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HARMONISING
THE APPROACH TO
REGULATORY COMPLIANCE
How do you minimise costs and maximise your return
through regulatory data harmonisation?
This paper provides you with the trusted answers you need
to make informed decisions about the opportunities
regulatory data commonalities offer you and your firm.
2016
REUTERS/Bob Strong
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 2
In the current world of financial reform and
regulatory change, sustainable data is king.
The financial crisis led to a paradigm shift in
the pace and depth of regulatory reform. New
legislation has continued to arrive thick and
fast on the doorsteps of financial institutions.
In order to avoid the high penalties of
noncompliance, organisations have had to react
quickly, with significant implications on the way
they manage their information, IT systems
and processes.
Almost all organisations recognise that data
is at the heart of regulatory compliance. Sound
data management underpins the ability of firms
to comply with greater ease and accuracy and
yet, owing to the speed of reform and the varied
nature of new regulations, many institutions
have been unable to tap into regulatory
commonalities and harness their data
in a more efficient way.
This insightful paper reveals that change is
on the horizon. Organisations are beginning
to adopt a more strategic and sustainable
approach to data management. They recognise
its benefits, such as cost savings and the ability
to gain fresh insights and exposure to new
opportunities from data consolidation. A more
harmonised approach to data management will
support both current and future compliance.
Marion Leslie is the Managing
Director of Thomson Reuters
Regulatory, Pricing, and
Reference Services business,
delivering award-winning
pricing, valuations and
cross-asset reference data,
as well as leading regulatory
content and compliance
learning solutions to financial
services, insurance firms and
corporations globally.
In prior roles, Marion has
run global technology and
content teams. Most recently,
Marion was the Global Head
of Instrument and Pricing
Content, creating highly
valued content for the equity,
fixed income, commodities &
energy, foreign exchange and
money markets, supported by
a team of 1500 experts in 26
countries worldwide.
Marion spent nearly four
years in India, creating a start
up in Bangalore, building the
Thomson Reuters office from
scratch to 2000 employees
across multiple functions,
and was an executive board
member of Reuters India
Private Ltd.
A champion of talent and
diversity, Marion is sponsor
of the Thomson Reuters
Business Leader Programme
and sponsors Thomson
Reuters partnership with
Pilotlight, a unique,
capacity-building charity
matching senior business
leaders with charities and
social enterprises to support
strategic planning for
sustainability, development
and growth.
• 2014-2016 Member of
the ESMA Consultative
Working Group for the
Market Data Reporting
Working Group.
• Winner of the Award for
Achievement at the 2014
Women in Banking
and Finance Awards.
• Chair of the London
Women’s Forum, an
exclusive network for
senior women working
within the financial
services industry
in London.
• Non-executive director
for the UK Hydrographic
Office (a Government
Trading Fund).
Foreword Biography
Marion Leslie
Managing Director
Thomson Reuters
© 2016 Thomson Reuters S035874/06-16
Only Thomson Reuters has the depth and breadth of data, the global footprint, local knowledge and
proven experience to deliver the exact data you need to not just comply – but thrive – anywhere you
do business. Step by step guidance for cost-effective compliance, across the board, across the globe,
including specialist data sets for:
REGULATORY DATA THAT KEEPS YOU ON THE RIGHT COURSE
TOOLS TO HELP YOU NAVIGATE
THROUGH A SEA OF REGULATION
• Basel III
• Dodd-Frank
• EMIR
• FATCA
• IFRS
• Russian Sanctions
• Shareholding
Disclosures
• Solvency II
• + More
To find out more, simply email prd.community@thomsonreuters.com or visit prdcommunity.com
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 4
Table of Contents
Executive Summary 5
Overview 6
The Regulatory Challenge Matrix 7
The Current Approach to Harmonisation 9
Approach Type by Company 10
Approach Type by Region 10
Team Approach 10
Dedicated Teams by Company Type 10
Repurposing Existing Solutions 11
The Benefits of Exploiting Commonalities of Data across Regulations 12
Other Benefits 12
Benefits by Business Function 13
Benefits by Asset Class 13
Obstacles to Harmonisation 14
Obstacle: Organisational and Cultural Hurdles 14
Obstacle: Cost and Budget Constraints 15
Obstacle: Lack of Consistent Data 15
Obstacle: No Regulatory Standard 16
Obstacle: Lack of Clarity on Requirements 16
Obstacle: Rate of Regulatory Change 16
Obstacle: Lack of Resource 16
Obstacle: Tight Lead Times 16
Obstacle: Lack of Market Solutions 16
How Regulatory Programmes are Managed 18
The Banks 18
The Asset Managers 19
The Insurers 19
Drill Down: Commonality of Data Types Across Regulations 20
Commonality of Asset Data Across Regulations 20
Commonality of Entity and Issuer Data Across Regulations 21
The Outlook 22
Next step: data approach 22
Appendix A: Methodology 23
Companies Surveyed 23
Job Function 23
Geographical Breakdown 23
Appendix B: How Can Your Regulatory Data Vendor Help You? 24
You Need Your Vendor to Supply 24
Ingredients for Success 24
Appendix C: Video Reference 25
BCBS 239: Changes, Challenges & Benefits 25
AIFMD & IFRS: Fair Value Measurement & Portfolio Valuations 25
SHAREHOLDING DISCLOSURES: Monitor Thresholds of Ownership 25
SOLVENCY II: Every Cloud has a Silver Lining 25
About Thomson Reuters 26
About Thomson Reuters Risk Services 26
About Thomson Reuters Regulatory Portal 26
About A-Team Group 27
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 5
Executive Summary
• The regulatory landscape has become increasingly
challenging for financial institutions across buy- and
sell-side firms globally since the 2008 credit crisis.
