The facilities are aimed at helping firms address the post-trade implications of a Securities and Exchange Commission (SEC) July 2023 rulemaking that mandated central clearing for a wide range of U.S. Treasury (UST) securities transactions including cash, repurchase agreements (repos) and reverse repos.

The UST market sees daily transactions averaging over $700 billion in cash and $4.5 trillion in financing, making it vital for U.S. government funding, monetary policy, and as a safe haven for global investors. The market has grown rapidly and disproportionately where currently, 87% of this trading activity is cleared bilaterally.

Several liquidity events over the past decade highlighted vulnerabilities in the treasury market where the systemic risk of a non-participant failing required mitigating. The SEC’s final rule, adopted in December 2023, aims to expand central clearing to mitigate such counterparty and systemic risks.

The new rule seeks to transition a substantial portion of the daily US $4.9 trillion treasury market activity to central clearing through a central counterparty (CCP). Currently, the only authorised CCP for the UST market is FICC. However, other CCPs have expressed interest, among them London Clearing House (LCH).

Tools of the Trade

The first of the new FICC tools, a Capped Contingency Liquidity Facility (CCLF) Calculator, is designed to increase the transparency into the financial obligations associated with membership in the FICC Government Securities Division (GSD).

The CCLF is a critical risk management facility designed to provide FICC with additional liquidity resources to meet cash settlement obligations in the event of a default by the largest netting members (see DTCC Risk Management Tools). By allowing firms to estimate their potential CCLF obligations, the calculator aids in better liquidity planning and risk management. This can make FICC membership more attractive and manageable for a broader range of market participants, including smaller institutions and buy-side firms.

The calculator helps firms anticipate and plan for the liquidity commitments required under the new SEC clearing mandates. By providing upfront attestations regarding their ability to meet CCLF obligations, firms can ensure they are prepared to comply with the expanded central clearing requirements for U.S. Treasury securities.

Tim Hulse, Managing Director of Financial Risk & Governance at DTCC, emphasized that VaR is a key risk management concept and a primary component of GSD’s Clearing Fund requirements. The calculator uses historical data, volatility, and confidence levels to estimate VaR, thus enhancing market transparency. It allows market participants to calculate potential margin obligations for given positions and market values using FICC’s VaR methodology.

Hulse highlighted the urgency of evaluating firms’ risk exposure with the expansion of U.S. Treasury Clearing, noting that the VaR calculator offers increased transparency into these obligations.

These tools are public and not restricted to member firms This means that as firms consider their optimal approach to access central clearing for compliance with the the new clearing rules, these risk tools can provide the necessary transparency and support as firms evaluate the different types of membership and models with GSD.

The SEC has introduced several measures to make FICC access more inclusive. FICC offers multiple membership models, including Netting Membership, Agented Clearing, Sponsored Membership, and Centrally Cleared Institutional Triparty (CCIT) Membership, catering to a wide range of market participants from large banks to hedge funds. The SEC has provided temporary regulatory relief to address custody and diversification concerns for registered funds.

CCIT membership primarily benefits institutional cash lenders such as corporations, asset managers, insurance companies, sovereign wealth funds, pension funds, municipalities, and State treasuries. It allows these entities to engage in tri-party repo transactions with enhanced risk management and operational efficiency provided by FICC. The central clearing of these transactions helps reduce counterparty risk, ensure the completion of trades, and potentially offer balance sheet netting and capital relief for participants.

The Securities Industry and Financial Markets Association (SIFMA) is actively coordinating multiple work streams that involve both buy-side and sell-side members. These efforts aim to accelerate the necessary transitions for the clearing mandates. Key aspects include engaging with the SEC and other regulatory agencies to address market access issues, particularly for registered funds and margin transfers, which are crucial for ensuring a smooth transition to central clearing.

Developing an operations timeline with key milestones is another critical task. This timeline will guide the transition to full central clearing by June 2026 for repos. Addressing issues related to market plumbing and connectivity is also vital to support the increase from 13% to 100% clearing. This involves ensuring that all participants can effectively connect to and use the central clearing infrastructure.

Regular communication with market participants is planned to keep them informed about progress and strategies for meeting the clearing deadlines. This will include updates on the status of various strategies and the overall progress towards the deadlines. SIFMA will also engage in regular discussions with the SEC and other agencies to ensure they are aware of the progress and any potential needs for timeline adjustments or phased rollouts.

Legal and enforceability issues will be addressed by obtaining netting enforceability opinions in relevant jurisdictions to support large-scale clearing. This step is closely tied to the development of market standard documentation. Additionally, new documentation approaches that leverage modern communication methods will be evaluated to increase efficiency.

Stakeholder engagement is essential to confirm the status of various strategies and ensure alignment with the clearing deadlines. SIFMA plans to reach out to market participants regularly to keep them informed and engaged. This will help ensure that all participants are on track to meet the clearing mandates.

Lastly, future planning includes preparing for additional publications and podcasts to keep the membership and broader public informed about ongoing efforts around Treasury clearing. This will ensure that everyone remains updated on the progress and any developments related to the central clearing mandate.

The post DTCC FICC Releases Tools to Help Firms Address Incoming SEC Central Clearing Mandate appeared first on A-Team.

By David Turmaine, Head of International at Broadridge Consulting Services, and Maria Siano, Head of International Strategy at Broadridge.

Today’s digital world is increasingly complex, characterised by interconnected systems and data that is stored, and widely shared, online. Looking through a financial services lens, cyber threats and incidents are becoming more sophisticated, posing significant risks to financial stability and security.

The number of attack vectors has multiplied in line with the growing reliance on technology and associated spike in remote and decentralised working since the pandemic. A recent survey by the BCI, the global body for resilience professionals, revealed three-quarters of respondents had seen a rise in attempted breaches over the last year, with nearly 40% the victim of a successful cyber-attack.

The system modernisation and digitalisation journey that firms around the world are now undertaking, often to align with market developments such as the shortening of the settlement cycle to T+1, is filled with risks – which has led to a heightened regulatory focus on cybersecurity and operational resilience.

Against this backdrop, the EU’s Digital Operational Resilience Act (DORA) has come into force and in-scope firms – such as banks, investment firms, and designated fintechs – must be compliant from January 17, 2025.

