Digital Regulatory Reporting – it’s a 2018 wrap!

RegTech Associates took the Digital Regulatory Reporting discussion right to the forefront in London in Early December, with an afternoon industry roundtable followed by an evening event. As with our event in London on the 15th October, our speakers covered a range of topics, which emerged from the afternoon discussion and were developed further.

From left to right: Graham Corr, Jason Boud, Sarah Kocianski, Gordon Chapple, Sian Lewin, Myles Barker, Dr Leona O’Brien, Dr Maciej Piechocki

With our very own delightful Sian Lewin presenting, the evening’s first keynote speaker was Graham Corr: Head of Regulatory Technology Development at RBS. He outlined what regulatory reporting is, and how a bank like RBS tackles the problem. It became very apparent that significant barriers exist to digitising the process but Graham offered a tangible set of steps that would alleviate the pain – elements of which came from the excellent discussion on the topic earlier that day at the roundtable.

The pertinent nature of the dialogue around Digital Regulatory Reporting was another of his key messages.

As the evening went on, we heard from Gordon Chapple from the RegTech team at the FCA and he really took value from the industry’s collaborative effort to move this initiative forward. Following the success of the FCA DRR pilot (read our blogs FCA Digital Regulatory Reporting pilot and It’s only rules, data and execution – are we finished yet for more information)  Gordon said he was hopeful that the innovation of the FCA’s approach to regulatory reporting can help both sides of the current system. The benefits of international discussion with other regulators were also highlighted, which Dr. Maciej Piechocki, Partner at BearingPoint followed up on in greater detail.

In Austria an industry utility known as AuRep has been implemented. This allows for one, centralised digital regulatory reporting mechanism which processes 1.4bn records each reporting date. The service established in 2011 has slowly increased its coverage of different regulations over the last 8 years.  His supply side perspective shared the same general consensus (of better collaboration) but placed more onus on the regulators, in a bid to reduce silo-ed thinking and bridge to an international common standard, which was also a theme in the panel discussion.

Semantic technology is something you use everyday and might not even know it – that was the theme to the final speaker of the evening, Dr Leona O’Brien from the University College Cork. Semantic technology allows you to model and organise your firm’s data according to its meaning.  It sounds simple, but modelling the data is where some of the problems start and for Digital Regulatory Reporting  a lack of common standards means the modelling step may be 95% of the work required. ISDA’s CDM and other standards initiatives seemingly can’t come too soon.

Sarah Kocianski (11:FS) on the panel discussion

The closing of the event and the Digital Regulation Series for 2018 was a great panel discussion which drew on each of the speaker’s topics and some of the issues that came up at the roundtable. ‘The industry has never slowed down, even after MIFDII, but looking at solving issues like this’ – Miles Barker of Credit Suisse was cautious as to the best course of action to the subject of Regulatory Reporting: implementing change within regulatory reporting is costly and time consuming and there is a risk that by the time it could be finished, something new, more efficient and shinier could have come along. Nevertheless, the need for change is paramount and was agreed upon across the panel.

Outsourcing the process by a company like BearingPoint was something Maciej brought attention to, which other panelists followed up by adding how there is no need for firms to create the process internally, and simply outsource. There was a difference in opinion in how to help smaller firms however, into which Sarah Kocianski had great insight. She works as Lead Researcher at 11:FS and detailed how smaller, newer, largely FinTech ‘banks’ are remaining flexible and building that into their systems. As a percentage of operating cost, these firms operate their regulatory reporting far more efficiently but the scale of implementation in a financial institution as well as non-financial barriers makes the idea still slightly superficial.

Timing the full industry’s ability to transition to digital reporting is difficult; some said 5 years and others as long as 20 but one thing was always consistent, across both events: there is need to change.

Rob Konowalchuk, a Partner at Avantage Reply summarised the current state well

Digital Transformation in a bank is nothing new, but with a lot of focus (and spending) to date on the customer journey, risk and finance teams dealing with complex regulations have often been a lower priority during budget cycles. With advances in technology and a wide belief that technology is now ready, we believe it is time to employ these technologies into the Regulatory and compliance domain.

