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.

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.

The categories and scope of regulatory data requirements have expanded considerably in response to rapid market developments and growing regulatory scrutiny. It is no longer enough to present a set of numbers. Regulators want to know the origins of the underlying data, how that data was selected, how it was vetted and the lineage back through transformations to a certified provisioning point or other auditable record. Above all, regulators want to see evidence of a robust, principles-based approach to regulatory data management.

Faced with this increasingly onerous regulatory data environment, data managers are assessing how the new breed of AI technologies can make a difference.

Trade Data

Trade reporting involves providing detailed information on trading activities across the financial markets, such as equities, derivatives, fixed income securities and newer alternative and crypto markets. This data ensures transparency and helps regulators monitor market activity. Under MiFID II, ESMA requires firms to report trades to Approved Reporting Mechanisms (ARMs) within a specified timeframe. In the U.S., the SEC’s Consolidated Audit Trail (CAT) requires broker-dealers to report comprehensive trade data to facilitate market oversight and analysis. Similarly, the U.S. Commodity Futures Trading Commission (CFTC) requires firms to report swap transactions to Swap Data Repositories (SDRs), ensuring transparency in the derivatives market.

Audit Data

Audit trails are comprehensive logs that provide a traceable history of transaction status changes and changes to data, ensuring accountability and transparency. These logs are essential for regulatory investigations and compliance verification. The SEC mandates that firms maintain detailed audit trails for all transactions as part of their recordkeeping requirements. Similarly, the CFTC requires firms to maintain audit trails for all futures and options trades to ensure transparency and compliance with regulatory standards.

Customer Data

Know Your Customer (KYC) data involves collecting and verifying the identity of clients to prevent money laundering, terrorist financing, and other financial crimes. This includes personal identification information, financial status, and transaction history. The Financial Conduct Authority (FCA) mandates strict KYC procedures as part of its Anti-Money Laundering (AML) regulations. In the U.S., the Securities and Exchange Commission (SEC) requires broker-dealers to adhere to the Customer Identification Program (CIP) rules under the Patriot Act, ensuring proper identification and verification of their clients.

Risk Data

Risk data encompasses information related to an institution’s exposure to various types of risk, such as credit, market, operational, and liquidity risks. Regulators use this data to assess the resilience of financial institutions and the broader financial system. The Basel Committee on Banking Supervision (BCBS) outlines principles for effective risk data aggregation and reporting in BCBS 239. Originally targeted for 2016, the fact that the market has yet to fully comply with BCBS 239 underpins the data challenges that remain. But more on BCBS 239 later.

Compliance Data

Compliance data includes records that demonstrate an institution’s adherence to regulatory requirements, such as AML measures, sanctions compliance, and tax reporting. This data ensures that institutions are operating within the legal and regulatory frameworks set by authorities. For example, FINRA in the U.S. requires firms to maintain comprehensive records of their compliance activities and report any suspicious activities through Suspicious Activity Reports (SARs). Similarly, the ESMA requires investment firms to comply with the Market Abuse Regulation (MAR) by reporting any instances of market manipulation or insider trading.

Operational data

Performance data

Performance data includes financial metrics and reports such as profit and loss statements, balance sheets, and capital adequacy ratios. This data is crucial for assessing the financial health and stability of institutions. The SEC requires publicly traded companies to submit quarterly and annual financial statements as part of their regulatory filings. In Singapore, the MAS mandates that banks provide regular updates on their financial performance, including capital adequacy and liquidity coverage ratios, to ensure they maintain sufficient capital buffers.

Incident Reports

Incident reporting includes information on any incidents or breaches, such as cybersecurity incidents, fraud, or operational failures. This data is critical for regulators to understand the impact of such events and to take appropriate action. The UK Financial Conduct Authority (FCA) requires firms to report significant operational incidents, including IT failures, under its Incident Reporting Rules. FINRA requires firms to file suspicious activity reports (SARs) when incidents of financial crimes like money laundering or insider trading are suspected. The Monetary Authority of Singapore (MAS) also has stringent requirements for reporting cybersecurity incidents, ensuring that financial institutions promptly notify the regulator of any significant breaches.

