The Time for Regulatory Data Platforms

On April 17th, 2018, RegTech Associates’ “In Partnership” series continued with BNY Mellon hosting an event in London entitled “The Time for Regulatory Data Platforms”.

RTA Event April 17 banner - no logo

The event focused on exploring the data challenges facing buy-side financial institutions in meeting their regulatory obligations, and how RegTech solutions can best be deployed to address these. Attendees included large global banks and asset managers, as well as the UK’s Financial Conduct Authority (FCA).

Themes explored included how regulations affect the products and business of buy-side firms, how regulatory data can drive RegTech solutions, how financial institutions can choose to prioritise regulatory projects, and how RegTech vendors can best develop and position their solutions for the buy-side.

Event speakers photo - April 17 - cropped

Buy-Side Considerations

Buy-side firms are currently experiencing pricing pressures and simultaneously needing to comply with new complex regulations, whilst anticipating additional regulations within the coming years. It is important for buy-side business models to stay attuned to regional and global regulatory developments.

There is still a significant gap in capabilities between the buy-side and the sell-side when it comes to addressing and adapting to regulatory developments.

Historically, the buy-side has been relatively slow-moving in terms of the adoption of new technologies, with RegTech not part of their strategy or innovation programmes. This has typically left buy-side firms with highly manual processes and “bolt-on” solutions that are not sufficiently robust, or even no longer viable – especially with regulators increasingly demanding traceability and auditability.

In fact John Byrne, CEO of Corlytics, highlighted how since the 2008 crisis, the 50 largest global banks have paid $312bn in fines for compliance breaches, whilst buy-side firms have incurred only 0.5% of this total. This suggests buy-side firms are likely to have been “under-fined” during this period.

FinTech is now impacting the buy-side “from the outside in”, with firms struggling to understand the extent of this impact and how to adapt to it. At the same time, systems need to evolve to meet changing commercial requirements.

Corlytics + Axiom April 17 event

Prioritising Problems and Mapping Solutions

Jason Boud, CEO of RegTech Associates, commented on how the past 5-6 years have seen the emergence of technologies designed to help financial services firms with regulatory compliance. Initially, these technologies were very much solution-focused. We believe it is time to turn this on its head by stating problems first, then looking for appropriate solutions.

In the past companies often agreed that it presented a high risk for them not to invest in new regulatory compliance solutions, but funding was frequently declined because the potential impact of that risk could not be quantified.

As John Byrne of Corlytics pointed out, by systematically monitoring regulators’ expressions of intent and their enforcement actions, it becomes possible to anticipate and quantify the consequences of non-compliance. Certain firms are already using technology to look at the biggest regulation-related events and prioritise areas of compliance that need addressing according to their relevancy and potential financial impact. The sheer amount of data being created now in the regulatory space means that organisations need to filter the data they review and ensure they are looking in the right places. John Byrne believes that systems of the future need to focus on outcomes and what produces those.

It is also useful to look at RegTech in terms of how it can increase the speed of business – for example by making it possible to open accounts much faster. Conversely, RegTech selected or implemented badly can impede business.

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Building Solutions from Data upwards

Participants commented on the need for regulatory data to drive technology and its benefits, highlighting there is a tendency to think of data only at the end of processes. From the start of projects, firms should  consider a universe of connected data that spans the definition of a business, its clients and the regulations the business needs to comply with.

Speakers highlighted the following issues with respect to regulatory data:

  • It is paramount to store regulatory data in a form that ensures it can be used and re-used
  • It is challenging to simplify a business model or business down to “data and rules”
  • Uncontrolled data quickly becomes untrusted

With the current relative slowdown in regulatory deadlines, data management is becoming both a focus and a significant challenge. Dealing with “Big Data” has become especially difficult for buy-side firms that don’t have large departments to process and review data.

Shaun Hurst, Principal, Information Governance Practice at Actiance, highlighted how on average people are using between 9 and 12 different forms of communication every day. Although in a financial services firm this number can be slightly lower (perhaps between 6 and 8), it still means a huge amount of data is being created, typically across disparate systems. Monitoring the multiple communication channels that are used daily presents big challenges. It has therefore become essential for financial services firms to be able to retrieve and analyse almost any data that is stored in any form.

Given increasing requirements for firms to be able to trace, audit and analyse vast amounts of data, it is much more efficient to maintain a single centralised repository that stores books and records data alongside client information and other organisational data. This should be set up with a “fine grain” set of controls that enables efficient supervision.

John O’Dwyer, CEO of Axiom HQ, highlighted three key features of data-centric solutions:

  1. Traceability: an ability to map regulations to processes and controls. This enables firms to rapidly answer focused questions from the regulator such as “how do you comply with CASS rule 7.1?”
  2. Controls: the ability to assign these down to a “micro” level, then roll them up through various levels of hierarchy all the way up to board level.
  3. A data model for the “Attestation Pyramid”: once this is established, software can facilitate insights and produce behavioural analytics.

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Aligning RegTech Buyers and Sellers

Speakers discussed the RegTech landscape and how RegTech firms can best approach the buy-side.

MiFID II presented a “great” opportunity that led to the emergence of numerous commercial relationships and corresponding successes for technology firms. With spend on compliance likely to keep increasing for the foreseeable future, there are ongoing opportunities for RegTech firms to develop their solutions and business.

An important focus of RegTech solutions should be to address the needs of both large and small firms, including those that do not operate their own technology.

Participants agreed that software firms don’t all have people who can translate business needs into technological capabilities; RegTech firms should have experienced compliance people working for them.  It is equally important that they understand buy-side setups and needs. For example, there is little point talking about solutions for banks to asset managers, an approach observed across a number of RegTech firms; conversations need to be relevant. RegTech vendors were advised to make sure they can speak the language of the practitioner to whom they are selling, have in-house experience of practical implementations, and focus on usability.

In terms of developing RegTech offerings for new client bases, a common approach is to start with a Minimum Viable Product (MVP) that solves a specific problem and grow from there.

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We will be publishing a whitepaper based on this event mid May. Sign up to the RegTech Associates community to be kept up-to-date with our activities and publications:

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