Post Event Networking

Thank you to NatWest for hosting us and to BearingPoint as our lead sponsor for the event, with support from Avantage Reply.

About BearingPoint: With its RegTech product line, BearingPoint is a leading international provider of innovative regulatory and risk technology solutions (RegTech and RiskTech) and services across the Regulatory Value Chain for Financial Services. BearingPoint solutions has over 700 Regulatory and Technical enthusiasts.

About Avantage Reply: Reply is a leading Consulting, Systems Integration and Digital Services company. Reply supports some of Europe’s leading industrial groups in Telco & Media, Industry & Services, Banks & Insurance.

RegTech and Financial Conduct Risk – Q&A with Ed Buckman from Axiom HQ

On 5th December, The Reg Doctor caught up with Ed Buckman, VP of Sales at AxiomHQ at the RegTech Rising conference to discuss all things conduct risk, after having seen a short demo of the new AxiomHQ solution for SMCR.

How do you define financial conduct risk?

Broadly speaking, the actions or behaviour of financial institutions or those individuals that lead the institution, which can potentially have a detrimental effect on clients’ assets, the firm and the stability of the markets – this is conduct risk. In the case of FCA regulated firms subject to CASS (Client Assets rules) for example, failure of the firm or individuals employed by the firm to adhere to all applicable CASS rules designed to safeguard clients’ assets could give rise to conduct risk. With SMCR on the horizon, it is essential that firms and individuals appreciate the implications of any such conduct breaches

Why is it essential for financial firms to mitigate these risks?

There are several reasons. The FCA has put in place strict regulations to guard against conduct risk; non-compliance can result in hefty fines for individuals and firms alike. Additionally, conduct which is contrary to applicable rules could and does have a detrimental impact on the firm in the long run and has in some instances lead to the collapse of the firm, as was the case with Lehman Brothers. We’ve also seen numerous instances of the FCA and other regulators banning individuals from ever working in the City following breaches of relevant FCA conduct rules. Finally, firms are aware of the potential risk to their reputation of any conduct rule breaches. Companies may question whether it is prudent to do business with financial firms which have earned a reputation of non-compliance.

Under the extended Senior Managers & Certification regime, individuals and firms would be expected to pay even more attention to the mitigation of these risks.

What are the main challenges that firms face in mitigating financial conduct risk?

Firms are made up of lots of individuals, the key challenge they face is keeping track of what each of these individuals does and how this conduct may impact on the firm. It is incumbent on the firm and its appointed executives to ensure that they have got the right processes in place to check what individuals are doing; that the relevant controls are in place to address any such conduct risks which may arise. Individuals should be properly briefed, appropriately supervised and supported in carrying out their responsibilities. Embedding such controls and frameworks in the organization and ensuring that they are fully adhered to is key to mitigating  any such conduct risk.

What steps can firms take to address these challenges? How can RegTech firms help?

Technology always helps, but before turning to technology, it is imperative that firms recognise the importance of conduct, the way people behave. A culture of compliance must be ingrained in the culture of the firm from the very beginning. In the event individuals fail to follow the rules, having the right technology in place is not going to help. Having succeeded in developing a culture of compliance, firms may turn to technology to facilitate compliance. This is where RegTech can be helpful.

Firms outsource some of their processes to third parties for example, how do such firms then have oversight over the work that is being undertaken by third parties? Excel spreadsheets and email have proved very useful for firms; but having access to software that provides comprehensive oversight for all the processes firms have outsourced to third-parties, has proven to be very successful for several of our clients. With the extension of the SMCR regime, firms, both small and large, are looking for solutions to help demonstrate that they have taken reasonable steps to ensure compliance. While it is possible for firms to utilise excel and a patchwork of manual solutions to demonstrate compliance with the new regime, having access to technology like the Axiom platform will enable firms keep track of all the relevant activities and corresponding documentation and help reduce the cost and burden of compliance.

Find out more about AxiomHQ here.