live may have gone relatively smoothly for a majority of firms, but there’s still a lot of work to do. This includes cleaning up any loose tactical processes, solving reference data issues, and very importantly, putting in place the controls required by ESMA to identify and prevent over- or under-reporting, as well as the reconciliation of front-office data with end venue(s)’.
A pivot from building to sustaining
While there has been a slowdown in the introduction of new reporting regimes, regulators have noticeably increased their expectations in terms of data quality and levels of controls to be demonstrated. This means that in 2018, firms will either see a continued pivot, or the start of a new one, towards a need to implement a more sustainable regulatory framework. For some, this will mean turning disparate silos created as tactical deployments into singular regulatory reporting hubs. For others, this could involve adding secondary controls around reporting, reconciliation, and increased testing controls.
Looking further ahead
Where can this all lead to? Once the foundations of a sustainable regulatory framework are laid down, firms will have access to a clean, comprehensive and golden source of transactional data. At this point, they will be able to improve their exception management and management reporting through visualisations, and start pushing further into analytics to take advantage of advances in cloud and big data technologies.
A note on distributed ledger technologies – whether you’re already sitting with the Blockchain congregation singing hallelujahs, or a sceptic to its benefits as a technology. There will undoubtably be an initiative within your organisation that will be conducting proof of concept(s) or starting to make unobtrusive infrastructural changes further upstream in your organisation to see if the technology can start delivering on the hype. Key observations will be overcoming performance issues, but this technology is at an inflection point this year.
The Transaction reporting check-list for 2018
ESMA, Markets in Financial Instruments Directive II (MiFID II) – As mentioned, MIFID II didn’t stop on the 3rd of January. Reference data processes, assurance around regular reconciliations and controls for over- and under- reporting all need to be put in place.
ESMA, Securities Financing Transaction Regulation (SFTR) – Important regulatory change to provide transparency to the Securities Financing Markets. Key challenges include large volumes, substantial numbers of data points that have never been reported, as well as matching and reconciliation headaches.
CFTC, Roadmap to Achieve High Quality Swaps Data (CFTC Level 2) – Yet another indication that regulators are looking to tackle the data quality issue. Keep an eye out for the final ruling on this in Q4 2018, also see MAS extension of asset classes in Q3-4 2018.
SEC, Consolidated Audit Trail (CAT) – For US broker dealers, the OATs replacement CAT, SRO members (excl. Small Members) will be required to submit data to a central repository (November 15th 2018). Expect challenges with PII data, tighter error resolution times, and simultaneous implementation of CAT with the continued maintenance of OATs.
All in all, 2018 looks to be yet another busy year for Regulatory Reporting. However, green shoots to a more sustainable regulatory future are slowly growing and we can expect to see new processes and proven technologies help turn that into a longer-lasting and stable landscape.
by David Morris, Product Manager, RegTek.Solutions