Marketing, Corporate and Communications Data

Information communicated in advertising, promotional and marketing materials is subject to regulatory oversight to ensure that the information is not misleading or makes unrealistic promises or guarantees. The company’s annual report, 10K and quarterly filings are all subject to regulatory scrutiny. This category of regulatory data will include a considerable amount of text-based information including statements by the officers and board, auditors reports and statement of financial condition.

Clearly, this set of data types represents a wide spectrum of characteristics that needs to be embraced by any regulatory data management approach. Practitioners are recognising that GenAI and LLMs can be deployed differently from traditional regression, clustering and early NLP models, allowing them to address the entire regulatory data spectrum.

AI for Regulatory Data Management

Whilst AI has been used in some way at each stage of the regulatory data life cycle from sourcing and collection through transformation, reporting and archival, Generative AI (GenAI) and Large Language Models (LLMs), represent significant advancements over previous generations of AI, offering enhanced capabilities in several key areas.

These advancements are already delivering substantial performance improvements in several regulatory data use cases by providing more sophisticated, context-aware, and efficient solutions. The main capabilities of GenAI and LLMs that set them apart from their predecessors are contextual understanding, normalisation and transformation and, lineage and transparency.

Contextual Understanding

Unlike earlier AI models, which often struggled with context and nuance, GenAI and LLMs excel in understanding and generating content based on context. This ability allows them to perform complex tasks such as analysing and summarizing vast quantities of text-based information, generating coherent narratives, and understanding nuanced queries.

This deep contextual understanding is a crucial step up in capability for applications like natural language processing (NLP) and conversational AI, where understanding the subtleties of language is essential.

Firms are already seeing substantial improvements in productivity and efficiency in text use cases like scanning for and interpreting regulatory changes and text-based information for streamlining KYC, Onboarding and scanning for AML violations and exposure to Politically Exposed Persons (PEPs).

Other use cases are content oriented with GenAI and LLM’s ability to generate well formatted ‘boiler plate’ regulatory narratives for Suspicious Activity Reports (SARs), 10Qs etc. Another text-based use case is horizon scanning for changes in regulatory text, translating and interpreting their impact and highlighting any required policy. AI-powered language translation has reached a level of accuracy for compliance demands with firms seeing dramatic improvements in accuracy and productivity.

Normalization and Transformation

GenAI and LLMs bring significant improvements in data normalization and transformation processes. They can be trained to accurately map and convert data between different formats, ensuring consistency and integrity across diverse datasets. This capability is essential for applications requiring standardized and aggregated data for regulatory compliance and analysis.

Lineage and Transparency

Maintaining clear and accurate data lineage is crucial for regulatory compliance and data governance. GenAI and LLMs provide robust capabilities for tracking and documenting the history of data transformations and movements. This transparency ensures that organizations can demonstrate compliance and maintain high standards of data governance.

GenAI and LLMs can offer substantial improvements over previous AI generations by providing enhanced contextual understanding, efficient data processing, improved accuracy, advanced data normalization, and comprehensive data lineage capabilities. But these improvements come at a cost. GenAI and LLMs are resource intensive and should be deployed carefully. Use cases that reduce repetitive manual efforts such as reviewing large volumes of text or, where sampling methods can be replaced by comprehensive scans are ripe for GenAI.

AI-Enabled BCBS 239

The Basel Committee on Banking Supervision (BCBS) has outlined principles for effective risk data aggregation and risk reporting – see BCBS 239. These principles, while initially focused on risk data, can be adapted to apply more broadly to all regulatory data. Additionally, GenAI technologies can accelerate compliance with these principles by enhancing data quality, accuracy, and management.

Principle 1: Governance

Strong governance frameworks should be established for all types of regulatory data, not just risk data. This includes setting clear policies, procedures, and accountability for data management across the organization.

