I recently had the opportunity to sit down with our Chief Product Officer Ronan Brennan to discuss regulatory data management in front of an intimate and engaged audience of CSS conference attendees in Scottsdale, Arizona. The group ranged from small fund managers to large institutional asset managers, so it was difficult to boil down the topic into a one-size fits all approach, especially one as technical as this. As a follow-up to our discussion, I wanted to re-examine the concepts of strategic and tactical implementations and introduce a new one – the regulatory book of record (RBOR).
There are two approaches for sourcing regulatory data. The first is to build a single source of regulatory data or a regulatory book of record (RBOR). The second approach builds a gateway into multiple data sources – including the accounting or investment book of record (ABOR or IBOR), order/execution management system (OEMS) and reference databases. We can also refer to these approaches as either strategic or tactical.
Figure 1 Data flows from disparate systems to compile the regulatory book of record (RBOR). Source: CSS RegTech
Today’s global regulatory environment demands that data generated during the trade lifecycle (including historical positions) be accessible downstream to facilitate transaction reporting with regulators, exchanges and MTFs; periodic form filings such as Form PF, CPO-PQR and Annex IV; and support trade desk oversight functions such as position limit monitoring and substantial shareholder reporting. The expanded scope of filings and the increase in the frequency in which data must be produced has forced firms to re-evaluate their systems infrastructure. With near real-time data now in vogue with compliance teams, many operations teams are going back to the drawing board.
If you recall, the IBOR movement began under similar circumstances. Portfolio managers and traders needed real-time portfolio-centric views of positions and cash balances to better manage client accounts and maintain portfolio compliance. The RBOR movement is being driven by similar needs, and there are obvious long-term operational efficiencies in taking a strategic approach – such as the ability to absorb changes, mitigate vendor risk, and reduce the long-term costs of maintenance.
Figure 2 Pros and cons of strategic and tactical regulatory data management.
The RBOR methodology is often included as one of the books of record in the multiple books of record (or MBOR) approach. The goal of the MBOR framework is to create multiple books of record such that the front, middle and back office have more comprehensive access to specific data sets required to carry out their job functions.
Due to the high upfront costs and impact on critical systems, smaller firms commonly take a more tactical approach by building gateways directly into the source systems, for example, the ABOR and enriching it with external data. The ABOR runs a batch process that occurs at the close of business each day and recognizes trades as part of the fund and NAV one business day after the trade is executed. Reconciling positions on a trade date plus one (T+1) basis is often acceptable for periodic filings, but it can become problematic for monitoring portfolio compliance and reporting thresholds in real-time.
There are some benefits to taking a tactical approach as well. Most notably, if real-time data is required to facilitate a compliance function, it is often best to go directly to the OEMS to reduce latency. Real-time positional data is going to be difficult in the absence of an IBOR, so the combination of an ABOR and a near real-time transactional feed can help firms facilitate real-time position limits monitoring or trade surveillance, for example.
For smaller firms unable to make the transition from the static ABOR to the dynamic IBOR framework, and even for larger firms struggling with the complexity of design and implementation, it is worth considering how developing an RBOR can provide better data governance for compliance teams now tasked with a myriad of data-driven filings and disclosures.
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