DORA seeks to establish a clearer foundation for security and operational resilience in the financial services sector, while also aligning with other EU measures on cybersecurity and data. It is the most comprehensive resilience regulation currently yet seen in this space, but the thinking is reflected by other jurisdictions around the world, with regulators increasingly demanding that financial institutions bolster their operational resilience.

Japan, for example, has introduced the Economic Security Promotion Act (ESPA), whilst the Australian Prudential Regulation Authority (APRA) has published a new Prudential Standard (CPS 230 Operational Risk Management) that will direct how regulated entities manage operational risks, resilience, and business continuity. In July 2023, the US Securities and Exchange Commission (SEC) adopted rules requiring registrants to disclose material cybersecurity incidents.

What are the main components of DORA?

DORA is the most in-depth regulation to date aimed at strengthening cybersecurity amongst financial institutions.

It is seen as a means of compelling more firms to work internally, and with their third-party information and communications technology (ICT) service providers, to improve their threat assessments, cyber incident management, and overall resilience. It is also a positive step towards a more harmonised EU framework that will enhance the digital operational resilience of financial services across the region whilst preventing widespread contagion that could undermine the financial stability of the bloc.

DORA is structured around five pillars, which cover governance, resiliency, incident management, and reporting. A common thread is the protection of data as it passes through both a financial institution and then the ecosystem around it, such as vendors.

The first pillar is ICT risk management, which mandates firms to implement robust risk management practices for their systems to prevent cyber-attacks and disruptions. They must also develop and maintain effective recovery and continuity plans to ensure the uninterrupted provision of critical financial services in the event of a cyber incident.

The second pillar is incident management, with DORA requiring entities to establish and maintain robust mechanisms for identifying, classifying, and recording incidents. Additionally, financial institutions will be required to report significant incidents to regulators within a tight timeframe to ensure timely responses and coordination.

The third pillar is digital operational resilience testing, and here we see some of the newer demands that firms must now quickly familiarise themselves with. Firms must conduct regular resilience testing to verify the effectiveness of their digital resilience strategies, and this includes advanced threat-led penetration testing at least every three years to address higher levels of risk exposure. Test results will need to be sent to the regulator for validation and approval.

The fourth pillar relates to third party risk management and oversight. Recognising that the digital operations of many organisations are closely intertwined with third party providers, DORA puts an emphasis on managing the risks associated with these external partners. Firms will be expected to conduct enhanced due diligence on their providers and include provisions in their contracts to ensure they also comply with strict digital resilience standards.

The final pillar outlines the importance of sharing information and intelligence about cyber threats and vulnerabilities amongst organisations. By creating a more collaborative environment, the hope is firms can tap into a wealth of knowledge and experiences, building their capacity to predict and address challenges. This collective understanding can foster the creation of effective policies and proactive strategies, ultimately improving the digital resilience of individual organisations and the financial industry as a whole.

The key steps to building operational resilience

DORA will place further pressure on firms to implement better cybersecurity measures and bolster their operational resilience in the coming years, but it is already front of mind for many in the financial services industry.

Broadridge’s 2024 Digital Transformation & Next-Gen Technology Study highlighted that in the next two years, financial firms will boost their investments in cybersecurity by nearly a third (28%). Furthermore, cybersecurity is the top capability that executives expect from their technology vendors, outpacing their ability to deliver projects on time and on budget.

As we look towards the DORA compliance date next January, what steps should firms be taking to build up their operational resilience?

It is crucial to assess existing business practices and processes, and identify the gaps, when it comes to meeting the DORA requirements. This will enable firms to create a robust roadmap for compliance whilst implementing stronger ICT risk management practices.

The first thing for firms to do is to ensure they fully digest and understand the regulation, and how it impacts their business model. They can then correlate that against what is already in place for their operational resiliency. Firms then need to identify their risk factors and map them against DORA, as well as their existing enterprise risk framework.

These steps will allow firms to effectively carry out their remediation planning. Resiliency in the past has typically been quite inward looking, with a focus on ensuring their own house is in order. DORA shifts the dial and will mandate them to now extend this externally across third party vendors and strategic partners, analysing the critical paths for the critical functions, whether that is trade data, settlement data, or any other element.

Firms will need a complete line of sight so they can take an informed risk decision on each of their current resiliency stances and provisions in order to make sure they are compliant with DORA.

For larger firms, their size will make it more difficult to locate the risks. They will often have hundreds of internal applications and platforms they will need to dissect to understand the interdependencies and find the critical paths that hold the data. They will also need to ascertain the risks across their vendor community.

For smaller firms, the challenge will be finding the right people to guide this, who can do it alongside their day job. They may struggle to get this project shaped and delivered on time. And they should not underestimate the resources needed to do a thorough analysis and then implement the changes DORA requires. They will also need to effectively ensure ongoing regulatory compliance, which can be costly.

Continuous improvement is an objective of DORA. Some elements of the regulation are prescriptive in terms of duration and frequency – such as annual testing of all critical ICT systems, and the advanced threat-led penetration testing every three years. But it will also be important for firms to make sure they refer back to the regulation and remain compliant whenever they change their IT footprint by acquiring new technology, which potentially introduces new vulnerabilities.

Unlocking new benefits

Whilst the journey towards DORA compliance is complex, it is also one that can unlock significant benefits for ambitious financial services firms.

This includes improved cyber defences; DORA will help financial institutions to enhance their cybersecurity measures and protect their critical systems and data from increasingly sophisticated cyber threats.

By improving long-term operational resilience, DORA can also help to reduce the financial impact of cyber incidents and other disruptions, ultimately saving organisations from costly recovery efforts.

Financial firms can instil greater confidence amongst their customers and stakeholders by demonstrating their ongoing commitment to safeguarding digital assets and services. And, perhaps most importantly, given the increased interconnectivity of firms, DORA can drive greater resiliency across financial markets as a whole. It can help to safeguard the stability of the whole, as well as its parts.

The post DORA: Preparing the Pathway to Enhanced Operational Resilience appeared first on A-Team.

The Adaptive Intelligent Document Processing product will enable financial institutions to automate the extraction of unstructured data for ingestion into their systems. The London-based company said this will let market participants automate a choke-point that is often solved through error-prone manual processes.

Duco’s AI can be trained on clients’ specific documents, learning how to interpret layout and text in order to replicate data gathering procedures with ever-greater accuracy. It will work within Duco’s SaaS-based, no-code platform.

The company won the award for Best Transaction Reporting Solution in A-Team Group’s RegTech Insight Awards Europe 2024 in May.