GenAI can enhance governance by automating the documentation of data governance policies, ensuring consistent application across different types of data. GenAI can also assist in monitoring compliance with these policies in real-time, providing alerts and recommendations when deviations occur.

Principle 2: Data Architecture and IT Infrastructure

Data architecture and IT infrastructure should support comprehensive data management capabilities, ensuring that all regulatory data is accurately captured, stored, and processed, even during times of stress or crisis.

GenAI can help design and maintain a robust data architecture by optimizing data storage and retrieval processes, reducing redundancies, and enhancing data integration from multiple sources. This ensures data availability and reliability across different regulatory requirements. BCG highlights that AI can bring efficiency and accuracy to data management tasks that traditionally required significant manual effort – see The Solution to Data Management’s GenAI Problem? More GenAI.

Principle 3: Accuracy and Integrity

All regulatory data should be accurate and reliable, pre-processed and/or aggregated largely through automated processes to minimize errors. This principle ensures that data used for compliance and reporting is dependable.

GenAI agents can automate data validation and error correction, significantly enhancing the accuracy and integrity of regulatory data. These models can detect anomalies and inconsistencies in real-time, reducing the likelihood of errors in compliance reporting. GenAI can streamline data cleaning processes by generating code for parsing, formatting, and identifying data quality issues.

Principle 4: Completeness

Regulatory data management should capture and aggregate all material data across the organization. This includes data from various business lines, legal entities, and other relevant groupings to identify and report exposures, concentrations, and emerging risks.

GenAI can enhance data completeness by automating the aggregation of data from diverse sources, ensuring no critical information is omitted. These technologies can continuously monitor data inputs to verify that all necessary data is captured and integrated accurately.

Principle 5: Data Lineage and Transparency

Maintaining clear and accurate data lineage is essential for all regulatory data, enabling organizations to trace the origins, movements, and transformations of data throughout its lifecycle.

GenAI can generate detailed data lineage reports automatically, providing transparency and traceability of data processes. These reports help organizations demonstrate compliance with data governance standards to regulators. The ability to document and audit data transformations effectively ensures that organizations can respond to regulatory inquiries with confidence and clarity.

Back to Principles

The industry has struggled to fully implement BCBS 239 and we’re well past the original 2016 target date. But, GenAI and LLM technologies offer real potential for the industry to make significant progress on BCBS compliance and regulatory data management in general.

By leveraging these technologies, organizations can build robust data management practices that can keep pace with and anticipate changes in regulatory requirements and improve overall operational efficiency. Best-practices for standards follow a principles-based approach and so should regulatory data management if GenAI is to deliver on its potential.

The post Generative AI Poised for Leading Role as Regulatory Data Burden Grows appeared first on A-Team.

It should be noted that subsequent investigations of these apparent links didn’t reveal any violation of the Market Abuse Regulation (MAR).

“Pre-close calls” are communication sessions between an issuer and an analyst or group of analysts who generate research, forecasts, and recommendations related to the issuer’s financial instruments for their clients.

These “pre-close calls” usually take place immediately before the black-out periods preceding an interim or a year-end financial report during which issuers refrain from providing any additional information or updates.

The purpose of the ESMA statement is to remind issuers of the legislative framework applicable to pre-close calls and to identify good practices to which issuers should pay particular attention when engaging in such calls.

Pre-close calls should only provide non-inside information and, whenever inside information is accidentally disclosed during a pre-close call, MAR requires restoration of information parity by making the disclosed information public immediately.

The statement also includes a collection of best practices observed by National Competent Authorities (NCAs):

• Assessment of Disclosed Information: Prior to calls, issuers should thoroughly assess the information to ensure it is non-inside information.
• Public Disclosure: Announce upcoming pre-close calls with details, date, place, topics, and participants via the issuer’s website.
• Simultaneous Material Availability: Make the materials used in calls (e.g., slides, notes) available on the issuer’s website.
• Recording Calls: Record the calls and provide recordings to NCAs upon request.
• Keeping Records: Maintain and publish records of disclosed information on the issuer’s website for public access.

