United States and European Union reporting requirements imposed on investment managers have exploded since the Global Financial Crisis and, with the imminent arrival of SFTR in Europe, it seems poised to expand again. The challenge of reporting trades, transactions and contracts in multiple jurisdictions requires firms to embrace technology as regulators continue to look to dig data as a solution for identifying issues and potentially preventing another crisis.
What should investment managers be doing right now, and how should they be planning to handle even more reporting? At the recent Ascendant Compliance Solutions Strategies 2019 Spring Conference, John Walsh of Eversheds Sutherland LLP, along with Keith Marks and Jeanette Turner of CSS, reviewed the evolution of big data since the global financial crisis, and offered guidance on managing today’s reporting challenges and preparing for the future.
The panel noted that following the financial crisis, firms and regulators sought to understand why it happened. The push for big data began due to “sheer panic as major firms everyone thought was were fully capitalized, collapsed” leading to a feeling of “the world is ending, what do I need to know?” noted Mr. Walsh.
This ushered in the first wave of rulemaking, with MiFIED I, AIFMD, and Dodd-Frank, followed by MIDAS, VAG, CRR, Solvency II and other regulations. In 2014, the SEC launched The National Exam Analytics Tool (NEAT), enabling Office of Compliance Inspections and Examinations (OCIE) examiners to access and systematically analyze years of trading data much more efficiently than in the past. Since then, investment managers have been faced with additional new reporting requirements and forms, as well as modernizing existing forms, with N-PORT, N-CEN, MiFID II, SFTR, MMFR, PRIIPs and re-expansion of Form ADV.
The panel noted that regulators are crunching data from commercial sources, custodians, and broker-dealers in addition to what is provided directly by advisers. Mr. Marks offered a glimmer of hope, reminding the audience that the SEC recognizes there is a cost of making regulatory changes and the debate of cost and burden is real. In fact, in remarks made at the Economic Club of New York, July 12, 2017, SEC Chairman Jay Clayton acknowledged, “Companies spend significant resources building systems of compliance, hiring personnel to operate those systems, seeking legal advice concerning the design and effectiveness of those systems, and adapting the systems as regulations change. Shareholders and customers bear these costs, which is something that should not be taken lightly, lest we lose our credibility as regulators.”
So, what can you do now? Here are the panel’s big three tips:
- Be agile. Look at your legacy systems and determine if they can work with change or if it’s time to swap them out and prepare for evolving reporting needs
- Know your data. If you’re unaware of what’s in trading, that’s a problem. Regulators are not tolerant. The firm needs to understand its data. If your business is data rich and using great technology, but your compliance team is not, you’re in trouble.
- Watch the regulators. It’s going to continue to be an iterative evolution, but market data will increasingly serve as the source of rulemaking.
CSS offers a full, strategic suite of solutions to address the full scope of global compliance needs. For more, visit our Solutions page.
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CSS frequently publishes blog posts which are written by our team from their observations in the field, at conferences and through experiences with compliance professionals. These posts are designed to further knowledge and share industry best practices. Topics run the gamut, including Form ADV, cybersecurity, MiFID II, position limit monitoring, technology challenges and more. Complete and submit the brief form below to receive notifications when we publish new content.