The range of regulations, which are aimed at reducing
systemic risk, now impacting their businesses include
the EU’s Solvency II (insurance), Markets in Financial
Instruments Directive (MiFID), Alternative Investment
Fund Manager Directive (AIFMD), the U.S. Dodd-Frank
Act and the Basel capital adequacy requirements.
• They face pressing deadlines for meeting complex
requirements, resulting in a costly and resource-
intensive firefighting approach. But is it time to take
a more strategic and harmonised approach to data
management to both meet these demands
and benefit the business?
• 95% of financial institutions agree that significant
benefits can be gained through a harmonised approach
to data management for multiple regulations.
• The biggest benefit is seen as consistency of data
across the business (79% of respondents), followed by
organisational efficiencies (63%), cost savings (50%)
and reduction in data sources (44%).
• The data types seen as offering the biggest return
on effort, based on their level of commonality across
regulations, are identifiers (such as the Legal Entity
Identifier) and classifiers, followed by credit ratings
and pricing data.
• Despite such enticing benefits, the gap between the
ideal and reality is wide. Only 12% currently have
a fully strategic approach to leveraging regulatory
commonalities. Nearly half are still firefighting, taking
a piecemeal approach, regulation by regulation.
• While 53% do have a dedicated team focused on taking
a strategic approach across regulations, almost
half of firms spend less than 10% of their operational
time on it.
• Why isn’t more progress being made?
– The biggest barriers across all of our respondents are
organisational and cultural. The scale and complexity
of the firms – politically and technologically – impacted
by financial regulations make it difficult to adapt.
While regulations are gaining attention of the board
and C-Suite, the approach appears to be more one
of ‘compliance’ than ‘strategy’.
– The sheer cost of the changes required is also seen
as a barrier, particularly as ‘investment fatigue’ around
regulations grows.
– The current lack of data definition and consistency –
across multiple source systems and external vendors –
means there is no single version of the truth.
– Inconsistencies across regulators, a lack of clarity
and tight deadlines all make compliance costlier and
more difficult, and hamper efforts to be more strategic.
• Over time, we expect to see a shift from firefighting
towards a more strategic approach. Indeed, efforts
to work strategically across regulations will increase
at 88% of financial institutions over the next two years.
Thomson Reuters recently commissioned an independent survey of data management professionals across business types,
sizes and geographies. We asked them a series of questions around the current and future regulatory environment. This paper
goes in-depth into what they told us about the challenges and opportunities their enterprises face. First, a brief summary
of our findings:
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 6
REUTERS/Alistair Scrutton
Overview
The world’s reaction to the 2008 credit crisis was first to put
out the most pressing fires, and then set about assessing
what needed to be done to ensure that a failure of this scale
could never happen again.
Regulators introduced a swathe of new rules and regulations
aimed at reducing systemic risk, many of them focused
on increasing transparency and forcing financial institutions
to understand more fully their exposure to risky
investments and activities.
After a period of rapid regulatory change, firms scrambled
to get up to speed quickly, fearing penalties for noncompliance.
The result has been several years of significant investment –
particularly in data and data management systems – to meet
regulatory obligations.
Now, financial institutions are beginning to reassess how
they responded to the regulatory tsunami. Many are
realising they have an opportunity to leverage the work they
have done to boost operational efficiency and derive value
from their compliance and regulatory reporting projects,
workflows and processes.
A key step is the adoption of a harmonised data workflow
approach in order to facilitate compliance with multiple
regulations. In a survey conducted on behalf of Thomson
Reuters, 95% of respondents agree there are significant
benefits from taking such an approach.
But, for many, there remains a gap between belief in best
approach and reality. How many financial institutions really
are taking such a harmonised approach? How are they doing
it, and where is there room for improvement?
We surveyed 66 senior financial data management
practitioners to understand:
• How many organisations have taken a strategic approach
and how many are still operating in piecemeal fashion
to meet individual regulations.
• Whether financial institutions have a dedicated
team working on a more strategic approach to data
management across regulations.
• How effective their organisations are at leveraging the
commonalities.
• How regulatory programmes are currently managed
across different financial institutions: banks and
brokerages, asset managers and insurers.
• Whether they seek to repurpose existing data or workflow
solutions.
• The benefits of a harmonised approach, and where within
the business these benefits might be felt most.
• The current obstacles to achieving a harmonised
approach.
• Where did firms see regulatory commonalities across
individual asset types and entity and issuer data.
• How many firms will now consider a more harmonised
approach as a result of taking this survey.
• How this picture will change over the next two years.
‘Now this is not the end. It is not even
the beginning of the end. But it is, perhaps, the end
of the beginning.’
Winston Churchill
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 7
The Regulatory Challenge Matrix
Depending on their function, financial
institutions may face any number of major
regulations. These range from the EU’s
Solvency II (insurance), Markets in Financial
Instruments Directive (MiFID) and Alternative
Investment Fund Manager Directive (AIFMD),
to the U.S. Dodd-Frank Act and the Basel
capital adequacy requirements (see Major
Regulations box below).
Tier 1 firms operating in multiple regulatory
jurisdictions may need to adhere to local
regulations such as Dodd-Frank and
MiFID II, while at the same time meeting
the global capital adequacy requirements
of Basel III. In other cases, service providers
are impacted by the regulatory requirements
facing their clients. For instance, insurers are
turning to their asset managers for help
in meeting Solvency II’s ‘look-through’
valuations requirement.
