2018 Regulatory requirements: Transforming challenge into opportunity

MiFID II has dominated data management for regulatory compliance throughout 2017 and will continue to demand attention in 2018 as we move into the new world order. But the directive isn’t the only large and potentially burdensome regulation for firms to consider.

Accompanying MiFID II at the start of January will be the EU’s Benchmarks and Packaged Retail and Insurance-based Investment Products (PRIIPs), both coming into effect as of 1st January, preceding MiFID II’s compliance deadline of 3rd January. General Data Protection Regulation (GDPR), a broad and all-encompassing data privacy blanket covering EU citizens, follows on 25th May. And the Fundamental Review of the Trading Book (FRTB) is also on the agenda for next year, although its deadline has been delayed to 1st January 2022, many regulators such as the Prudential Regulation Authority (PRA) in the UK require data to be provided in 2018. 

• MiFID II: Introduces new post-financial crisis conduct of business requirements that seek to improve the transparency and regulation of the financial markets. The market structure revisions and new obligations will have a major impact on international firms and organizations of all types — as well as on global financial markets in general. Major milestones for 2018 include Best Execution reporting, SI regime compliance as the loss of the LEI exemption.

• Benchmarks Regulation: Looks to ensure the accuracy and integrity of benchmarks by improving governance and controls over the benchmark process; improving quality of input data and methodologies; ensuring contributors are subject to adequate controls; and providing greater transparency and adequate rights to redress to protect consumers and investors.

• PRIIPS: Requires providers of retail investment and insurance products to provide consumers with Key Information Documents (KIDs) containing clear information on every product they promote.

• GDPR: Requires that organizations be able to justify their reasons for holding or processing every piece of data in their possession. Institutions also must make it clear to subjects what they will be using the data for at the time it is collected, and prove they have adequate measures in place to protect it.

• To achieve GDPR and avoid the huge penalties of non-compliance — fines of up to 4% of annual group turnover — financial institutions need to establish a clear understanding of the personal data they hold and its purpose. They must put in place processes to destroy data across the organization when it no longer has a purpose.

• FRTB: Introduces stricter rules for the treatment of market risk and how capital is is calculated especially by banks using internal models.  Emanating from the BCBS it is a global regulation and looks to address the weaknesses of the current framework. 

Despite the deferral of the compliance date to 1st January, 2022, The UK’s PRA has already asked banks planning to use the internal model approach, which in most cases allows a lower capital holding than the standard model approach, to submit their plans to a PRA working group in 2018.

Although perhaps not quite as disruptive in nature, it would be remiss to not also mention regulations on the horizon involving the revised Payments Services Directive (PSD2), Securities Financing Transaction Regulation and Financial Transaction Tax. 

Suffice it to say, the winds of regulatory change have arrived full force in the new year. To weather the storm, financial institutions must gain a greater control over their data than has ever been required of them in the past. The good news? Those institutions that develop a holistic data approach to meet compliance needs quickly and efficiently will gain a distinguishable edge on the market.

The data management demands imposed by upcoming regulations are considerable. Financial institutions must be able to provide data describing pre-trade and post-trade order details, positions in commodity derivatives — including emission allowances and derivatives thereof, and personal data upon consumers’ request for it, just to name a few use case scenarios.

With regulatory demand at an all-time high in 2018, a holistic approach to compliance becomes a ‘must do’ rather than a ‘nice to have’. Infrastructure must be rationalized at the data level in order to provide a more efficient, and less costly, response to multiple regulations.

The increased need to have a comprehensive control over data has led some firms to review their product ranges, and many to consider working with third-party services that support the reporting obligations faced upon implementation of the new legislation, as well as the production and distribution of required consumer-facing documents, such as KIDs.

The considerable regulatory requirements facing financial institutions in 2018 may appear overwhelming at first glance, but the right partnership can effectively convert this challenge into an opportunity to become an even more powerful player in the financial marketplace. 

To that end, Thomson Reuters designed itsElektron Data Platform to empower financial institutions in 2018 to meet the new regulatory challenges head-on — and to emerge ahead of their competitors.  

The innovative regulatory technology delivers the data financial institutions need to make smarter trading and investment decisions. By providing relevant content, smarter analytics and controlled distribution, the platform allows financial institutions to form actionable insights and deliver on opportunities in an efficient, cost-effective manner.

While going it alone is an option that some financial institutions will choose to take, in the world of compliance, there is no participation prize for those who come close but miss the mark — no 'points for trying'. Instead, there are costly penalties for those who can't keep up.

A partnership with Thomas Reuters enables financial institutions to both circumvent that risk and acquire the industry insights, cutting-edge technology and human expertise they need to thrive in an increasingly complex regulatory environment.