Tracking and managing new trade reporting requirements are complex and costly. In a recent DerivSource webinar, Paul Gibson, business consultant at Sapient Global Markets, discussed how some firms alleviate these challenges through various strategies including internal data centralization and outsourcing.
The costs associated with regulatory reporting have skyrocketed under global post-financial crisis regulations, to the point where they are severely impacting many firms’ bottom lines. Financial institutions must now manage a multitude of different processes and workflows to report to many different jurisdictions, regulators and repositories. Requirements are also constantly evolving, making tracking these changes and adjusting the relevant workflows an ongoing and expensive task.
Industry reporting processes are extremely varied at this point. Different jurisdictions require different data attributes and firms are often left struggling to manage vast volumes of data, with no set process for reporting trades. Standardization would dramatically simplify trade reporting for financial services firms, and help bring reporting costs down. There has been a lot of effort to agree on a core set of attributes to represent a trade across various asset classes. But with more regulations coming down the pike (MiFID II and MiFIR), industry harmonization remains elusive.
Firms seek tools to lower TCO
To deal with the high cost and complexity of regulatory reporting, firms are increasingly investing in both long- and short-term solutions to bring down the total cost of ownership, and to aggregate and leverage the data collected to boost efficiency. Rather than collect trade data separately for each regulator, they need to collect as many attributes as possible just once. Firms either look to leverage existing tools to improve their internal data management, or buy new, off-the-shelf, data management solutions. Either way, they are looking to standardize data internally at least, in the absence of broader industry consensus.
One way to do this is to use the FPML standard as a framework for normalizing trade data. Firms collect all the trade attributes and information needed for reporting to all the different jurisdictions in a centralized database. They store this internally in FPML or another format, and then push the required information out via a rules engine to each jurisdiction as necessary.
Firms outsource requirements tracking
With reporting requirements evolving at a rapid pace, firms must make sure they are aware of changes, and make constant updates to their rules engines. Many firms are now looking to outsource the cost of tracking various regulatory requirements, so they can pool the costs with other organizations via a trusted solutions provider.
Regulatory reporting is costing firms far more than it should at the moment. Firms can handle data more efficiently, by collecting it once, centralizing it in a standard, normalized format, and leveraging external providers to bring down the cost of tracking changing rules. All industry players need to work together to reach consensus on reporting standards. Finally, once data is managed in a standardized way, firms can begin to see additional benefits by leveraging that trade data for non-reporting, revenue-generating purposes.
* For more on this topic, check out Pauls other article “Why are Financial Institutions Spending So Much Like Regulatory Reporting” or other articles via our Trade Reporting series here, as well as the on demand webinar Regulatory Trade Reporting – Major Data Issues Persist and More on the Way!