Regulatory Challenges of Saxo Bank

Our Associate Lilia Tira recently discussed all things RegTech with Rachel Przybylski, Regulatory Affairs and Company Secretary at Saxo Markets UK.

Rachel Przybylski

Saxo Markets is a UK FCA regulated entity of Saxo Bank AS, which is headquartered in Denmark. The Saxo Bank Group is a provider of electronic trading and investment services, entering the market in 1992. Saxo services a wide range of client types, globally, with its multi-asset offering. The UK entity comprises circa 80 staff and services both retail and institutional clients. Saxo Bank has evolved its offering over time, most recently acquiring Dutch on-line brokerage, Binckbank. Saxo is known for its technology-led strategy and open approach to innovation. 

You consider yourself as a Fintech company. How do you stay at the forefront of innovation?

Our trading platform is our big technology focus and where we are the market leaders. We try to see what the client needs, before the client needs it. Everyone talks about AI and ML, but truly integrating these into your tech build is not to be underestimated and takes a dedicated focus. Saxo continues to put innovation and the client experience at the forefront of what we do; What is it about the client journey that can be improved? How can we collaborate with strategic partners? How can we leverage the efficiencies and competence of other best-in-class technology? Client outcomes are important to the regulators, and they are to us too. 

If you want to focus on your clients or commercial offering more broadly, building out solutions for every piece of regulation is very intensive and therefore not time or cost effective. In addition, many smaller firms struggle to keep a business viable if they must build out full front-to-back solutions from scratch themselves. Partnering with Saxo enables firms to focus on the core services they are offering to their clients.

What are the main regulations you are currently working on? 

Right now, the UK regulatory roadmap is very well aligned to the European one. MiFID II has had huge implications and continues to. Being at the forefront of regulatory implementation is important to the Saxo business model because we work with so many institutional partners who use some or all the components of our fully white label offering. We act almost like a RegTech to our partners; they take our technology and we make sure our platform is flexible to meet all the regulatory requirements at the same time. Obviously, they are not outsourcing their responsibility, but the technology is there to assist them, no matter where they are globally.

After MiFID, one of the biggest regulatory challenges for the retail brokerage market is the Product Intervention measures from ESMA. That has had a significant impact over the last 18 months, and coupled with the market conditions, it has probably been a tough year for most brokers. Saxo’s business model has always been less reliant on high leverage which places us in a good position to maintain and grow the business in this new regulatory environment. Saxo Markets has been a vocal supporter of the proposals from the outset and has always believed that consistent, harmonised regulation at a European level will be positive for clients and the industry. 

Looking forward, we are working on the Senior Managers Regime (SM&CR) in the UK and Shareholders Rights Directive (SRD II) across the group. For the latter, RegTech solutions are key to understanding, selecting and integrating a vendor solution ahead of next September’s deadline. This regulation is a good example of where early involvement from all stakeholders is important to ensure the solution will work for all of them. 

How do you decide whether to build or to buy technology?

Historically, we have built technology in-house. Today, we are still building trading platforms which are the core of our best-in-class offering. However, Saxo appreciates that leveraging the best-in-class, for example RegTech vendors in response to MiFID II, is important. We are getting into that place where we have a very nice combination of build and buy. It’s important to drive efficiencies where possible in today’s regulatory landscape, otherwise prioritisation of commercial projects and regulatory projects is difficult. 

The decision to build or buy depends on the regulation itself, what kind of system and what kind of data we need. When it comes to regulation, there are good reasons to buy because each vendor can specialise in a topic and can already cater for multi-jurisdictional challenges of basic regulations. For example, for SRD II, this is a solution which we will buy because it is quite specific, and we’ve never needed to give our retail clients the ability to vote before.

What do you expect from a vendor?

I think very close collaboration with a vendor is important. I am sure that all the vendors understand every firm has a very different set-up from a systems and data perspective, and the most challenging thing is whatever you feed into the vendor system is going to produce the right output. We see ourselves as quite innovative in the technology space, we probably look at the vendors who are willing to think about the solutions they can offer us in the same way as we do with our clients. 

There are so many new vendors with outsourcing being such a hot topic right now – especially since the revised  EBA guidelines, firms have to consider the risks of group structures and embedded external vendors. I think this is a space where tech innovation in risk management will thrive.

We are focused on our group structures to ensure our outsourcing framework is correct. Whilst it’s important that when you are choosing a vendor you are not opening yourself up to any more risks than is necessary, at the same time, the newer vendors might be the innovative ones offering the services you want. 

The regulators are doing a lot to support innovation in the markets, with the FCA Sandbox being one of the most advanced in Europe.

Is there anything on the regulatory horizon which particularly worries you?

With Brexit, you worry, if only because of the divergence between Europe and the UK. It’s difficult to know which direction regulators will go. Some of the initial challenges of Brexit like market equivalence & transparency are obviously important to the brokers from an execution perspective.

We could then be looking at MiFID 2.5, because we think the intention from some European regulators will clearly be to review topics which were very UK-led. We don’t know what the UK response will be. It’s a bit frustrating because we have spent so much time trying to create global solutions, working together on one big European regulatory implementation, and now we might have to cater for more differences. 

We knew when we implemented MiFID II that there was already a distinction between what we needed to do to be ready for the deadline, and what we wanted to do in 2019/2020. Then there are the post-implementation reviews, because the industry or the rules have since gone in a different direction. 

There are still a lot of pieces of regulation that matter to Saxo because of the end investor and those are the ones that we think still need work. Product governance is yet to prove itself and we may well see changes there.

The PRIIPS regulation is going to get reviewed at the end of the year. That will have a big impact on us. We can see the intention behind these regulations, and why they should work, but ultimately so many people have implemented them in slightly different ways that the value to the end client is diluted. For us that’s a shame because we would really have loved a harmonised approach that is adding value to the client. We see this with best execution RTS 27 and 28 reports, cost disclosures and PRIIPs KIDs and, in our opinion, consistent applications are crucial in bringing significant value to the end client.