Originally published by IFA Magazine, July 17, 2024
By Adam Quirke, Business Development Lead – Financial Services, InterSystems UK & Ireland
As the regulatory landscape continues to evolve, compliance officers at financial services institutions (FSIs) are crucial in maintaining integrity and trust.
They ensure compliance despite a growing burden of responsibilities and the challenges of legacy technology, which lacks agility, requires extensive maintenance, introduces operational inefficiencies, and could potentially delay implementing necessary regulatory updates.
The dependence on out-dated systems poses a significant risk as regulatory demands grow. Manual processes are still common, even though new regulations require more detailed and frequent reporting. Disparate data sources often struggle to integrate, complicating the management of the vast amounts of data needed for analysis, insight, and reporting in this critical area.
By leveraging modern data technology, compliance teams can greatly improve efficiency, freeing them from lengthy and complex processes. A global survey of 375 asset management companies commissioned by InterSystems found two-thirds of firms employ between six and nine people just to process data.
Growing data management challenges
Asset managers must consider new strategies for handling data. According to the survey, 44% of respondents identified improving responses to regulators’ requests as a key data management challenge. Additionally, 54% stated that data errors between disparate sources is the primary reason for investing in data management solutions.
Many firms also face difficulties in accessing data that is current. Only 38% use data that is less than a day old for reporting. This issue is exacerbated by the processing of unstructured information from various sources, errors, and reliance on manual methods.
Smarter, not harder for data management
Innovation is now essential for compliance, with a data fabric architecture gaining popularity as an effective method for delivering accurate, harmonised data for near real-time reporting. This architectural layer simplifies complex data infrastructures without replacing existing systems, thereby maximising current technology investments.
This layer sits on top of a firm’s infrastructure, delivering a unified version of data from high-volume internal and external sources without time-consuming manual processes or complicated wrangling. It streamlines compliance work and supplies the kind of timely and trusted data compliance officers need for reporting.
Without increased automation and more efficient data management, compliance costs will rise. Hiring skilled and costly staff becomes necessary to manage compliance burdens effectively. According to Thomson Reuters’ 2023 Cost of Compliance Report, which analysed 1,374 regulators in 190 countries, one-third of respondents with compliance-related responsibilities in the UK, EU, and US expect compliance teams to grow, leading to higher overall costs. Additionally, compliance is expected to play a larger role in cyber resilience, corporate governance, and setting “risk appetite.”
Managing these additional demands is challenging with legacy systems and applications, which create complexities and hinder access to clean, standardised data needed for regulatory reporting. Harmonising and making data usable can be time-consuming and expensive, especially when it is spread across spreadsheets, data warehouses, data marts, or data lakes.
An increased requirement for regulatory reporting
A glance at upcoming regulations highlights the necessity for innovation. The financial services sector faces a wave of new rules. EMIR 3.0 and Basel 3.1 will introduce over 80 new data-field requirements. For Basel 3.1, the Prudential Reporting Authority (PRA) plans to implement 19 new COREP (Common Reporting) templates and revise 12 existing ones. The UK Financial Services and Markets Act introduced significant updates to the regulatory reporting framework and expanded the enforcement powers of the Bank of England and PRA.
The UK and European Union (EU) are not the only ones updating their regulations. The US Securities and Exchange Commission (SEC) has adopted new Private Fund Adviser Rules, which include five regulations supported by extensive summary materials.
Environmental, social, and governance (ESG) obligations are also becoming more prominent in regulation. For instance, as of May this year, firms regulated by the UK Financial Conduct Authority must review product types and disclosures in the context of ESG to eliminate “greenwashing”.
These changes will significantly increase workloads, once more. The Thomson Reuters’ report shows there were 61,228 “regulatory events” in the banking and finance sector in 2022 – the third highest since 2008.
Broader benefits on offer
Transforming an asset management firm’s data architecture offers advantages beyond compliance. The firm can develop machine learning (ML) models to enhance risk management and streamline back- and middle-office processes. This transformation also enables the firm to better meet bespoke client requirements and provide rapid, detailed insights into performance, fees, charges, changing market conditions, and competitors’ activities.
Investing in a smart data fabric, which extends the data fabric approach by embedding extensive analytics capabilities, allows asset managers to empower their compliance teams to succeed with data and insights. This is particularly valuable for firms facing low margins and slow growth.
Compliance functions need agility and advanced technologies just as much as line-of-business teams. The smart data fabric is primed to offer this, providing the compliance capabilities necessary to meet new regulatory requirements, while also achieving higher margins and improved internal efficiency.