In many instances, there are common ‘regulatory
intents’, particularly with respect to valuation of
portfolio holdings, understanding risk exposures
to clients and counterparties, and client
classifications. Yet, inconsistencies between
regulators – often around definitions of data
fields – make it difficult to ‘kill two birds with
one stone’. Firms often find they need discrete
processes or calculations to derive the data they
need to comply with separate regulations asking
essentially the same question.
The current rate of regulatory activity is growing
significantly year-on-year (see Chart 1 on page 8),
and 70% of firms expect regulators to publish
even more regulatory information in the next
year, with 28% expecting significantly more1
.
Some estimates put the cost of regulatory
compliance at up to $4 billion per year at some
of the largest banks, although it’s hard to
measure and will vary greatly firm to firm.
Being able to manage this regulatory deluge
in a strategic and harmonised way is
increasingly important.
1 Source: Thomson Reuters
Prioritised Regulations – Europe Basel III Solvency II CRD Dodd Frank MifID II AIFMD AML/KYC EMIR
Shareholdings
disclosure
ImpactonFinancial
Institutions
Banks        
Asset managers         
Brokers        
Custodians / Fund administrators         
Insurance companies     
AIFMs     
 Direct impact
 Indirect impact due to counterparties/customers
Table 1: Regulatory Matrix by Company Type
REUTERS/Denis Balibouse
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 8
Chart 1: Regulatory Activity Tracked 2015-2016, Source: Thomson Reuters2
2 Note: Tracked activity includes document changes, announcements and enforcements by regulators.
Average Daily Alerts = Total Alerts Year-on-Year/261 Working Days
2011
2012
2013
2014
2015
2010
2009
2008
TOTAL YEARLY ALERTS
51,563
40,603
26,950
17,763
14,215
12,179
10,075
8,704
A M J J A S O N D J F M
1,000
2,000
3,000
4,000
5,000
6,000
0
2015 2016
■ Africa
(beginning June 2015)
■ Latin America
(beginning 2013)
■ Australasia
■ Asia
■ Middle East
■ North America
■ UK/Europe
AVERAGE DAILY
ALERTS
200
IS YOUR DATA HELPING YOU
ADDRESS CROSS-REGULATORY
CHALLENGES?
Use our diagnostic tool to find out,
and receive your personalized report
LAUNCH TOOL ›
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 9
The Current Approach
to Harmonisation
The value of taking a holistic approach to
data across jurisdictions is widely recognised
by survey respondents, with 95% agreeing
that there are significant benefits to taking a
harmonised approach to data and workflow to
facilitate compliance with multiple regulations.
However, there remains a gap between what
firms recognise to be beneficial and how they
are actually operating. Only 12% currently
believe they have a fully strategic approach to
leveraging the regulatory commonalities and
seeking to derive value from these efforts, and
nearly half of respondents are still in firefighting
mode, working piecemeal, regulation by
regulation. This is driven by tight regulatory
deadlines on one side and stretched budgets
and resources and restrictive operational
structures on the other.
In this paper, we take a look at the details
of different approaches, what the perceived
benefits of a harmonised approach are and
what obstacles are blocking progress.
95%
Agreed: Significant
benefits can be
gained with
harmonised
approach
12%
Currently have
a fully strategic
approach to
regulatory
commonalities
Answer choices Responses
Strongly agree 74.24%
Agree 21.21%
Neutral 4.55%
Disagree 0.00%
Disagree strongly 0.00%
Chart 2: “There are significant benefits to taking a
harmonised approach to data and workflow to facilitate
compliance with multiple regulations”
Answer choices Responses
Fully strategic and worked to future 12.31%
Strategic across several but not all regulations 40.00%
Piecemeal approach working regulation-by-
regulation
47.69%
Chart 3: Current Level of Strategic Approach
■ Strongly agree – 74.24%
■ Agree – 21.21%
■ Neutral – 4.55%
■ Fully strategic and worked
to future proof
■ Strategic across several
but not all regulations
■ Piecemeal approach working
regulation by regulation
47.69%
12.31%
40.00%
74.24%
21.21%
4.55%
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 10
Approach Type by Company
Approach Type by Region
Team Approach
Having a dedicated team within the financial organisation that works
across the enterprise and across multiple regulations can greatly increase
the effectiveness of its response to regulations and the ability to leverage
opportunities from such a harmonised approach.
Only around half of respondents say their firm has a dedicated team
focused on a strategic approach to regulations. Insurers (75%) and
asset servicers (80%) typically are more likely to have a dedicated team
responsible for a harmonised approach, which is most likely due to the
relatively less complex organisational structures when compared with
banks (48%) and asset managers (47%).
Dedicated Teams by Company Type
Most of the firms without dedicated teams (which represent 46% of the
responses) admit that their companies spend less than 10% of
their operational time on a harmonised approach and overall 80%
of firms spend less than a quarter of their operational time on it.