ESMA and the NCAs consider that following these good practices could reduce the risk of unlawful disclosure of inside information.

Reactions to the Statement

Responses from the Trade and e-Comms surveillance vendors emphasise the need for transparency and fairness in maintaining orderly markets that can be trusted.

Matt Smith, CEO at surveillance solutions provider SteelEye, is well positioned to comment on transparency gaps in the surveillance ecosystem. “ESMA’s statement is a stark reminder that without an emphasis on transparency during pre-close calls, a watchdog crackdown could well be on the horizon. Markets need to remain inclusive and democratic, ensuring everyone has the right to participate with equal knowledge and to make informed decisions. When a select few have unfair access to sensitive information, this of course influences the market – something regulators are evidently keeping a closer eye on.”

Smith’s concerns are well founded given the recent enforcement actions for shortfalls in e-Comms surveillance monitoring.

Oliver Blower, CEO of VoxSmart takes a more pragmatic view calling for regulatory clarity and rules instead of the grey areas surrounding issuer pre-close calls. “It is all very well ESMA trying to keep everyone honest, but these are guidelines, not legislation. Clear rules and transparency are key to keeping our markets trustworthy and fair – and this is what most market participants want as well.

The grey area is when exactly does activity of this nature become a disclosable event to the wider market? At the end of the day, if there is a suspiciously high share price immediately after an analyst call, any regulator is going to need to dig into not only the intricate details behind the trades, but also whether the bank in question provided the full and proper disclosures in a timely manner.”

Both Smith and Blower emphasize the importance of transparency and clarity in the management of pre-close calls to maintain market integrity and fairness. They share a concern for preventing unlawful disclosures and ensuring that all market participants have equal access to information. Both agree that well-defined practices and guidelines are crucial for fostering trust and inclusivity in the financial markets, aligning with the overarching goal of regulatory bodies to uphold a fair and transparent trading environment.

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The country’s first such framework, created by the Financial Conduct Authority (FCA), is aimed at preventing greenwashing and fostering trust in British sustainability markets. It’s designed to protect the interests of investors by enshrining strict rules on how financial products can be advertising, marketed and labelled, and seeks to ensure such information is “fair, clear, and not misleading”.

Critics, however, have pointed to several potential pitfalls that face institutions as they put processes in place to comply with the new SDR. Because the FCA requires that all claims must be backed by robust and credible data, many of the new challenges are likely to be borne by firms’ data teams.

New Classifications

Under the SDR, asset managers – and later portfolio managers – will be expected to provide greater transparency into the sustainability claims attached to their funds and provide data to demonstrate the ESG performance of the funds’ component companies.

Institutions and companies in scope will be asked to voluntarily categorise their investment products according to the concentration of sustainability-linked assets within them. There are four categories of declining levels of sustainability, ranging from “Sustainability Focus” to “Sustainability Mixed Goals”.

This reflects but differs from the European Union’s Sustainable Finance Disclosure Regulation (SFDR), in which asset managers are compelled to classify their products’ according to a similar range of categories.

Among several other SDR requirements, asset managers will be asked to provide entity- and product-level disclosures and adhere to new fund naming regulations – which forbid the use of descriptions that it terms as “vague”, including “ESG” and “sustainability”.

Effective Strategy

While the SDR has been welcomed as a good first step by campaigners for stronger and more transparent sustainability markets in the UK, its implementation could prove tricky. Among the challenges institutions face is the code’s apparent incompatibility with other similar regulations that firms would face overseas. Some observers have complained that the SDR’s fund sustainability categories don’t easily match the Articles 6, 8 and 9 classifications of the SFDR.

This is where data managers will be of critical importance.

“As with all regulations, financial institutions must ensure they have an effective data management strategy in place from now, enabling systems to efficiently collect and aggregate ESG risk-related data to evidence sustainability claims both internally and externally,” GoldenSource head of ESG, connections and regulatory affairs Volker Lainer told Data Management Insight.