Managing unstructured data has become a key goal of capital markets participants as they take on new use cases, such as private market access and sustainability reporting. These domains are largely built on datasets that lack the order of reference, pricing and other data formats with which it must be amalgamated in their systems.

“Our integrated platform strategy will unlock significant value for our clients,” said Duco chief executive Michael Chin. “We’re solving a huge problem for the industry, one that clients have repeatedly told us lacks a robust and efficient solution on the market. They can now ingest, transform, normalise, enrich and reconcile structured and unstructured data in Duco, automating data processing throughout its lifecycle.”

The post Duco Unveils AI-Powered Reconciliation Product for Unstructured Data appeared first on A-Team.

Corlytics is Byrne’s fourth company. He describes how, after the 2018 financial crisis, experiences at his prior company shaped the insights and innovation that would become Corlytics.

“If you look back at the early 2000s, banking was about the P&L but after 2008, banking and the capital markets became about the balance sheet and risk. Compliance and operations practitioners were seeing risk in lots of different places that they’d never seen before.”

This shift in the perception of critical success factors revealed the importance of understanding and managing the settlement risks of complex financial instruments. Regulators globally began looking deeper into the activities of banks and financial service companies, particularly those considered to be systemically important financial institutions (SIFIs).

With an extensive background in fund accounting and post-trade operations, Byrne recognised a growing gap between the understanding of how regulations should be interpreted versus their operational implementation, and a new venture was conceived.

Corlytics launched in late 2013 and Byrne’s aim was to bridge that gap by treating regulation as a class of risk requiring careful management. By risk-ranking regulations and updates into a clear set of obligations, firms could use this to shape and maintain policies that reflect the latest regulatory expectations.

Cognitive Dissonance

Byrne describes the emergence of a “cognitive dissonance” in the financial sector, where “the lawyers could understand the regulation but couldn’t implement them, and the people implementing the regulations didn’t fully understand them and the resulting exposures.”

To address this, Corlytics adopted an alternative approach to regulatory compliance. As Byrne explains “I wanted to look at regulation as a class of risk, rather than just something that had to be done. In many parts of banking and post trade, people take a risk-based approach to credit risk, market risk and counterparty risk. And I felt we should take a risk-based approach to legal and regulatory risk, hence the name Corlytics (compliance risk analytics).”

Corlytics’ foundation was also rooted in Byrne’s desire to combine expertise from different fields, and, like his previous company, he chose to start Corlytics in a university setting, as a campus-based company. This setting fostered an interdisciplinary collaboration with PhDs in law and data science, aimed at building a robust business capable of tackling the complexities of modern regulatory compliance.

Byrne’s previous experience in operationalizing various aspects of banking and post-trade processes, such as fund accounting and corporate actions, provided a strong basis for Corlytics’ mission. In his words, “I wanted to bridge the knowing-doing loop, ensuring that regulations weren’t just understood but effectively implemented.”

Growth Strategy

Last year the company acquired regulatory lifecycle platform ING Sparq and policy management platform Clausematch. Earlier this year, specialist growth investor Verdane took a majority equity stake in the company and has committed to accelerating both organic growth and M&A.

In May the company acquired a RegTech platform from Deloitte UK adding considerable breadth and domain expertise to further Corlytics’ capabilities, from interpreting regulatory change, to mapping and validating policies and implementing controls.,

Corlytics has established strong relationships with 12 of the top 50 SIFIs. Corlytics has also established a strong presence with non-bank payment processors. Byrne points out that “most of the top 10 payment companies in the world are not banks, but technology companies.” These include giants like PayPal, Amazon, and Google. Corlytics has secured about 50% of the market share in this space.

Regulatory Coverage

At the same time, the scope and depth of regulatory scrutiny continues to increase. In the UK, the Financial Conduct Authority (FCA) has introduced the Senior Managers and Certification Regime (SMCR) that requires senior managers to have statements that clearly outline their regulatory responsibilities. These managers are permitted to delegate certain responsibilities to other individuals within the firm, provided they ensure that these delegations are appropriate and properly overseen?.

This is having organizational impacts as Byrne has observed, “if you look at the senior persons regime, it’s very typical now within an enterprise, not just to organize regulations by business units, but actually to start organizing regulations, policies and controls by ‘accountable executive’.”

This has huge implications on the technology, since accountable executives must now be able to demonstrate that the controls they supervise reflect the latest version of the regulations and that these are clearly defined in the latest version of their policies.

Data Science

Corlytics keeps an open mind on the adoption of new technologies but the primary criteria for selecting the latest AI and ML techniques is model accuracy. “We try to work to a level of accuracy of 99% or greater because if a firm is going to automate compliance, it needs very high levels of accuracy. Human error is about 98%, so, by setting a target above the level of human error, ensures you’re automating to a high standard” explains Byrne.

Corlytics combines extensive backtesting on historical data with regulatory subject matter expertise to validate model accuracy.

One consequence of prioritising high accuracy is the need for detailed examination of use cases, in particular when considering advanced AI techniques – GenAI and LLMs. Corlytics approach is to use Gen AI in combination with other techniques rather than just on its own. Byrne sees the value-add of these techniques as a new search technology, particularly for the higher volume, lower risk use cases e.g. ‘can I accept that gift?’, or ‘does this comply with the expense policy?’

Byrne continues “but for a more complex, high-risk use case – e.g., a swaps trader asking, ‘can I put on this trade?’ – we might use something else”

GenAI and LLMs become extremely expensive in compute and storage cost compared the traditional AI when deployed at scale. Also, there’s a growing awareness of the carbon footprint these technologies generate, and Byrne cautions to not fall into the trap of “using a sledgehammer to crack a nut.”

Regulatory Convergence

The convergence of events on the regulatory calendar and regulators adopting a big-bang approach across multiple jurisdictions is creating severe stress on global firms governance risk and compliance (GRC). In some cases, firms are being forced to consider whether it makes economic sense to remain in certain markets.

Regulatory harmonization is a worthy goal but it’s hard enough getting alignment across the regulators within a single jurisdiction, let alone globally. In the meantime, it will be up to the RegTech sector to take the lead as Corlytics has demonstrated with two significant projects.

One of Corlytics’ early projects, making the FCA Handbook machine-readable, was a major step in bridging the gap between text based regulatory content and implementation by the covered entities. Corlytics created the taxonomy (a mechanism for classifying and categorising information) which is structured into sourcebooks and manuals and covering the various sectors and compliance aspects including conduct standards, prudential standards, and reporting requirements.