Banks
Asset
managers
Insurers
Asset
servicers
Strategic Approach (average: 12%) 10% 21% 0% 0%
Strategic for some, not all regulations
(Average: 40%)
40% 26% 50% 60%
Piecemeal Approach (average: 48%) 50% 53% 50% 40%
Table 2: Approach Type by Company % Above average
% Below average
UKI Mainland
Europe
North
America
Asia /
Pacific
Strategic approach (Average: 12%) 4% 14% 13% 29%
Strategic for some, not all regulations
(Average: 40%)
48% 50% 31% 29%
Piecemeal approach (average: 48%) 48% 36% 56% 43%
Table 3: Approach Type by Region % Above average
% Below average
■ Yes – 53.03%
■ No – 46.97%
53.03% 46.97%
Chart 4: Dedicated Teams Working Strategically
Across Regulations
Company Type Responses
Banks 48%
Asset Managers 47%
Insurers 75%
Asset Servicers 80%
Table 4: Dedicated Teams by Company Type (Average: 53%)
% Above average
% Below average
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 11
Repurposing Existing Solutions
One way to increase the efficiency of regulatory efforts is to repurpose
existing solutions for both data and workflow to help meet multiple
regulations based on commonalities. Over three-quarters of respondents
take this approach. Again, perhaps reflecting the relative level
of complexities of their organisations, 100% of insurers and asset
servicers are repurposing existing solutions, compared with 83%
of asset managers and 79% of banks.
Answer choices Responses
Yes 79.37%
No 20.63%
Chart 5: Repurposing Existing Data Solutions
79.37%
20.63%
■ Yes – 79.37%
■ No – 20.63%
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 12
Being strategic when managing the regulatory response can reap many benefits:
Other Benefits
Respondents describe other benefits that result from taking a more harmonised approach to regulatory data. In many cases,
the initiative resulted in specific benefits, some unforeseen or unplanned.
Some respondents are able to take the opportunity to look at operational and reputational risk. As one UK-based group data
management head at a bank said, ‘For example, on BCBS 239, we are working not only on regulatory reporting, but also
on taking out operational risk by focusing on the timeliness of data. BCBS 239 lays out in data management terms
what is necessary.’
Avoiding errors and fines is another benefit (and often driver for investment) that can result from such a holistic approach.
Some participants cite specific examples of operational benefits deriving from their approach to regulatory compliance across
jurisdictions. For one respondent, the regulatory ‘best practice’ allows his firm to establish a set of success criteria, or metrics,
for the BAU (business as usual) team to deliver against. ‘Too often, compliance is achieved and change programmes end’,
he said. ‘You have to go the extra mile to get business benefits – for example, to get cost efficiency
you may need to switch off systems.’
There are other examples of specific benefits across multiple regulations. One respondent suggests a harmonised approach
can benefit global projects where the underlying data needs to be a certain quality and synchronisation, citing Basel’s BCBS
239 and BCBS 265 (Fundamental Review of the Trading Book). Another says his harmonised approach ‘improved our capacity
to offer complex regulatory reporting to our clients (risk, Solvency II, AIFMD).’
The Benefits of Exploiting Commonalities
of Data across Regulations
Strategies Benefits
Data Consistency A coordinated regulatory programme can enable consistent reporting to regulators but can
also feedback consistent data across the enterprise
Organisational efficiencies A coordinated effort can result in fewer people being required and possible systems
consolidation
Cost Savings Cost savings through identification of duplicate coverage or reduced data demand through
simplified processes
Reduction in Data Sources
A harmonised approach can remove duplication of data, although some cited the converse
need for more data to fulfill new data requirements
Table 5: Benefits of Exploiting Commonalities ■ Significant ■ Some Benefits ■ No real benefits
63% 35% 2%
50% 46% 4%
44% 50% 6%
79% 19% 2%
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 13
Benefits by Business Function
Survey respondents, perhaps not surprisingly, say they expect to see most benefit from
harmonisation within the post-trade environment. Almost two-thirds of them see improvement
in the mid-office reconciliation and back-office settlement areas, with overall improvement
in those areas seen by over 90%. Conversely, pre-trade is seen enjoying less of a benefit,
with 22% expecting low impact from harmonisation.
Benefits by Asset Class
In terms of most-affected asset classes, respondents clearly highlight OTC markets, including fixed
income/rates, derivatives and credit markets, all with 90+% overall benefit rankings, mirroring
the current regulatory focus.
Of lesser focus, and therefore less likely to benefit, are commodities and equities, with only 43% and
51% of respondents, respectively, expecting major benefits from a more coordinated approach.
2%35%63%
9%30%61%
2%37%61%
11%40%49%
22%37%41%
Mid-Office Reconciliation
Back-Office Settlement
Back-Office Clearance
Trade
Pre-Trade
Custody 6%60%34%
■ High
■ Medium
■ Low
Chart 6: Benefit Realisation by Business Function
■ High
■ Medium
■ Low
Chart 7: Benefit Realisation by Asset Class
23.40%76.60%
21.28%76.60%
30.43%65.22%
10.64%29.79%59.57%
13.33%35.56%51.11%
17.39%39.13%43.48%
Fixed Income/Rates
Derivatives
Credit Markets
FX/Money Markets
Equities
Commodities
2.13%
4.35%
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 14
REUTERS/Jorge Silva
Obstacles to Harmonisation
A note about methodology: We asked our survey participants for open-ended responses about
the primary obstacles they face when seeking a harmonised approach across multiple regulations.
Across our respondents, we had 120 individual data points, which we then grouped into
the nine categories below.
Obstacle: Organisational and Cultural Hurdles
As the chart shows, the top obstacle (mentioned by 39%) is in the organisational and cultural
category. The causes include a lack of top management buy-in – or a ‘compliance only’ approach from
top management, a lack of ‘ownership’ within the business, the siloed nature of these businesses,
and fragmented functional processes where the challenge is ‘overcoming functional myopia’.
To quote one UK bank respondent: ‘Organisational challenges and group politics – this is the
biggest thing, not technology. It is about getting everyone across countries, regions and lines
of business to acknowledge and understand the common goal.’
Another UK-based executive director at a bank said the difficulties lay around ‘understanding
of the issues, particularly in the front office. [This] needs a massive cultural change
that won’t be achieved overnight.’