“Now, much higher levels of scrutiny are needed on the underlying methodologies and calculations involved in determining ESG scores. Firms that prioritise this will find themselves in a much stronger position as and when the next stages of the UK’s SDR are implemented.”

Data Doubts

The FCA announced the details of the SDR in November last year. It stressed at the time the importance of data management to compliance with the SDR last year. Firms in scope should “have in place appropriate resources, governance, and organisational arrangements, commensurate with the delivery of the sustainability objective”, it said.

“This includes ensuring there is adequate knowledge and understanding of the product’s assets and that there is a high standard of diligence in the selection of any data or other information used (including when third-party ESG data or ratings providers are used) to inform investment decisions for the product,” it said.

Legal experts questioned whether the UK’s financial industry would be able to fully comply. In a report published in April, international law firm Baker McKenzie asked whether firms would be able to keep up with the data requirements expected of the regulation, and questioned whether the data would even be available.

Careful Consideration

While gaps in ESG data still exist, A-Team Group’s ESG Data and Tech Summit London heard that the data record is improving with many more vendors providing ever granular datasets. Market figures caution, however, that the data imperative of the SDR should still be carefully considered.

“With more specific product labelling rules set to apply to from July, UK firms must brace themselves for these ongoing changes to better navigate the complexity jungle. It is clear data and regulatory content mapping is the key differentiator for service providers here – relying on trusted vendors that can provide quality, accurate data and content in pre-established delivery formats,” said Martina Macpherson, head of ESG product strategy and management in the Financial Information division at SIX.

“This is the only way firms can back up their sustainability credentials, meaning they will be better placed to meet new regulatory requirements and prepare for those to come later this year.”

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Duco’s transaction reporting solution was selected as a RegTech Insight award winner by A-Team Group’s independent, expert advisory board in collaboration with its editorial team.

Steve Walsh, Director, Product and Solutions at Duco, explains why and how the company’s award-winning transaction reporting solution was developed and the benefits it can deliver.

A-Team: Please tell us about Duco’s transaction reporting business and the types of capital markets clients the company works with

Steve: Duco has been helping global and regional banks, asset managers, hedge funds and broker dealers with their regulatory challenges for nearly 10 years. Our clients have faced a tremendous amount of change recently, with global regulators updating reporting requirements. Duco has responded by developing new capabilities to help clients keep up with the increasing demands on data quality and controls.

A-Team: What challenges are your clients facing in this space at the moment?

Steve: Regulatory rewrites (CFTC, MAS, ASIC) and refits (EMIR) are introducing significant data complexity, new formats (e.g. ISO XML) and new data fields, leaving firms to manage competing requirements. Regulators are focusing even more on the accuracy and completeness of data, as well as over- and under-reporting. So, you’ve got to get more data, from systems that are getting more complex, and you’ve got to do it under tighter deadlines in many cases. Add in the fact that transaction reporting has historically relied upon data and systems that weren’t built to do that. All these factors can make delivering accurate and timely data difficult. In fact, some industry tests have shown that 57% of all trades have at least one error when they are reported to the trading repository (TR).

The key challenges are ensuring that:

• Firms are reporting the right transactions
• The data is complete and meets requirements
• Mismatches between reporting and upstream data processes are corrected quickly to ensure they are not repeated.

Regulators are looking for open dialogues with national competent authorities whenever issues arise as well. All of this means firms must have a good handle on their data, their processes, and the tools they use to ensure compliance – more so than ever before.

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

Steve: We’ve combined the knowledge we’ve gained helping clients effectively manage regulatory change with our extensive reconciliation experience to create our EMIR Refit solution, preconfigured to ISO XML format and maintained by Duco. Clients no longer need to run large, expensive projects to manage regulatory reconciliations. They can be up and running in a matter of days with our unique, out-of-the-box solution.

