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Financial Institutions Must Go from Regulatory Spaghetti to Regulator Ready to Ease Compliance Strain
Traders Magazine Online News, October 26, 2017
Once upon a time, when financial institutions had to comply with a new regulation, they would create a dedicated team to deal with each specific regulation. This group of compliance professionals would oversee the process from start to finish, acquiring data, parsing it for information needed and assembling the necessary reports and conclusions to relay to the regulating authorities. Every time a rule was passed down from regulators, the process would begin anew, leading to a world where compliance departments were a complex mix of siloed teams, each working on its own to carry out a particular section of the regulatory agenda. Each firm would have a faction for FATCA, a division for Dodd-Frank, a squad for sanctions, and so on.
When banks only had a few distinct regulations to worry about, this approach may have made sense, and it’s easy to see how it has continued to endure over the years as new rules slowly trickled out in piecemeal faction. Today’s regulations, though, are more complicated and intertwined than ever before. As the pace of rulemaking has picked up, the complex and overlapping directives that have resulted are beginning to look like a plate of regulatory spaghetti. Banks are facing a raft of regulations that draw from nearly every conceivable corner of their data resources. These regulations contain some of the most extensive reporting requirements ever, mandating that firms provide data on trading venues, client order volumes, liquidity and trade execution, among other things. They also require qualitative information showing that firms are adhering to best execution requirements in their trading procedures. Compliance managers know that regulators will be examining their programs closely and looking for errors or omissions that may be indicative of a larger problem and can set a firm up for additional scrutiny. Even firms’ compliance must be compliant, and to show that they’re making a good-faith effort in this regard, they need procedures that are organized and efficient, making it easier for them to diagnose, correct and ultimately avoid mistakes.
In this environment, traditional siloed approaches seem quaintly outdated at best and dangerously inefficient at worst. To comply with each of the current slate of regulations, firms need to access massive streams of data, pulling the correct data and applying the appropriate rulesets. Yet when a siloed approach is used, multiple teams often end up accessing the same data on their own—a situation that not only leads to data redundancy and duplication, data sourcing complexity and convoluted time series management, but can potentially also cause serious issues in the event of data discrepancies.
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