The head of data governance at a global asset manager said that the level of ‘organisational
change required to support harmonised data is a real hurdle.’
A U.S. asset servicer pointed to the general ‘lack of cohesiveness and vision’, whilst a bank data
manager said, ‘[We] haven’t got senior executive bought in and enforced top down.’
■ Organisational and Cultural – 39%
■ Cost & Budget Constraints – 15%
■ Lack of Consistent, Quality Data – 13%
■ No Regulatory Standard – 8%
■ Lack of Resources – 7%
■ Lack of Solutions – 6%
■ Lack of Time – 6%
■ Rate of Regulatory Change – 3%
■ Poor Clarity from Regulators – 3%
8%
7%
6%
6%
3% 3%
15%
15%
39%
Chart 8: Obstacles to Harmonisation
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 15
Current communication and cooperation challenges within firms across multiple regions and teams,
often with very different roles, are also an obstacle.
The sheer complexity of the internal infrastructure with multiple legacy systems, none of which talk
to each other, makes achieving consistency to support a strategic approach difficult.
This obstacle was summed up efficiently by the head of data management for a global bank:
‘The complexity of legacy systems and reengineering – unpicking mistakes of the past and
delivering new systems to aggressive deadlines – while doing everything else that is needed.’
Another aspect of organisational challenge is the reality of the day-to-day business of the financial
institutions, which is the reason they exist, rather than to comply with regulatory requirements.
Prioritising projects and focus of operational attention often wins out over strategic approaches
to regulations. Many firms struggle with a lack of organisational time. ‘So long as we’re in basic
compliance, we can get on with the day-to-day business and other business priorities.’
Obstacle: Cost and Budget Constraints
Unsurprisingly, cost is perceived as a major obstacle to taking a more harmonised approach
to regulatory reporting. Ever since the credit crunch – the event that many of the new regulatory
initiatives are seeking to avoid recurring – cost has been a major hurdle for any data or IT project.
While there is a perception that regulation has been a ‘door-opener’ for many IT projects, survey
respondents say the cost of investment to achieve harmonisation is a major obstacle to progress.
While this may seem paradoxical, one respondent says there is investment ‘fatigue’ around regulation.
Proving ROI is difficult and frustrating for many respondents, particularly given management’s ‘lack
of appreciation for the cost savings associated with optimising holdings in light of differences
in regulations’, as well as the wider benefits of harmonisation.
‘There’s the increase in cost from trying to gather the data requirements—the new data elements
we have to purchase from the vendors’, said one respondent. ‘But there’s a restriction in terms
of the policy in place [on data acquisition]. Also, there are legal complications, which means
engaging with legal teams to sort things out.’
Obstacle: Lack of Consistent Data
Respondents complain that the lack of consistency across source systems and external data
vendors represents a significant barrier to achieving true harmonisation. Because there is
no prescribed official source of data, many respondents say they are populating regulatory reports
from multiple data feeds and internal systems.
This approach – with varying formats and quality levels, again due to legacy silo-based organisations
– makes harmonisation difficult. As one respondent points out, different vendor systems have
different data fields, different usage restrictions and different naming conventions, making
harmonisation a challenge.
‘I don’t know how much harmonisation is actually possible’, said another respondent. ‘We have $2.5
trillion of assets under management and a lot of lines of business all with different views of data.
So getting everyone to agree on the definition of harmonisation and to agree that one piece of data
is the same for everyone may not be possible. We are still likely to have multiple versions of the truth.
Where I have seen companies with a single version of the truth, no one is using it.’
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 16
Obstacle: No Regulatory Standard
Inconsistency between regulations is seen as a significant obstacle to a harmonised approach.
Survey respondents feel there are inconsistencies between regulations, with regulators in different
jurisdictions taking different approaches and requiring different data points while attempting
to fulfill similar intentions.
Examples include conflicting definitions of a U.S. person, different classification categories
and different views on ontologies. As one exasperated respondent put it, ‘There is no
single regulatory data dictionary’.
The absence of a regulatory rules engine that captures client and/or fund attributes in a predefined
matrix makes it difficult to determine what’s in or out of scope, according to another respondent.
Others suggest regulators are mandating the use of standards and data that is not appropriate
for purpose.
Obstacle: Lack of Clarity on Requirements
Connected to this is the overall sentiment that there is a lack of clarity on the requirements.
Some attribute this, in part, to uncertainty among regulators about how to use all the data they
are collecting, making it difficult for financial institutions to understand what they want.
Others suggest there is a lack of trust between regulators and the industry, creating a barrier
to collaboration that can boost clarity, cohesion and understanding.
Obstacle: Rate of Regulatory Change
Some respondents perceive the fast rate of regulatory change as a barrier to harmonisation.
‘Regulatory in-scope/out-of-scope conditions continue to evolve’, said one, making it difficult
to proceed with any strategic attempt to harmonise.
Obstacle: Lack of Resource
Resource constraints hurt respondents’ ability to take a proactive approach to harmonisation.
This manifests itself in several ways, with some respondents indicating their teams don't have
the time or expertise to research products that could help, and others suggesting the kind
of comprehensive overhaul of internal database structures required is beyond their capabilities.
Others simply lack subject matter experts, particularly cross-domain specialists.
Obstacle: Tight Lead Times
Despite acknowledging the propensity for delays, many respondents say they find the lead times
difficult, limiting the potential for a harmonised approach. Simply put: ‘Delivering compliance
on time may not fit with building a strategic approach to regulation.’