Byrne’s recounts his experience in creating a regulated subsidiary at his previous firm and being confronted by the original version of the handbook. “If you were to print it out on double-sided paper, it would stand about seven feet tall.”

Each section is methodically organized into modules, sub-modules, and chapters for easy navigation. The handbook’s machine-readable features include XML and JSON formats, enabling automated compliance checks and integrations with RegTech solutions. Byrne recalls, “the FCA CEO at the time describing the initiative as the democratisation of the handbook.” The project went live in 2017.

Corlytics completed a similar project at the Financial Industry Regulatory Authority (FINRA) on the FIRST Rulebook that went live in 2022. With many small firms among its members, FINRA wanted to make sure these smaller players could get value from the website recalls Bryne. “So, we created the taxonomy and redesigned all of the documents making them easy to tag and search. Both FINRA and the FCA have a competition mandate so creating a level playing field for both large and smaller firms is important.”

There are indications that other regulatory authorities are starting to embrace the idea of making their regulations machine readable, but for now, the FCA and FINRA are the thought leaders in this space and Corlytics innovation helped make that happen.

The post Managing Cognitive Dissonance in Regulatory Compliance with Corlytics appeared first on A-Team.

By Osvaldo Berrios, SME, Compliance, NICE Actimize.

The financial services industry is undergoing a transformative shift, with artificial intelligence (AI) playing a central role. Investment firms are starting to explore the potential of Generative AI (GenAI) to enhance their business dealings, particularly in the areas of monitoring, surveillance and regulatory compliance.

Monitoring and Surveillance

One of the primary areas that GenAI provides value to investment firms is detecting anomalies. GenAI can be trained on historical data to identify patterns of normal advisor activity which can then detect aberrant activity. This allows firms to detect potential red flags, such as unusual trading patterns or suspicious communication with clients, much faster than traditional methods.

By generating realistic hypothetical scenarios, GenAI can help firms test and refine their surveillance processes. This can be particularly valuable in areas like fraud detection and market manipulation. GenAI can automate the creation of reports on advisor activity and potential compliance issues. This frees up human compliance staff to focus on more complex investigations.

The effectiveness of GenAI models is highly dependent on the quality and quantity of data used for training. Biased datasets can lead to biased AI models, potentially amplifying existing inequalities in the financial system

Compliance with Regulations

Regulatory Document Generation is another key role played by GenAI techniques. GenAI can be used to generate regulatory reports and other compliance documents, saving firms significant time and resources. And since regulatory landscapes are constantly evolving GenAI can be trained to stay updated on new regulations and identify potential compliance risks associated with new investment products or strategies.

GenAI can also personalize compliance training for advisors based on their specific risk profiles and areas of expertise.

Challenges and Considerations

While GenAI offers exciting possibilities, implementing it effectively requires addressing some key challenges. The effectiveness of GenAI models is highly dependent on the quality and quantity of data used for training. Biased datasets can lead to biased AI models, potentially amplifying existing inequalities in the financial system. Understanding how GenAI models arrive at their conclusions is crucial. Firms need to ensure these models are transparent and explainable to maintain trust and mitigate potential regulatory concerns.

GenAI is a powerful tool, but it should not replace human expertise. Firms still need experienced compliance professionals to interpret AI outputs and make informed decisions.

Negative Aspects

Is job displacement an issue today? Automation through GenAI may lead to job losses in compliance departments. This necessitates retraining and upskilling existing staff to adapt to new workflows. There may also be a potential for misuse. Like any powerful technology, GenAI could be used for malicious purposes such as generating fraudulent documents or manipulating markets. Robust security measures are crucial to mitigate these risks.

The Road Ahead

GenAI holds immense potential for investment firms to enhance their monitoring, surveillance, and compliance capabilities. However, successful implementation requires careful consideration of data quality, bias, explain ability, and the role of human oversight. As technology matures and regulatory frameworks adapt, GenAI is poised to revolutionize how investment firms manage their business dealings and navigate the ever-changing regulatory landscape.

For more information on NICE Actimize’s applications for capital markets, see: https://www.niceactimize.com/financial-markets-compliance/.

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The RegTech Insight Awards recognise established providers and innovative newcomers that offer solutions that are successfully improving firms’ ability to respond effectively to evolving and ever more complex regulatory requirements across the global financial services industry. Winners are selected by A-Team Group’s independent, expert advisory board in collaboration with its editorial team.

Chris Dingley, chief executive of Single Rulebook, spoke to RegTech Insight about the importance of winning this award and explained why and how Single Rulebook was developed and outlined the benefits it can deliver.

A-Team: What does winning A-Team Group’s 2024 RegTech Insight Europe award for Best Solution for Regulatory Change Management mean to Kaizen?

Chris: We are delighted. It’s recognition for all the hard work and effort that our team has made over the last year to develop the platform further and it also recognises the unique Law Compare solution that we have developed with Linklaters, which makes it easier for firms to manage not only regulatory change but also differences in regulation across jurisdictions.

A-Team: What types of capital markets clients does Single Rulebook work with?

Chris: Single Rulebook is a software solution that enables clients to search, share and manage regulatory rules on one digital platform. It was established with the aim of making regulation manageable and easy.

Through powerful and dynamic rule maps, Single Rulebook’s user interface promotes collaboration, and information sharing.

It is especially helpful to banks, asset management companies and law firms – enabling them to work more efficiently with changes and updated to financial regulation. More than just a search tool, the platform also integrates with a client’s own systems and delivers an audit trail of regulatory change and decision making, saving time and cost.

A-Team: What challenges are these clients facing?

Chris: There are three main challenges:

• Ever-changing and new regulations: Global regulation is continually evolving. Not only are new rules introduced but existing rules are continually tweaked and updated. It can be time consuming trying to locate a specific piece of regulation and ensuring it’s the most recent version.
• Sharing and collaborating effectively on regulation: Legal interpretations of regulatory rules need to be kept up to date, shared and communicated across large organisations which can become unmanageable and a company’s view of regulation can change over time.
• Keeping an audit trail of regulatory interpretations and implementation: Firms must demonstrate compliance with each applicable rule and their pathway to regulatory compliance. Some leeway is provided in the initial period after a new piece of regulation is introduced, however regulators’ expectations become more stringent over time and it’s important to be able to demonstrate immediate compliance to auditors and regulators. Spreadsheets and email chains are not effective tools for showcasing a firm’s regulatory interpretations and the implementation of rules. It’s important to demonstrate operational change and regulatory compliance efficiently and Single Rulebook can do this digitally and in real-time.