The solution can be used for upstream data or as a post-reporting control to demonstrate a focus on reporting accuracy. It leverages Duco’s market-leading reconciliation platform with no-code Natural Rule Language, automated exception management workflows and best-in-class match rates, giving customers an easy-to-use solution for complex reporting. In addition to auth.30 trade and margin reports, users can incorporate auth.091 DTCC pairing/matching reports to confirm match transaction status in one reconciliation.

Duco has also partnered with regulatory experts Quorsus, part of CapGemini, to deliver a TR eligibility validator, which provides an independent validation of internal eligibility rules against existing ESMA eligibility criteria. We believe it’s the only solution on the market that shows clients not just whether or not a trade is eligible, but which criteria are causing issues and why, providing actionable insight in a matter of minutes.

A-Team: Please tell us why and how Duco developed its award-winning transaction reporting solution

Steve: Through numerous discovery sessions, we uncovered that clients needed post-reporting controls to ensure their reporting was accurate and complete, and that any errors that do occur were addressed upstream to prevent them repeating. Our reconciliation capabilities were a natural fit.

We developed a preconfigured template mapped to the ISO XML reporting format for EMIR to ensure that all fields were represented correctly and that clients could easily map their data – both from the trade repository as well as internal systems – and complete now mandatory reconciliations on reported data.  In addition, we recognised that eligibility – i.e. ‘did I report the correct transactions?’ – was going to be a huge issue.  So we partnered with regulatory experts Quorsus to develop eligibility checks.  What was vital was that clients could see the calls made and link them back to rules.

Breaks are managed through Duco’s exception management workflow, with results showing at a field level, and for each field users can see which rule is being applied and why it is being interpreted as it is. Other tools take a more black box approach, leaving clients to undertake complex investigations into why breaks are happening.

A-Team: What are the client benefits of using this award-winning solution?

Steve: It’s really about transparency and control. At the end of the day, firms need to be able to show regulators that they are taking robust steps to ensure data quality, whether they’re reporting their own data or delegating reporting to a third party. With Duco, everything is field level, and everything is self-documented, so you can see exactly what actions have been taken on data. And it’s about ensuring that change doesn’t throw your data out of whack.

For example, Duco’s eligibility validator can be used as a ‘golden source’ for eligibility rules. Firms can then check results against their internal rules and identify issues for investigations. If data or system changes happen upstream, you can easily see whether that’s impacting reconciliation.

Finally, the data and processes are in the hands of the business owners who know it. Duco’s Natural Rule Language, no-code approach and easy-to-use platform means changes don’t have to be routed through the IT backlog. Business owners can make the changes they need with little to no technical skill required. And the self-documentation I mentioned before means IT can sleep easy knowing they have full visibility into any changes made.

A-Team: Please run through a short case study of Duco’s transaction reporting solution

Steve: A customer preparing for the reporting changes to EMIR required a robust assurance package for trade reporting controls. They previously obtained the data required to report under EMIR’s expanded 203 fields from between eight and 12 internal systems, using manual reconciliations to verify the accuracy of an extremely large data set. This required the maintenance of complex macros, a large team to run and manage the reconciliations – and more resources needed to manage other incoming regulatory changes, and email-based exception management workflow. They lacked the capability to convert incoming ISO/XML formats and the ability to identify and remediate issues requiring escalation to their national competent authority.

Duco has removed these challenges, providing a preconfigured solution integrated seamlessly by our expert professional services team, for complete control assurance and to meet the customer’s core objectives. These include a way to easily transform and normalise internal system data to match the required ISO XML format, a two-sided reconciliation between the transformed internal files and those received from the trade repository, and exception management tools that streamline the process of getting remediation in place more quickly.

Duco’s preconfigured solution delivered all of these requirements. Data preparation and reconciliation in the platform is straightforward and can be managed by business owners without the help of IT, and automated exception management workflows enable centralised and transparent remediation and resolution of key issues. As a result, the customer has replaced manual reconciliations, removed the need for a slow and expensive IT change management procedure, and has confidence in their reporting data.

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

Steve: Duco is developing similar solutions for additional regimes, such as ASIC and MAS, whose rewrites are going live in October. In addition, we’ll be expanding our eligibility and data validation capabilities to help clients manage a wide range of global regulatory regimes.