Obstacle: Lack of Market Solutions
Respondents lament the lack of a silver bullet technology solution. ‘No single system alone can
provide full coverage’, said one. Others feel there is insufficient internal knowledge and industry
tools to aid in harmonisation.
REUTERS/Eddie Keogh
EDUCATE YOUR BUSINESS, CHANGE
BEHAVIOR AND MANAGE RISK
ACT WITH CONFIDENCE IN A COMPLEX WORLD
© 2016 Thomson Reuters S036388/6-16
LEARN MORE AT RISK.THOMSONREUTERS.COM/ELEARNING
• Anti-Bribery and Anti-Corruption
• Anti-Money Laundering
• Antitrust
• Business Ethics
• Certification and Senior Managers Regime (SMR) Suite
• Code of Conduct
• Compliance Induction
• Conduct Risk Suite
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• Directors Duties Suite
• FATCA Essentials
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Empower your employees to make compliant decisions and protect yourself and your business from risk with Thomson
Reuters Compliance Learning. We provide practical, interactive, customizable and cost-effective training programs that
assist in changing behavior and supporting a culture of integrity and compliance. Supported in more than 42 languages,
our courses include:
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 18
REUTERS/Hugh Gentry
How Regulatory Programmes
are Managed
The Banks
There was a range of approaches among our survey participants, from highly strategic to
piecemeal. Those respondents who say they have a fully strategic approach, point to their use
of a homogeneous information platform as the only source for information for regulatory and
management processes. They also cite the use of workflows that perform checks at all levels,
from middle office to onboarding to KYC and more.
The banks that take a strategic approach to some but not all regulations leverage a common
infrastructure – covering golden sources of data, data warehouses, validation and assurance
processes, and rules engines. According to one respondent, ‘We have a central strategy group
that is looking at these issues and is driven by specific pieces of regulation such as BCBS 239.
It takes certain aspects from these regulations and uses them for other regulations where
possible. We are on the strategic path.’
But banks who still take a piecemeal approach mention obstacles such as budget restrictions, lack
of senior management buy-in, lack of resource and political ownership issues (more on page 14).
In many cases, they have different teams set up for each regulatory project to deliver solutions
tailored to the compliance requirements of each regulation.
Often, however, banks in this group say they are aiming to move toward a more strategic,
harmonised approach. As one respondent said, ‘[We’re] working on a regulation-by-regulation
basis, [and] we may, for example, take some data used for FATCA and also use it for Common
Reporting. We are also taking existing solutions and expanding them for new regulations,
but as the regulations themselves are not harmonised we can’t put in one set of data fields
to meet the requirements of all regulations. That said, I hope we can do more towards
harmonising data for regulations.’
One respondent says that MiFID II changes the game, suggesting that its wide-reaching
repercussions may push firms to take a more strategic approach. Another says they
are looking to hire a head of data change to address this issue, but still expects budget
constraints to be a challenge.
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 19
The Asset Managers
The fully strategic asset managers tell us that cooperation between compliance and operations
is essential. These firms typically have a programme of identifying common attributes across
the identified regulations, and a workflow that supports change across the enterprise.
Those who are strategic across some but not all regulations say that they do look for similarities
with existing regulations each time a new one is introduced, and where there are similarities they
seek to combine people, processes and technology to deliver compliance. But the reality is that
‘we have a priority and we line up to that. Given our resource and cost constraints, we can’t tackle
them all at the same time [so we take a] deadline-by-deadline priority. Whomever shouts loudest...’
The asset managers still taking a piecemeal approach point to a lack of infrastructure, budget,
resource and IT alignment from a data perspective, all resulting in a ‘largely ad hoc’ approach.
As one said, ‘In an ideal world you’d [do it all strategically], but it’s prioritised against other initiatives
in the company. You can’t go and do what you want!’
One asset manager did say that his firm has a strategic approach in place but ‘it has yet to come
to fruition for how day-to-day operations are performed.’
The Insurers
No insurers say they are taking a fully strategic approach. One insurer says they have created
a ‘central data warehouse for period end reporting to cover internal and external investment
reporting requirements across European entities.’ Another said, ‘We have a product development
team which looks at the impact of new regulations and helps the operational teams with execution.’
Another insurer said, ‘We have just begun to address how we might optimise our investment
approach across multiple regulatory jurisdictions.’
REUTERS/Dani Cardona
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 20
REUTERS/David Loh
Drill Down: Commonality of Data
Types Across Regulations
We asked our survey respondents three sets of questions about the different data types they believe
are most common across the myriad of regulations they have to deal with.
The results can help financial institutions understand where the highest level of commonality is,
which can help them prioritise their efforts in data sourcing, cleansing and management in order
to have the biggest impact on data quality and consistency for multiple regulatory compliance.
Commonality of Asset Data Across Regulations
Identifiers are the leading asset data type that have the greatest impact across all regulations, with
an average of 71% identifying them as having a high level of commonality. This skews towards
the banks (where 82% ranked identifiers as having the most commonalities for the regulations
that impacted them) and asset servicers (100%).
This is logical, given how identifiers are fundamental to all data flowing through the enterprise,
but there are still challenges in the industry to try to come to common agreement around
identifiers. Indeed, several respondents point to the current initiatives that they hope to see
continuing to develop, such as moves towards open security identifiers and technical standards
for reporting in certain areas (citing ISO 20022, FPML and more).
Pricing data (44%) is also seen as an area of high commonality across regulations. This again
is weighted more towards the banks, where 82% see high levels of commonality,
and asset managers (67%).
