HFMWeek (HFM): What regulatory developments have been of the most significance to the industry in recent years?
Ian Murrin (IM): Broadly speaking, the sheer number of regulations and their complexity is what has changed most within the industry in the recent years. For global banks that are present in multiple markets, implementation of each regulation can be very complicated with regulators not talking to each other or trying to ensure that solutions can bereused for different regulations. For investment managers, many of whom are small or mid-sized firms, the added burden of regulations such as AIFMD on the marketing side and Mifid II, which can touch multiple areas of the business, can overwhelm an already stretched team making it difficult to achieve compliance.
HFM: What were the drivers in these developments and how were they received?
IM: New financial market regulations are obviously aimed at increasing transparency, reducing risk and increasing stability. The themes broadly focus on harmonising and improving market structures, enhancing bank structures to protect consumers and marketing processes to protect investors, increasing tax transparency to reduce tax avoidance and increasing capital and liquidity within banks to enable them to better weather downturns in the markets. This has left the financial services industry with a significant compliance overhead that it is continually struggling to deal with. For example the Mifid II regulations coming into force in January 2018, puts many organisations under significant pressure to ensure they have processes in place to deal with its’ complexities.
HFM: How will the growing form of technology impact the industry?
IM: Technology will be very important in enabling firms to future proof their implementations thereby allowing them to more easily and quickly onboard new regulations at a fraction of the cost. Compliance requires the collection of ever increasing quantities and forms of data. Increasingly, and specifically within some of the Mifid provisions, the reporting and analysis has to be done in near-real-time, which precludes relying solely on human oversight and which would overwhelm any manual approach. Big data and other related technologies allows this data to be consolidated in one place and then reported on efficiently and in a timely fashion to meet the needs of regulators, who may require information at very short notice.
HFM: What issues surrounding compliance do those within the industry find themselves having to deal with as a result of the growing weight of regulations?
IM: While historically certain regulations allowed some flexibility around reporting there has been a clear shift towards accurate reporting 100% of the time. So, due to the constantly changing regulatory requirements, the technology and related processes need to be flexible and able to cope with being applied to different regulations across multiple jurisdictions over time. However, as “data is the new oil” this need to improve data centralisation, quality and transparency is also an opportunity for organisations to derive more value from the data they produce, using applying big data and AI principles and technologies to spot and act on transient market trends.
HFM: What advice can you give for those who may be struggling or unsure of what the next steps are?
IM: The most important step is to understand all of the upcoming regulations that could impact the company. There are efficiency savings that can be made if you look across the regulatory landscape and build a solution that is not only fit for purpose for multiple regulations but one which is built with a “future-looking” perspective; this includes finding ways to leverage the resultant improvements in data quality and visibility, to better inform senior management about business risk and performance and help them spot and seize new market opportunities. Once that is identified it is important to invest the time and money to build the right technology solution for your firm with the right programme management to ensure it is done efficiently and to budget.