A-Team: Finally, what does winning A-Team Group’s 2024 RegTech Insight Europe award for Best Transaction Reporting Solution mean to Duco?

Steve: Recognition of our best-in-class solutions is key to giving customers understanding of our capabilities and confidence in their ability to solve key data automation challenges in the regulatory space. We’re incredibly proud of this award and know that it will bring an additional layer of trust for firms who may not have worked with us before but are looking to stay compliant with the data quality demands of an evolving regulatory landscape.

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This year’s RegTech Insight Awards Europe included more than 30 categories ranging from Best Solution for Sell-Side Regulatory Compliance to Best Transaction Reporting Solution, Best Trade Surveillance Solution, Best Client On-Boarding Solution, Best Cloud-Based Solution for Regulatory Compliance, Best Solution for Buy-Side Regulatory Compliance, Best Solution for Sanctions Management, Best Regulatory Data Solution, and more.

An editor’s recognition award for European RegTech Industry Professional of the Year was given to Dawd Haque, Global Lead Market Initiatives, Regulatory Transformation and Strategy at Deutsche Bank.

Andrew Delaney, President and Chief Content Officer at A-Team Group, said: “Congratulations to the award winners and thank you to all the vendors that entered A-Team Group’s RegTech Insight Awards Europe 2024, to our RegTech Insight community that voted for its preferred solutions, and to our independent, expert advisory board that worked in collaboration with our editorial team to select this year’s winners.”

A complete list of winners and their solutions can be found in the RegTech Insight Awards Europe 2024 report.

You can find out more about A-Team Group awards, which also cover data management, trading technology and ESG here.

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The acquisition of Reg-Room, allows CUBE to incorporate and expand its regulatory change monitoring and analysis. This is particularly valuable for global financial institutions navigating an increasingly complex and dynamic regulatory environment. 

Founded by Nick Paraskeva in New York City, Reg-Room provides regulatory change monitoring and analysis solutions to the financial services industry. Its flagship products, Reg-Track, Reg-Impact, and Regulatory Risk Report, provide the banking, broker-dealer, asset management, and insurance sectors with tailored, timely, and highly accurate alerts and summaries on crucial regulatory changes with global coverage. 

Hg has invested $6.5 billion in the regulatory, compliance, and financial technology sectors and will leverage this deep sector expertise to support CUBE in its next phase of growth. It will provide strategic guidance and operational support to help the company scale its business, enhance its product offering, and expand its global footprint through both organic growth and acquisitions where synergies exist for CUBE’s regulatory platform. 

This latest acquisition continues CUBE’s strategy of consolidating regulatory compliance-focused firms and technologies following its acquisition of The Hub last year. 

According to Ben Richmond, CEO and founder of CUBE, “When we looked at the sector for highly complementary providers, Reg-Room clearly stood out with its industry-leading client retention, innovative solutions, and exceptionally high-quality proprietary regulatory summaries supported by a global team of regulatory experts. Combine this with CUBE’s RegPlatform and RegBrain AI automation and it makes for a compelling proposition.” 

CUBE is headquartered in London and has sales and service offices in New York, Ontario, Minnesota, Australia, and Singapore. Since its founding in 2011, the company has grown to be a robust source of classified and meaningful AI-driven regulatory intelligence, covering 180 jurisdictions and 60 languages from 5,000 issuing bodies. 

With operations across Europe, North America, Asia, and Australia, CUBE serves a diverse and global base of customers and partners, including the largest financial institutions. These institutions leverage CUBE’s RegPlatform to streamline their complex regulatory change management and compliance processes. 

CUBE’s achievements in regulatory technology have been recognised with several industry accolades. Most recently, the company received A-Team Group’s RegTech Insight Award for Best Regulatory Alert Management Solution in the APAC region for 2024. This award underlines CUBE’s ability to deliver high-quality, impactful solutions that effectively address the specific needs of the financial sector. 

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