■ High
■ Medium
■ Low
■ Don’t know
Chart 9: Commonality of Asset Data Across Regulations
25% 6%48%21%
8% 21%50%21%
26% 13%40%21%
19% 27%29%25%
21% 4%46%29%
10% 4%42%44%
4% 4%21%71%
Pricing Data
Identifiers
Classifiers
Look Through
Liquidity & Eligibility
Indicators
Evaluated Prices
Terms and Conditions
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 21
Classification data offers potential for benefits through a harmonised approach, but frustration
continues around the lack of standardisation and confusion in classification data (the use of
classifiers for banking and finance being one area of confusion).
The only differences regionally appeared to be a heavier weighting for terms and conditions data
in Asia/Pacific at 67%, above identifiers and pricing data. North American firms also weight
evaluated pricing (after identifiers and pricing data) at 36%, ahead of classifiers,
when compared with Europe.
Commonality of Entity and Issuer Data
Across Regulations
Respondents see most potential for harmonisation in areas such as entity identifiers, credit ratings
and smart ratios. Of less importance are domicile information, country of risk and corporate actions,
and even less for shareholding disclosures and filings information. Interestingly, a relatively high
proportion of respondents (33%) are unsure about smart ratios, while 17% say they are uncertain
of the impact on entity data.
Drilling down into company type, bank respondents place the highest importance on identifiers,
with 64% identifying a high impact from harmonisation. This is followed by domicile information
(59%), credit ratings (45%) and country of risk (41%), with the rest at 23% or below. Asset managers
similarly see greatest potential from identifiers, at 69%, followed by domicile (63%), country of risk
(56%) and credit ratings (50%).
Asset servicers see the greatest potential in domicile information with 75%. Identifiers and credit
ratings are each cited by 50% of respondents. Insurance companies cite credit ratings and domicile
at 33% each, with the remainder having medium potential impact (identifiers, country of risk,
corporate actions).
Across the board, smart ratios are cited the least, perhaps reflecting some respondents’
unfamiliarity with them.
Regionally, domicile is of higher importance in Europe compared with North America, where credit
ratings are key. Asia/Pacific sees identifiers as the most common entity and issuer data type, with
credit ratings next, followed by smart ratios (50% rating them as high commonality), whereas smart
ratios didn’t feature on European or North American lists as high commonality.
■ High
■ Medium
■ Low
■ Don’t know
Chart 10: Commonality of Entity and Issuer Data Across Regulations
50%50%
17%67%17%
67%33%
17% 33%50%
50%50%
17%17%67%
Smart Ratios
Credit Ratings
Identifiers (LEI)/Classifiers
Domicile
Country of Risk
Corporate Actions
Shareholding Disclosures
Information
Filings
67%33%
67%33%
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 22
The Outlook
Based on the overwhelming enthusiasm for the idea of exploiting commonalities across regulations,
it’s likely that firms will take a more strategic approach to harmonising their data activities.
Indeed, almost 90% of respondents say they plan to take a more strategic approach
in the next two years.
As major regulations take effect, the market’s response shifts from firefighting to instituting
better processes for ongoing compliance. This can be a slow and painful process, requiring senior
management buy-in, dedicated resources and clear priorities. But once firms have been through the
initial setup and understand the task – and costs involved – they will work to bring compliance into
their BAU processes.
Some respondents acknowledge that a more standard response to requirements across regulations
could eventually reap significant rewards in terms of operational efficiency and risk mitigation. How
that can be developed in reality remains to be seen, although the benefits could be significant.
‘If we came to a harmonised view of data across regulations and that drove how asset managers,
the brokerage community and custodians represented their data, that could change the industry’,
said the head of data governance from a major U.S. investment management firm. ‘If everyone
harmonised data to meet regulatory needs, there could be compelling synergies that could reduce
errors, improve STP and speed up settlement.’
Next step: data approach
If you hadn’t previously considered a harmonised approach to data across regulations,
will you now consider it after having taken part in this survey?
■ Increased efforts
to work strategically
across regulations
■ Decreased efforts
to work strategically
across regulations
■ No change
How do you think this will change over the next two years
Answered 66
Skipped 0
Chart 11: The Two-Year Outlook
10.61%87.88%
1.52%
Answer choices Responses
Yes 86.49%
No 13.51%
Chart 12: Future Data Approaches
86.49%
13.51%
■ Yes – 86.49%
■ No – 13.51%
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 23
Appendix A: Methodology
Companies Surveyed
For the survey, A-Team conducted a mix
of online polls and qualitative phone-based
and in-person interviews with senior data
managers and compliance officials across
a range of financial institutions globally.
Respondents included data and compliance
professionals from banks and broker/dealers
(47%), asset and fund managers (29%), insurers
(6%) and asset servicers and custodians (8%).
The ‘other’ category includes consultants
engaged in client regulatory projects
and an association.
Job Function
Job titles of respondents included chief data
officers, heads of reporting services, data
management directors, regulatory reporting
specialists, enterprise data managers
and heads of strategic change.
Geographical Breakdown
Geographically, survey respondents were based
in Europe (60%, made up of UK & Ireland 39%,
Mainland Europe 21%), North America (24%), Asia/
Pacific (11%), South America (3%) and Africa (2%).
