Every new regulation is different, and no one knows exactly what will come next. Yet, there are common threads to compliance: A mandate on what must be done, adjustments to be made to align, and, ultimately, a need to demonstrate that alignment has taken place. When firms approach transparency requirements on a reg-by-reg basis, they limit their ability to leverage broader efficiencies and opportunities.
Conversely, firms that start with a bigger, clearer view of their entire operational framework—their infrastructure, data and operations— have an advantage. Rather than always scrambling to produce a reg-specific snapshot, they begin with a panoramic, firmwide view that brings opportunities into focus.
“When you know your operational framework, you can start implementing solutions to gain scale.”
See your path forward
This big-picture advantage manifests itself in three keys ways as it allows firms to:
- Gain greater control of their data and dataflows
- Accelerate compliance
- Minimize costly workarounds
Each of these can producesignificant savings as firms gain greater control and insight into their enterprise-wide operational frameworks.
Know your data and dataflows
Capital Markets firms run massive amounts of data. The transactional nature of this business means that the firms’ data is predominantly organized around individual events. Yet, there are often similarities across different asset classes, regulations and geographies. And there are investors who interact across separate silos within firms.
An operational framework charts the dataflows firmwide. It uncovers opportunities to capitalize on data similarities, improve data collection and quality, adopt compatible formats and drill down to data elements. In developing a framework, firms often identify ways they can optimize legacy infrastructure, and apply innovative technologies and consolidation to streamline data management.
Bringing together fragmented and siloed data from across the enterprise helps firms maximize visibility and improve decision making. As they harmonize data processes firmwide, it also becomes possible to establish a strong, single source of clean, quality data.
Regulators’ demands for data continue to rise—the Consolidated Audit Trail (CAT) is a prime example. It is designed to allow SEC regulators to monitor activity in National Market System (NMS) securities throughout the U.S. markets. CAT requires firms to combine data from across systems, including multiple order management systems. They must also combine data across the complete trade lifecycle, including origination, modification, cancellation, routing, execution, allocation and receipt of a routed order. In later stages of its implementation, CAT will also require broker-dealers to include detailed customer information. As a result, each firm will be required to provide a massive database to regulators. The regulators will then consolidate it with the data they receive from all firms in order to retain full trade-and-order lifecycle data.
CAT is a big undertaking for any firm. However, piecing together the required dataflows is far more straightforward with an internal roadmap. Some firms see CAT as an opportunity to create a massive front-office data lake. Some are teaming with partners to move toward greater internal transparency firmwide. Broadridge is helping many firms map and optimize their operational frameworks to accelerate CAT implementation and prepare for the road ahead.
Look beyond the squeaky wheel
MiFID II, SDFR, Singapore OTC…the alphabet soup of regulations affecting Capital Market firms continues to grow, and there are always more in the works. Putting in the additional effort to develop and maintain a clear view of the operational framework can streamline every implementation. For example, CAT applies to U.S. securities and Singapore OTC applies to over-the-counter derivatives trading activities for Singapore-based trading entities. Yet, these two functions can reside on the same platform and share workflow traits. Firms that understand and capitalize on these commonalities are poised for more rapid, cost-efficient compliance.
Understand the pre- and post-audit value of transparency
Steep fines for non-compliance always seems to grab the headlines. However, issue resolution and exception processing are more insidious expenses that devour time and resources. Better quality data, coupled with a clear view of dataflows, translates to fewer issues and more efficient issue resolution. The savings can be massively significant. When regulators match data across firms, there are additional benefits as well.
Intended to reduce inherent risks of "shadow banking," the Securities Financing Transactions Regulation (SFTR) requires both sides of a trade to report independently. Each report may contain up to 155 data fields, and as many as 80 of them must match. The regulators compare both sides of each transaction, inside and outside the firm, to ensure everything is reported and everything lines up. Mismatches, such as inconsistent identifiers, may result in a trade break and will be returned to the counterparties for resolution.
Firms that supply good, clean data can avoid some of these costly issues and the exceptions processing they require. Even then, there will still be instances where data from the other side of a transaction raises a flag. The ability to quickly trace across dataflows helps firms document and resolve their side of these issues faster. It even becomes possible to automate the review process, reducing manual effort, staff hours and costs while mitigating the risk of human error.
The added benefits of a smarter regulatory approach
Regulatory necessity drives most firms’ move to proactive transparency, but there are other benefits as well. The same data that firms use for regulatory reporting can be leveraged to develop a deeper understanding of customers. This clearer view can help firms uncover patterns and mitigate risk. It can also be used to garner insight that enables firms to deliver a richer, more personalized experience. What starts as a regulatory exercise can ultimately boost retention, engender trust, facilitate sales opportunities and drive higher revenues.
Don’t do it alone
With the clear opportunity to streamline and save, why haven’t more firms put transparency first? The simple answer: the task can seem daunting, and it’s hard to know where to start. That’s where experience comes into play. There’s a true advantage to working with a fintech partner that’s been down this road before. You’ll benefit from best practices, gain the advantages of mutualization and avoid the costly pitfalls seasoned partners have already encountered.
Broadridge can help
We help many firms establish the operational framework they need to propel transparency and compliance. Some turn to us when the pressure is on to step up to a new regulation. With sufficient lead time, we can help tackle regulatory requirements and establish the framework view. Others engage us just after their latest compliance challenge. Recognizing there’s a more efficient, less stressful, less risky way to address new regulatory requirements, they’re keen to approach their next challenge better prepared.
It's not an endless task
Depending on the firm, as well as the size and complexity of their data and infrastructure, establishing an operational framework will typically take 6-12 months. The effort can produce a healthy return on investment with the first major regulatory change. Then, it continues to save firms time, money and hassles — regulation after regulation — in the years to come.
Ready for transparency ROI?
Let Broadridge help your firm become ready for next. To learn more, contact Broadridge today.