Randall Orbon is a senior vice president at Sapient Global Markets
What were the major themes for your business in 2015?
For many of our clients it has been the ongoing response to various regulatory reporting initiatives and coming to terms with new requirements on the horizon. Market participants have already made significant investments in their trade reporting systems- investment banks alone have spent almost $25 million on average to achieve compliance for both Dodd-Frank and EMIR.
Many firms are managing their governance, risk and compliance initiatives with dozens of disparate, often disjointed systems, which fuel duplicative and contradictory processes and documentation, which lack transparency and increase risk. Research we conducted this year also found that 72% of firms are using in-house systems. Despite sizable investments in these systems, it is apparent that many banks are grappling with data management challenges, inefficient trade reporting processes and poor governance.
Randall Orbon,
Sapient Global Markets
Firms are also working within tighter budgets and yet at the same time, expect their trade reporting costs to significantly increase over the next two years. It is apparent that many banks will spend almost as much to meet forthcoming regulations as they did to get to where they are now.
When examining the ‘cost’ of reporting , firms often fail to take in to account the time, money and effort required by their internal teams to deliver more efficient tracking, reconciliation and remediation of trade data. In all likelihood, they will realize little to no savings due to the lack of extensibility and flexibility in their current reporting solutions. This raises a red flag that a change in how they approach trade reporting is in order.
What are your expectations for 2016?
Overall, I think we will see a continuation from 2015 but with an additional sense of urgency and the emergence of new models offering a solution to these issues. Much of that is being driven by MiFID II, even if it is delayed by a year, as well as Money Market Statistical Reporting (MMSR).
A delay could be beneficial, affording firms’ time to move away from the ‘quick fix’ approaches of multiple point solutions, to a more strategic view. Proven third-party services exist that mitigate many of the challenges firms are facing and improve overall data usability for broader trade lifecycle processes.
However, firms must maximise the time available, examine opportunities for more detailed end-to-end view of trades for the differing reporting requirements. A delay to MiFID II also means the tolerance for failure to complete projects and not reporting in a correct and timely manner will be significantly reduced. The extra year raises the expectation that a firm will have implemented and tested a robust reporting solution.
Regulators have already begun to scrutinize data and, as a result, transparency and auditability will become critical aspects to trade reporting. Firms will need to focus on ensuring their reporting systems are of a sufficiently high quality, and will remain so, to avoid regulatory censure.
These concerns are also leading to an increased interest in utilities, as we’ve seen in the KYC/AML space, that ‘mutualize’ some functions. I don’t expect these shared services to be live in 2016, but many of the conversations we’re having reveal a growing desire to exit the business of trade reporting, which offers no competitive advantage and consumes a large, and increasing, amount of resources in terms of staff and operational overheads. This model could deliver significant data quality benefits, while also providing greater assurance and reducing operational costs for its participants.
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