A-Team: How does Kaizen help customers address these challenges?

Chris: Single Rulebook provides one digital source for regulatory research, making life much easier for legal and compliance teams, with employees able to retrieve regulatory text and rules quickly and efficiently.

Single Rulebook uses natural-language processing to improve many workflows and processes so that regulatory opinion and interpretations can be shared and accessed digitally on one common platform. It provides the functionality to annotate regulation so that the company’s approved stance can be accessed by all team members.

In 2023, we developed Law Compare in conjunction with Linklaters to support their in-house teams and provide their clients with quick and easy access to regulatory comparisons and guidance on the differences and changes brought about by diverging EU and UK MiFID II regimes.

The online Law Compare tool provides a single authoritative source of the most up-to-date regulation and guidance, and offers full coverage of EU and UK MiFID II regimes, from Directives, Regulations, Regulatory Technical Standards to Level 3 guidance, with the potential to extend to other areas of regulation. The legislation hosted on the Single Rulebook platform is complemented by Linklaters’ guidance which provides an invaluable record of the firm’s legal views, interpretation and comments relating to specific provisions and areas of EU-UK divergence.

A-Team: How will you develop the solution over the next year?

Chris: The year ahead will see further regulatory change across many global regulations, particularly in the UK and Europe, with the EMIR Refit and upcoming amendments to MiFID II.

It’s essential that firms can not only keep abreast of these changes but also compare versions. We’re looking forward to continuing to help our clients manage regulation and make it easier for them to navigate the changes ahead. We also have lots of exciting developments and new projects in the pipeline for Single Rulebook, which we will be sharing over the course of the coming months.

The post Kaizen’s Single Rulebook Wins Award for Best Solution for Regulatory Change Management in A-Team Group RegTech Insight Awards Europe 2024 appeared first on A-Team.

Financial institutions now face the challenge of updating their systems, policies, processes and procedures to meet these new regulatory demands, proving once again that in the world of global finance, change is the only constant.

The MiFIR Refit introduces several key changes and updates to the existing framework, aimed at enhancing transparency, improving data quality, and optimising market operations. The implementation is being phased in over a two-year period.

The regulation became official with its publication in the Official Journal on April 14 and entered into force on May 4.

One of the immediate and most debated impacts of this regulation is the prohibition on brokers accepting Payment for Order Flow. This ban is designed to eliminate conflicts of interest, ensuring brokers act in the best interests of their clients.

Another immediate change is the elimination of annual best execution reports for execution venues. This is being replaced by a new consolidated tape system, which will provide comprehensive market data, including the best bid and offer information.

By May of 2025, several significant milestones must be achieved:

ESMA will complete its 12-month assessment of the inclusion of Alternative Investment Fund Managers (AIFMs) and management companies in the scope of transaction reporting

Trading venues and systematic internalisers (SIs) must comply with real-time data access requirements to ensure all market participants have timely access to crucial trading information.

Financial institutions must be ready to adopt standardized reporting formats by this date.

The development and implementation of Regulatory Technical Standards (RTS) by ESMA is another critical aspect of the MiFIR Refit. These standards, which will manage trading halts, price collars, and other market structure enhancements, are expected to be developed and implemented by November 4, 2025.

The consolidated tape system (CTS) is a major structural change and is targeted to be fully operational by May 2026. The initial setup and framework for data submission by contributors and the selection of consolidated tape providers (CTPs) will occur over a two-year period ensuring a smooth transition to the new system. CTPs will provide a unified source of trade information by asset class.

In summary, the MiFIR Refit introduces a structured implementation schedule with key milestones designed to enhance market transparency, data quality, and operational efficiency. Financial institutions and market participants must adhere to these timelines to comply with the new regulatory framework.

Enhanced Regulatory Oversight

The scope of transaction reporting under MiFIR is expanded to potentially include Alternative Investment Fund Managers (AIFMs) and management companies. ESMA will assess this inclusion over the next 12 months.

Investment firms can now act as designated publishing entities for specific financial instruments, improving the clarity and responsibility of transaction reporting. ESMA will maintain a public register of these entities.

Prohibition of Payment for Order Flow (PFOF) prohibits brokers from receiving fees, commissions, or non-monetary benefits from third parties for order execution or forwarding. This aims to eliminate conflicts of interest and ensure that brokers act in the best interests of their clients.

While the prohibition took effect in May, Member States may exempt firms under their jurisdiction from this prohibition until June 30, 2026. Regulatory authorities will monitor brokers’ activities and impose penalties for non-compliance. Brokers must also provide clear and transparent disclosures about their order execution policies.

The introduction of a consolidated tape for each asset class will provide necessary market data, including best bid and offer information, replacing the need for separate reports. As a result, the requirement for execution venues to publish annual best execution reports has been permanently suspended.

Pending Standards

ESMA is consulting on three new regulatory technical standards (RTSs) under the MiFIR to enhance market transparency and data quality. The first standard focuses on pre- and post-trade transparency for non-equity instruments such as bonds, structured finance products, and emissions allowances. This standard aims to ensure timely and clear trade information for stakeholders while balancing the need for real-time transparency with the ability to defer publication when necessary.

The second standard mandates that pre- and post-trade data be made available on a reasonable commercial basis (RCB). This is to ensure that market data is accessible, fair, and non-discriminatory. The consultation includes discussions on the cost-based nature of fees and the applicable reasonable margin, aiming to make this data affordable for users while maintaining fair access.

The third standard addresses the obligation to provide high-quality instrument reference data suitable for both transaction reporting and transparency purposes. The proposed amendments aim to align this data with other relevant reporting frameworks and international standards, thereby improving data quality and consistency across the board.

At this time, feedback from stakeholders is still being collected, and ESMA will publish a final report and submit the draft technical standards to the European Commission by the end of the fourth quarter of 2024. This review process is crucial for ensuring that the technical standards effectively support the regulatory objectives of MiFIR.

Market Structure Enhancements

ESMA is developing RTSs to manage trading halts, price collars, and other market structure enhancements ensuring better market stability during volatility. These are planned to be rolled out by November 4, 2025.

