Keeping ahead of regulatory change is a major responsibility for businesses especially as changes come along like the EMIR refit which is due to be enforced on the 29th of April in the EU and on the 30th 0f September 2024 in the UK, writes Colin Birchall, business development manager at Point Nine.
This will prove a huge headache for some businesses that report in both regimes as they may have to juggle between the two regimes using different systems for six months.
This combined with the need to improve the data quality given to the regulators is increasing the pressure on regulatory teams.
The need for firms to invest in technology has never been greater to mitigate the risks of being handed out a fine from the FCA or ESMA.
We have seen lately huge fines going out to firms that simply have not had their eye on the ball. The need to be able to bring all the data being produced into one system that can handle the manipulation of this data into one report is not easy for firms that are reliant on old historic systems. If businesses do not put in new processes to and adopt a new way of working then they will be left behind.
In a post I saw last week Remonda Z Kirketerp-moller, who is the founder and CEO of Muinmos, made the following statement that I believe sums up the current situation perfectly:
“Automation of compliance processes – it seems like a “perfect RegTech storm” is approaching. The combination of increasingly active regulators, major acts nearing approval and a looming financial slow-down, create strong incentives towards using RegTech solutions as a growth engine rather than just a necessary cost. A good RegTech solution can allow the company to trade in new markets without increasing costs, thus making it a competitive advantage and a must-have in the current financial climate”
So far in 2023 the FCA have already given out fines of GBP11,695,400
In the whole of 2022 the FCA fines totalled GBP215,834,156 these included names like TSB Bank Plc, Metro Bank, Plc, Santander UK Plc, Citygroup Global Markets Limited, to name but a few.
Esma reported in July 2022 that 12 NCAs imposed a total of 61 penalties; the total aggregated value of financial penalties imposed amounted to EUR38,784,536, with an amount of EUR37,120,000 imposed by a single NCA. Eight NCAs imposed a total of 64 measures, with one single NCA that used 35 measures. 15 NCAs did not impose any sanction (penalty or measure) during the reference period.
With each refit the regulators are harmonising the different regimes so that with each change the use of XLM 20022 is becoming mandatory. This will give the regulators data in a format that is easier for them to monitor and find inconsistencies. This will eventually lead the regulators to be able to find what they are looking for. No doubt there has been an increase in businesses outsourcing their regulatory reporting to systems that use proprietary technology to allow businesses to make sure the data they are reporting is of a high enough quality to satisfy the regulators.
Businesses that are still using systems where data is manually being inputted or businesses that have out of date processes will not be able to keep up with some of the technology that is increasingly being used. Only recently on the 1st of February 2023 ESMA has released a report on the use of Artificial intelligence in EU securities markets. ESMA is concerned about this and the use of this technology. No doubt AI models will allow traders, brokers, and financial institutions to optimise trade execution and post-trade processes, reducing the market impact of large orders and will lend itself to a huge amount of smaller orders being placed causing more trades to be processed in rapid succession. Firms will need to upgrade their regulatory platforms to keep up with this. The quote earlier talked about firms outsourcing their regulatory requirements to take advantage of the use of new technology to allow them to have a competitive advantage.
There are other complexities coming within the market with the EMIR refit that business will have to contend with. There is a lot of content out there from various sources that talk about the headline changes. One of these is the change to the reportable fields increasing from 129 to 203. What a lot of businesses don’t realise is that there are changes to almost all of the existing fields and what is required for each field. Again, the time it will take to understand and implement all of these changes to siloed inhouse systems may take much longer than they first invisage. Whilst it might seem more expensive in the first instance to outsource regulatory reporting when whole lifetime costs are compared it doesn’t seem to stack up.
Businesses may need additional staff, the use of consultants and data analysts at the very least. None of these come cheap. When you look at these costs compared to the monthly cost of outsourcing your reporting to a company that will keep your business on top of all regulatory change that is coming. Making sure you are reporting correctly has never been so crucial.
