With annual spending on regulatory technology thought to be €50 billion and growing, Funds Europe asks a selection of fund management firms, tech providers and professional advisers about their experience of implementing regtech solutions.
JAMES MASTERS, HEAD OF CORPORATE TECHNOLOGY, SCHRODERS
The challenge the industry faces of responding quickly and effectively to the demands of global regulations has provided an ideal opportunity for fintech and regtech organisations to develop solutions that can benefit firms beyond the boundaries of the regulations themselves.
Schroders works with some of the most forward-thinking technology firms to explore innovative approaches that could help us with our response, but often results in additional benefits that are felt throughout the firm.
Technology departments face increasingly complex requirements and, despite the amount of activity in the regtech space, there are not silver bullet solutions available for each of the regulations. Our responses require a combination of new products, coupled with subject matter expertise both on the interpretation of the regulations, but also the data required to support them.
Combining a deep understanding of data within the firm with the wealth of new solutions around data and analytics in the market provides the opportunity to leverage the right combination of systems for the right issues and will result in us not only being able to respond faster and with greater agility, as the regulations develop, but adapt our approach to data capture, sharing and understanding to benefit the demands of the broader business by introducing new ideas and approaches.
Schroders recognises that it needs to innovate with its internal team, just as much as with the regtech and other technology leaders. Learning from the industry’s agile approach and implementing best practice within the organisation is a vital component in ensuring we pull this all together to build holistic solutions.
JR LOWRY, EMEA HEAD OF STATE STREET GLOBAL EXCHANGE
It is expected the global focus on regtech will escalate for the foreseeable future as asset management firms look for and demand best-practice tools to help them meet new regulatory requirements and avoid errors and non-compliance. Many firms now have to report a lot more to the regulators and what they have to report is different for different types of products in different countries and under different regulatory regimes, all of which makes this work increasingly challenging.
The threats and risks have become highly significant and as such, regtech is growing rapidly, driving a need for forensic data transparency, management, analytics and surveillance. The focus on regtech is snowballing primarily because there is so much regulation coming into force. The likes of Basel III, MiFID II, Pripps and GDPR are particularly high-profile right now but these are in many ways just the tip of the iceberg.
Extensive and systemic changes are deeply affecting how companies run their businesses and present themselves to regulators and other high-level stakeholders. MiFID II, for instance, is going to change how trading models work in the industry and how the buy-side sources their research and distributes their products.
Much like the wider fintech sector, regtech is shaping how firms use the profound amount of data they are handling. Regtech is not just about compliance. It is also about competitive advantage, and this is increasingly driving the commercial narrative around regtech offerings in the marketplace.
FRÉDÉRIC VONNER, PARTNER, PWC LUXEMBOURG
Regtech is a becoming an increasingly familiar concept within financial services. As fintech aims to disrupt existing models, we can think of regtech as aiming to disrupt the current way we embed compliance regulations.
Technology-enabled innovation is crucial, especially since the financial sector gears up for the entry into force of new rules, from MiFID II to new data protection requirements.
The General Data Protection Regulation (GDPR), which becomes effective in May 2018, will apply to all entities controlling or processing personally identifiable data of EU residents.
At first sight, it looks like an additional burden on companies, requiring additional efforts to understand, analyse and comply with its various provisions. Yet the GDPR is also a great opportunity for organisations to pause and think (or rethink) the way they handle and store personal data and data in general.
This is where regtech can make a difference and turn a compliance-oriented programme into real added value for companies. For example, companies can already use artificial intelligence-based solutions to make sure they manage risks linked to data processing properly and, in addition, to make the most of their data and improve the customer experience.
They can also use data pseudonymisation (as an alternative to encryption) to do client profiling and comply with GDPR’s strict requirements in this area.
Technology-enabled solutions will transform businesses’ approach to compliance and regtech has the potential to greatly improve competitiveness.
MICHAEL SCHULER, CONSULTANT, SIMCORP
Regtech shouldn’t be classed as a subset of investment technology but a key feature in core multi-asset class technology that traverses the front, middle and back office, for a transparent view. Investment data needs to be current, accurate and complete to reflect global exposure. If it isn’t, then there is an increased likelihood of regulatory and mandate compliance breaches.
For this reason, regulatory requirements should be addressed across the whole investment life-cycle for an open overview of positions, cash and exposure, and not siloed away on a system that is only accessed by a company’s compliance department.
At the end of the day, investment firms will soon be forced to address the technology discrepancy to best combat regulatory processes and to truly achieve the growth that they seek.
Adopting a scalable and integrated solution that eliminates these concerns across the investment process will, in the long run, ensure the agility required to grow in a continually challenging global economy.
JASON WHITAKER, BUY-SIDE STRATEGIST, MISYS
Regulators have in recent years shifted from focusing on the end results of investing (making sure that published investment results are correct and not misleading) to a much more forensic approach. Regulators now want to know exactly who made all decisions of importance throughout the entire investment process and why these decisions were made.
At a high level, the regulatory challenge for investment managers is to structurally record and facilitate transparency across their full range of activities.
If executed correctly, this allows them not only to comply with existing regulations today, but also to future-proof themselves against what may come down the line later. Regtech can help investment managers with this.
• MiFID II: A full audit trail of the information surrounding each order is essential to analyse the investment decision process. This provides the regulator, portfolio manager and investor with all the analytics, pricing, risk models and other relevant data that were considered ahead of the trading decision.
• Solvency II: The ability to calculate Market Risk SCR and actionable accounting analytics in pre-trade gives portfolio managers the insight they need to optimise risk-adjusted returns when investing on behalf of insurance companies constrained by capital requirements under Solvency II.
• Emir/Dodd-Frank: Easing the regulatory burden for operations teams responsible for reporting complex derivatives trades, via a dedicated module that automates the creation and delivery of reports in a standardised and timely fashion, is essential.
• Ucits: Out-of-the-box compliance rules are needed to provide a complete pre- and post-trade regulatory framework to ensure investment firms remain within Ucits guidelines.
ASHLEY SMITH, SENIOR VICE-PRESIDENT, SILVERFINCH
Regtech is a new and efficient way of tackling an old but increasingly prevalent problem – the plethora of rules being fired off in the direction of the finance industry.
There are two key elements to what we consider to be the regtech approach. At an immediate level, it’s about tackling these rules – MiFID II, Priips, NPORT in the US – and using technology to make sure that firms have the data they need from many different sources ready for delivery to clients and the regulator.
But there’s far more to regtech than that; it’s also about approaching regulation and the huge amounts of data in such a way as to make this mammoth task more efficient across the board.
The problems we face as a regtech firm go to the very heart of the issues facing asset managers, insurers, wealth managers, advisers and platforms.
An important consideration at present is how to balance that openness with data that allows for ease of transaction alongside the security that’s needed when dealing with sensitive information. We first saw this when we developed our solution to Solvency II, but it’s also becoming more prevalent in the data transfers that take place under MiFID II product governance.
Regtech seems to be gaining recognition as being a significant piece of the solution for the industry. We see an increasing desire to streamline regulatory programmes, and ‘build once, use lots’ views are growing rapidly – in other words, we see strategic rather than siloed approaches becoming much more common.
An obvious example is the common areas where Priips and MiFID overlap and we can build a common solution. We expect his trend to continue and very likely accelerate.
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