Enhanced disclosure requirements for commodity derivatives is introduced to curb speculative activities and improve market oversight.

The Double Volume Cap (DVC) mechanism under MiFIR has undergone significant changes aimed at enhancing market transparency and simplifying the regulatory landscape. The updated MiFIR now introduces a single volume cap set at 7% for trading under the reference price waiver. This replaces the previous double volume cap system, which had separate thresholds for individual venues and the entire EU market. By consolidating the thresholds into a single 7% cap, the regulation aims to reduce complexity and ensure a more straightforward approach to monitoring and controlling dark trading activities.

Changes to systematic Internalisers (SI’s) quoting obligations will require technology updates to ensure compliance with new minimum quote size requirements and facilitate better pricing transparency.?Equity SIs must now make public firm quotes based on a minimum size determined by regulatory technical standards (RTS). Non-equity SIs are no longer obligated to publish firm quotes but may do so voluntarily.

Improved Data Quality and Transparency

The regulation requires real-time publication of data to ensure all market participants have timely access to the same information, crucial for making informed trading decisions and maintaining a fair market.

Trading venues and SIs must ensure the accuracy, completeness, and consistency of their data, covering transaction details, order book data, and post-trade information. The introduction of standardized reporting formats is designed to create a more transparent and cohesive market environment.

MiFIR Refit enhances the scope and consistency of transaction reporting by introducing new data fields and aligning reporting standards across EMIR, SFTR, and MiFIR. This standardization facilitates easier comparison and consolidation of data across different platforms.

Technology Impacts

The consolidated tape is a significant component of the MiFIR Refit, aiming to aggregate trade data from multiple sources into a single, unified view for each asset class. This initiative is designed to enhance market transparency, reduce information asymmetry, and improve the quality of market data available to investors.

As of now, the groundwork for the consolidated tape initiative, including the legislative framework and initial criteria for CTP selection are in place.

The consolidated tape system is expected to be fully operational by May 4, 2026. This timeline allows for the necessary steps to be completed, including the selection and approval of CTPs, the setup of data submission frameworks, and the establishment of robust data aggregation and dissemination systems.

Financial institutions will need to update their reporting systems for real time processing and to accommodate new data fields and harmonized reporting standards across EMIR, SFTR, and MiFIR.

The MiFIR Refit and MiFID II updates represent significant steps towards a more transparent, resilient, and competitive financial market environment in the European Union. Financial institutions must adapt to these changes by enhancing their governance frameworks, streamlining reporting workflows, improving data management practices, and updating their technology infrastructure to comply with new regulatory requirements. These efforts are intended to provide a more efficient and investor-friendly market landscape.

View our full agenda and more details here.

The post Navigating the MiFIR Refit in 2024 appeared first on A-Team.

“It has been a humbling period for many firms, dealing with the isolating challenges of adapting to the EMIR Refit” says Paul Rennison, Director, Corporate Strategy at deltaconX, and a panelist on A-Team’s upcoming Best Practices in Regulatory Reporting webinar on July 16.

According to Rennison, deltaconX has its origins in a post-trade project that led its founders to conclude that the back office should be built around data rather than around process. The developers decided to build a regulatory reporting tool from the bottom up that was based on data and configuration rather than coding and adding regulation after regulation.

Fast forward to today, and the company boasts a diverse client base of primarily sell-side firms as well as buy-side institutions, energy companies, and large corporates with a core focus on OTC derivatives markets. The company has a strong presence in Europe and is expanding in Asia-Pacific with plans for the US and Canada next year.

“On the financial side, we’re very strong in the debt asset class DAC area,” says Rennison, “because that’s where we’re born out of – Switzerland. We develop and support the product from Vienna, Austria. The only deviation we’ve had from our core focus is on money management reporting (MMSR). Some of our German, Austrian and Danish banks want us to do this reporting into their central banks. So, we’ve extended the model to become a one stop shop for their reporting within that data set.”

The company has grown organically reaching what Rennison describes as a “tipping point” in 2023, with the addition of global energy giants BP and Shell along with regional banks Helaba, Raiffeisen and Nykredit and banking groups like SDC and BEC in the Nordic region. The company doubled in size last year.

The company also white-labels its services through two major solution providers, Simcorp and Finastra. “Reg reporting is a low margin business relative to risk management or treasury management systems,” says Rennison, “so this makes economic sense to them and its good business for us and some clients never see deltaconX, it’s a pure white label service.”

Blended Skillsets

Compliance and regulatory data systems are complex, and their work often considered unglamorous. Yet the expectation is that their systems will function flawlessly at all times. Failure in controls not only escalates costs and stretches resources but also attracts the attention of regulators, leading to significantly higher operational costs and potential fines.

Rennison describes the typical scenario, “When the controls fail and things begin to unravel, your costs spiral, your resources are already stretched, and you appear on the radar of the regulator, and next you’re in the spotlight of the regulator. And once you’re in that spotlight, your costs become multiple times the costs to operate in compliance. And that’s before the fines kick-in.”’

Understanding the urgency of their clients’ needs in markets operating on T+1 and T+0 schedules, deltaconX ensures direct access to knowledgeable professionals without offshoring triage or using scripts. This approach guarantees that clients reach the right person immediately, facilitating swift issue resolution.

For the core team, deltaconX recruits individuals from banks and other reporting firms, leveraging their deep regulatory reporting experience. The team, characterized by empathy and deep domain knowledge, handles the interpretation of regulatory changes and their integration into deltaconX’s data schema. They also possess strong technology skills, enabling a blend of technical and regulatory expertise that becomes crucial in high-pressure environments.

This blended role, which integrates deep technical, compliance and regulatory skills, is unusual in the regulatory reporting industry. Rennison underscores this as a key differentiator – “The difference is one of those things that’s almost intangible until you need it, and then it becomes very tangible, and very addictive. Our ability to resolve issues swiftly in a T+1 environment through a single point of contact crystalises our value and makes our service incredibly sticky.”

Foundational Technology

Built from the outset on a cloud-native architecture, the deltaconX platform offers scalability, cost control, and continuous updates, which are essential for managing complex regulatory requirements.

“It’s not a lift-and-shift ported into Kubernetes on a hope and a prayer” says Rennison, “This gives us the elasticity to scale and control cost and be in a continuous release cycle. We do six planned releases a year.”

