Regulatory reporting forms a critical part of the financial services industry, providing regulatory bodies with essential information to monitor market activities. And as financial firms grapple with ever-evolving compliance requirements, understanding the distinctive nature of regulatory reporting projects becomes imperative for success. In fact, to an increasing extent, these projects demand a specialised approach and unwavering attention to detail. Industry professionals, involved in their implementation, must maintain rigorous standards of accuracy while simultaneously adhering to often complex regulatory requirements.
But what makes regulatory reporting different from any other project undertaken by financial market participants?
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The Variety of Involved Stakeholders
Regulatory reporting projects have a diverse set of stakeholders involved. Stakeholders can range from internal teams like compliance, risk, operations, and technology to external entities such as regulators across different jurisdictions, trade repositories/mechanisms, legal advisers, technology, and data vendors. Each carries unique insight, perspective and requirements that demand attention.
Securing all stakeholders’ buy-in requires balancing their demands against each other and synchronising efforts across various teams while keeping clear communication.
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Constraints of regulatory timelines
The regulatory timeline covers, in addition to the go-live dates, key milestones such as dates of draft guidelines consultation, dates of technical standards publication, or periods of exemptions to some categories of products or actors.
Regulatory bodies require strict adherence to regulatory timelines. Yet, these timelines could change in response to industry feedback, technical challenges or other considerations,
Therefore, all project plans and estimates need to factor in contingencies for timeline changes. The focus should remain on the Minimum Viable Product MVP in an Agile approach.
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The Interpretation of Regulatory Requirements
The interpretation of regulatory requirements is a key risk area that needs to be actively managed throughout the project. With reporting rules, among multiple sources and guidance texts, buried under the legal jargon of technical standards, defining and validating implementation requirements represents a challenging journey.
Therefore, understanding reporting rules should be subject to appropriate oversight and governance. Rather, it is important to initiate and maintain a continuous dialogue both, internally and with the industry’s working groups and the regulators to obtain clear validation on the interpretation and scoping of each aspect.
The project team should advocate for automated horizon scanning capabilities and ensure that the firm is keeping complete, centrally maintained, and robust records of regulatory interpretations.
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The differences between jurisdictions
Regulators in different regions come up with requirements that have the same purpose. Typically, when US financial authorities first mandated derivatives reporting, several regulations pursued Dodd-Frank’s direction, including EMIR, HKMA and MAS. Yet, each jurisdiction comes with its own distinct set of rules to adhere to.
The global nature of financial services means that many market participants are expected to be compliant with regulations in different geographies. The disparities between requirements across jurisdictions mean businesses cannot apply a one-size-fits-all strategy. Thus firms are often tasked with juggling rules relevant to various jurisdictions simultaneously and meeting deadlines posed by different time zones.
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The Complexity of Reporting Rules
At the heart of the regulatory reporting process is the definition of criteria such as the reportability of a trade or transaction, who is responsible of reporting and the frequency of reporting (Real-Time vs End-Of-Day).
Firms then need to determine what information must be included or left out of the report according to specific rules; and how each reportable field is sourced, controlled, and transformed before timely submission to the reporting mechanisms. Unique references agreed upon with the other party, such as UPIs and UTIs, need to be used coherently throughout the product life cycle.
The pool of individuals with the relevant skills and experience to review and interpret regulatory rules is relatively small. Hence, their time needs to be carefully allocated to provide guidance where needed.
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Wide Array of Complex Data
The unique nature of regulatory reporting requires sourcing, filtering, and presenting a wide collection of data, including trade data, static data, reference data and client data. Navigating through the ocean of available data, to identify the right up-to-date source of each data point in the report, can be arduous and overwhelming.
In fact, the granularity, consistency, and completeness of data can be different across business activities, products, or systems. Collating and compiling data requires developing extractions and interfaces with distinct formats and models, as well as tools to reconcile, adjust and cross-check the accuracy of data across sources and cancel redundancies.
With the number of reportable data points, continuously growing, data standardisation is a critical pillar to ensure consistent use and interpretation of information across the process.
How can Davies help?
At Davies, we take pride in our team of experts who have a deep understanding of regulatory frameworks. Our experience across the whole regulatory reporting space allows us to assist you in navigating the unique nature of regulatory projects in the financial industry.
We helped our clients implement systems and processes, deal with higher volumes of data, put in place controls, and streamline analysis and reporting that ensure compliance with new and evolving regulatory requirements.
To find out more about how we can assist you with any aspect of the points raised above, or your wider requirements, please contact us.