This cloud-native approach allows deltaconX to stay ahead of regulatory changes, whether initiated by regulators or required by Trade Repositories (TRs) or other agencies, without being constrained by clients’ operational cycles.

Data Lineage and Audit

deltaconX has decided to partner with a specialist data provider to handle the new unique product identifier (UPI) requirements. Rennison described the process to RegTech Insight.

“Layered within this wave of refits is the OTC reference data chain including the unique product identifier (UPI). We partnered with RegTech DataHub for this. They take data from Anna DSB and capture and other sources of public domain data. They’ve built a highly performant and referenceable repository of that data.”

Rennison continues, “We send an excerpt of the data on every trade, and they qualify the ISIN and the UPI and enrich where necessary. It’s the first time we we’ve had to move outside of the core data schema and partnering with a specialist solution provider made sense.”

deltaconX goal is to achieve near-full validation on schema and Regulatory Technology Standards (RTS) for supervisory authorities, ensuring the accuracy of all data elements, including counterparty data. deltaconX captures data at the field level and tracks changes, maintaining a fully auditable lineage for each trade. This includes reconciliation and records of every file returned by the TR.

Every record returned, including reconciliations, is identified, allowing clients to compare their submissions with those of their counterparties, even when different TRs are involved. The data remains permanently on the system, fully auditable, which is another advantage of being cloud-native, eliminating the need for facilities like Iron Mountain.

Staying Focused

DeltaconX’s concentration on regulatory transaction reporting over the past decade, with no diversification into other products, ensures focused expertise and uninterrupted development investment. As an owner-managed company with no external investment or debt, deltaconX maintains significant freedom to navigate financial challenges and align closely with customer needs.

The post Addressing the Global Refit with deltaconX appeared first on A-Team.

According to Peter Gargone, Founder and CEO of n-Tier, “This situation has been coming for a really long time, and if you go back and look at the older regs from around 2008 and the Flash Crash, you will see that regulators have been ramping this up for years.”

Gargone argues that compliance with newer regulations will be challenging for firms if they don’t have in place people who truly understand the data requirements and business flows. And the concurrency of regulatory updates becomes a massive time and resource constraint for firms across the board, he says.

“The concurrency of the requirements is challenging for firms because each regulation demands very specialised skills – interpreting the regulations, sourcing and validating the data, and the technology to comply efficiently. You can’t just rely on your operational groups like T+1, which was inherently operational in nature.”

Getting Governance Right

Gargone acknowledges that regulators’ expectations are high, especially when it comes to governance processes around reporting. “There’s an ingrained expectation from regulators around what you do to ensure your reporting is correct,” says.

As a result, the checking processes and the controls firm must now have in place are no longer optional: “If you put in a reporting framework in the US and your annual exam reveals that you have failed to put controls and checks around it, you will get into trouble. Regulators expect you to demonstrate these controls and checks.”

From n-Tier’s perspective, a control framework and a comprehensive set of checks on regulatory data are fundamental requirements for delivering a complete regulatory reporting service.

“We’re not just spitting out reports,” says Gargone. “We’re focused on a holistic process that encompasses data controls and governance because it’s what the regulators now expect to see. This is lot harder than the reporting itself because you need a lot more data – 2x more in many cases. In the US, for Consolidated Audit Trail (CAT) and Customer Account Information System (CAIS), for example, you’re looking at trillions of data points a day. That’s way beyond what most firms can handle as a platform or service.”

Workflow

The complexity of regulatory requirements demands seamless workflows that can handle large volumes of data efficiently. Automated workflows integrated with regulatory reporting systems help minimise manual intervention, reduce the risk of errors, and ensure timely submissions. Gargone continues:

“We’re seeing the way firms are planning for these changes coming this December and January of next year. This has created an environment where they’re flat out; the book of work is fully booked up, and for anything new, it’s like trying to get a reservation in a three- or four-star Michelin restaurant. You might as well call back in a year.”

The n-Tier platform is designed to operate across regulatory jurisdictions and markets but “that’s not the norm” according to Gargone.

“The norm is either a specialised vendor for each segment and each reg individually or custom-built frameworks and toolkits for each reg, where everything’s a little bit different. But we’re seeing a lot of pushbacks against that.”

Gargone continues, “When you look at this from a global perspective, those variations add complexity and cost firms more money. So, we see a move to centralising data governance and reg reporting within our platform, across regs and around the world because of the flexibility we have by default. This is part of our core design and one of our strengths.”

The company has built strong regulatory team from people with deep experience at major firms. These are former practitioners that understand regulations across the different jurisdictions and markets.

Gargone continues, “This team has been very instrumental in designing enhanced frameworks for making sure the data and accuracy of the reporting are correct. Anybody could spit out a report – many of these firms can say, ‘You know, you look at this from the outside, the numbers are correct,’ and you might assume, ‘Okay, that’s going to meet this regulatory requirement’. But what exactly does that mean?

You spit a report out and send it to the regulator but that doesn’t make it right. It doesn’t mean it’s accurate. It doesn’t mean it’s complete.

Then it becomes a ‘game’ of how long it takes the regulators to figure out you haven’t fulfilled the requirement. And then how much risk has your firm acquired following a process you haven’t designed properly?

So, we see a divergence in the market between firms that say they ‘do reporting’ and firms like n-Tier that actually offer a comprehensive suite of functionality and expertise where we actually care about the data quality.”

n-Tier’s regulatory reporting and trade surveillance platforms provide comprehensive visibility and searchability across all regulatory reporting requirements, helping firms manage and monitor trade data effectively.

Regulatory Data

Data management is crucial in this environment. Firms need the ability to aggregate, validate, and reconcile data from multiple sources. Advanced data management solutions like those offered by n-Tier integrate disparate data sets, perform continuous validation, and provide comprehensive exception management capabilities. These solutions are designed to aggregate regulatory reporting data from different sources while meeting reporting obligations for validation and research, supporting reporting for regulations such as CAT, CAIS, TRACE/MSRB, and more.

“Complexity doesn’t come just from the fact that there are new and overlapping regs” continues Gargone, it also comes from the fact that the data sets the regulators are asking for today don’t normally sit together in a regulatory model in the banks.

If you look back at a brokerage workflow and the reporting from 10 years ago, it used to be much more normal that the data would come from one system and have one owner. It belonged in a business function, or a line function, and data was isolated for that line function. So, when doing some kind of risk for a line of business, they basically had all the data.”

Gargone goes on to describe what regulators are expecting to see in this new environment. “They include looking for nuances from the data where much of that data is now coming from different parts of the organisation which don’t normally talk to each other and aren’t necessarily in sync in a timely manner or what that data represents.

If you look at CAIS, regulators are looking at reference data en masse and have turned that reference data into a regulatory reporting requirement. Previously, correction processes were based on a three-day or four-day correction cycle where you could correct it when you got to it. But now it must be corrected immediately.

“If you don’t have a process around this, where data is sourced from multiple systems in inconsistent formats along with versions of it coming off the master copy, it creates a huge workflow challenge that’s even more difficult than just generating the data. It’s mind-boggling, and that’s why we built our software.”

The company started in 2000 with the core of the n-Tier platform being built as a data platform, not a regulatory platform. Today, n-Tier is a large-scale, high-volume, completely configurable engine with a no-code interface for regulatory data management.

According to Gargone, some of the most critical work, is figuring out if the data feeding the regulatory report is right or wrong in the first place – “To do that, you have to be able to compare against different sources of that data to figure out what’s right or wrong. And, even within a single record, your data points may not map directly versus another related data point coming from a different source. And you may have to compare that against three or four different sources to figure out if it’s right or wrong.”

But that’s not quite the whole story as Gargone continues “This is where human assistance is important, because once you get to the point of figuring out within the guardrail framework, is it right or wrong – it then becomes a different question – ‘What is right in this context? Are they the same? If they’re not the same, are they the right values? Where did it break down?’ The exciting part about this is having the data at scale to do the integrity checking in one place, along with a tech stack that can actually get through that volume of data. This framework is very hard to build out, and that’s where we’re at now.”

Emerging Technologies

Solutions such as advanced analytics, machine learning, and AI can help identify patterns, predict compliance risks, and automate regulatory reporting processes. n-Tier’s platform, with its no-code environment, allows practitioners to configure datasets and data controls easily, ensuring that processes remain adaptable to evolving requirements. This flexibility and scalability are vital for maintaining compliance in a dynamic regulatory environment.

Gargone is cautiously optimistic about emerging technologies like Generative AI (GenAI) making a difference in regulatory data and reporting. For example, on regulatory horizon scanning, “That’s great if you can get the regulations machine-readable, but how far will that get you? I know some firms do the aggregation, but the terminology for risk data is vastly different.”

Gargone stresses the importance of context throughout the validation process where things that sound the same aften mean different things across markets. “You need everything to be taken in context, and that insight is something our staff have built up over their careers in this industry.”

n-Tier is beginning to leverage these technologies in correction frameworks and similar repetitive tasks. “I think as we progress through this and get more into next-gen stuff, which we’re looking at different variations of, I think the value prop for that becomes better and better.”

Closing Takeaways

Given the current state of the industry and n-Tier’s depth of experience, we asked Gargone for his top three messages for the Compliance community:

“Top of the house is don’t underestimate the regulator’s ability to focus on and find problems in your systems and processes. Moreover, they’re going to continue getting better at this. Because if you take a lackadaisical approach to it and you think, ‘They’re not going to know if your data reporting is inaccurate,’ you’re just playing with fire.”

Gargone reminds us that regulators are focussing heavily on internal controls and come with expertise and tools and they will uncover discrepancies in data and in process – “So, that’s our top line. If I were looking at it from the practitioner side, I wouldn’t feel comfortable until that was taken care of.”

The next consideration are the controls themselves and the need for a holistic approach across the jurisdictions with different structures in place to make sure there’s some independence in the software and the processes (e.g. maker/checker) around those controls versus where the actual data flow processes live. Gargone makes clear that “a single framework with some built-in checks from the same people that did the reporting is not a good idea.”

Gargone’s final take-way is “You have to pick a good partner. We see a lot of ‘try and build yourself’ at this point, but it’s very hard. There’s a stack of functionality, which has taken us a very long time to build.

You should look for a good partner and you should look for something that’s flexible enough where you’re not going to have 50 solutions. The fewer solutions and the more common processes you can have as a firm, the better you’re going to be at implementing standards and controls to make sure you don’t make mistakes.

You really need a solid partner – someone who fully understands the requirements, knows the regs. And that’s where we sit.”

The post n-Tier – Bringing Order to Regulatory Data Chaos appeared first on A-Team.

While these requirements are well-understood, they are hard to implement. But emerging AI-powered solutions are beginning to show efficiency gains in compliance use-cases, with the promise of making the regulatory data management and reporting process more efficient.

To explore the current landscape of regulatory reporting, identifying key challenges and practical solutions, A-Team is hosting its Best Practices in Regulatory Reporting webinar on July 16.

In this webinar, we’ll delve into next-generation best practices and innovative technologies, including domain trade data, AI, and machine learning. Our experts will discuss actionable insights on implementation, ensuring you walk away with practical strategies.

You’ll hear from Jehangir Abdulla, Head of Back Office Development at Schonfeld Strategic Advisors LLC.  

Jehangir will be joined by Unmesh Bhide, Director, Securitized Products Valuations at LSEG Data & Analytics and Joshua Beaton Head of Non-Financial Regulatory Reporting (NFRR) at Wells Fargo. 

Finally, Paul Rennison, Director, Corporate Strategy at deltaconX, will be on hand to share his 25 years of experience working for the likes of the London Stock Exchange, Trayport, FIS and now with the Swiss regulatory transaction reporting specialists, deltaconX. Speaking with RegTech Insight Rennison had this message for prospective attendees:

“I think being able to report and manage and track internally up to executive level has been really, really difficult. And I think if you’ve done this alone, i.e. you’ve not used a technology provider who has multiple other clients and experiences, the current low levels of transparency have created unease and uncertainty about whether you are complying. Regardless that this is a market-wide problem not being able to get shared validation of your experiences has made the whole experience far more damaging, I think it is important for people to know that what they are experiencing isn’t unique and it will get better but the experience has been worse for some and that is not a great outcome.”

Don’t miss out on this opportunity to hear about best practices for regulatory reporting and opportunities to unlock significant operational and business benefits.

Register now to discover:

• The current state of regulatory reporting
• The necessity of adopting new approaches
• The latest technologies, services, and solutions
• Practical guidance for seamless implementation
• The operational and business advantages of modernized regulatory reporting

The post Regulatory Reporting: Best Practices in 2024 and Beyond appeared first on A-Team.