Answer choices Responses
Bank 46.97%
Asset Manager 28.79%
Insurance Company 6.06%
Asset Servicer 7.58%
Other (please specify) 10.61%
Chart 13: Company Type
Answer choices Responses
UKI 39.39%
Mainland Europe 21.21%
North America 24.24%
Asia/Pacific 10.61%
South America 3.03%
Africa 1.52%
Chart 14: Geographical Breakdown
■ Bank – 46.97%
■ Asset manager – 28.79%
■ Insurance company – 6.06%
■ Asset servicer – 7.58%
■ Other (please specify) – 10.61%
46.97%
28.79%
10.61%
6.06%
7.58%
■ UKI – 39.39%
■ Mainland Europe – 21.21%
■ North America – 24.24%
■ Asia/Pacific – 10.61%
■ South America – 3.03%
■ Africa – 1.52%
21.21%
39.39%
10.61%
24.24%
3.03%1.52%
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 24
REUTERS/Kim Kyung-Hoon
Appendix B: How Can Your
Regulatory Data Vendor Help You?
In this globalised and regulatory-driven age, the emphasis must be on sourcing trustworthy data
inputs and services from independent partners such as Thomson Reuters. Robust pricing and
reference data and services are a major part of the equation in addition to risk management
applications, systems and processes. Any oversights or miscalculations can become magnified once
the data is aggregated at a corporate level, creating potentially dangerous distortions in reported
risk exposures and or in accurate compliance reporting.
You Need Your Vendor
to Supply:
• High-quality, timely and comprehensive
regulatory data coverage to meet your
business activity, risk, regulatory
and compliance needs.
• Consistent regulatory data across feeds,
applications and desktops.
• Experience in real-time and non-streaming
regulatory data provision.
• Commercials geared towards enterprise
usage.
• Deep understanding of the regulations and
a proven ability to provide content ready
for regulatory reporting.
• Responsive service and support models.
Ingredients for Success:
• Comprehensive regulatory data coverage –
Access to large amounts of regulatory
market and reference data, advanced
modeling capabilities and numerical
methodologies.
• Complete transparency –
The entire valuation and reporting process
with capability to audit data inputs, modeling
choices, calibrated model parameters,
numerical methodologies and product
cash flows.
• Dedicated support –
Rapid and easy-to understand responses to
queries, including help with price challenges.
• Most up-to-date market data – Supported
with stringent quality control checks.
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 25
REUTERS/David Loh
Appendix C: Video Reference
BCBS 239:
Changes, Challenges
& Benefits
Marion Leslie
Managing Director – Thomson Reuters
AIFMD & IFRS:
Fair Value Measurement
& Portfolio Valuations
Jayme Fagas
Global Head of Valuations & Transparency,
PRS – Thomson Reuters
SHAREHOLDING
DISCLOSURES:
Monitor Thresholds
of Ownership
Tim Lind
Global Head of Financial Regulatory
Solutions – Thomson Reuters
SOLVENCY II:
Every Cloud has
a Silver Lining
Tim Lind
Global Head of Financial Regulatory
Solutions – Thomson Reuters
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 26
About Thomson Reuters
Thomson Reuters is the world’s leading source of intelligent information
for businesses and professionals. We combine industry expertise with
innovative technology to deliver critical information to leading decision
makers in the financial and risk, legal, tax and accounting, intellectual
property and science and media markets, powered by the world’s most
trusted news organisation. Thomson Reuters shares are listed on the
Toronto and New York Stock Exchanges (symbol:TRI).
For more information, go to thomsonreuters.com.
About Thomson Reuters
Risk Services
Risk Management Solutions from Thomson Reuters combine what no
one else can – trusted information, managed services and software, and
human expertise – to help you manage risk efficiently and accelerate
business performance. With this combination, you can confidently
anticipate and act on customer, third party, compliance, enterprise, and
financial risk while you elevate corporate governance and controls across
your organisation.
About Thomson Reuters
Regulatory Portal
Are you fully leveraging your existing data to solve your regulatory
challenges?
Use our diagnostic tool to find out, and receive your own personalised
report with key insights and actionable advice:
financial.thomsonreuters.com/regulatorydatasolutions
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 27
REUTERS/Eric Gaillard
About A-Team Group
A-Team Group has worked since 2001 with data, software and technology
vendors targeting capital markets to create compelling content, like this
white paper, to help raise awareness and brand recognition, demonstrate
thought leadership and generate sales leads across buy- and sell-side
financial institutions.
We leverage our domain expertise in trading technology and data
management across the financial enterprise, our ability to take complex
topics and turn them into compelling content assets, and our significant
communities of engaged readers, to deliver ROI on your marketing budget.
Find out more and download our free guides to content marketing on
a-teamgroup.com. Or contact us at +44 (0)20 8090 2055 or
theteam@a-teamgroup.com.
Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 28
Index of Charts and Tables
Chart 1: Regulatory Activity Tracked 2015-2016,
Source: Thomson Reuters 8
Chart 2: “There are significant benefits to taking a harmonised approach
to data and workflow to facilitate compliance with multiple regulations” 9
Chart 3: Current Level of Strategic Approach 9
Chart 4: Dedicated Teams Working Strategically
Across Regulations 10
Chart 5: Repurposing Existing Data Solutions 11
Chart 6: Benefit Realisation by Business Function 13
Chart 7: Benefit Realisation by Asset Class 13
Chart 8: Obstacles to Harmonisation 14
Chart 9: Commonality of Asset Data Across Regulations 20
Chart 10: Commonality of Entity and Issuer Data Across Regulations 21
Chart 11: The Two-Year Outlook 22
Chart 12: Future Data Approaches 22
Chart 13: Company Type 23
Chart 14: Geographical Breakdown 23
Table 1: Regulatory Matrix by Company Type 7
Table 2: Approach Type by Company 10
Table 3: Approach Type by Region 10
Table 4: Dedicated Teams by Company Type (Average: 53%) 10
Table 5: Benefits of Exploiting Commonalities 12
Use our diagnostic tool to find out, and receive your own
personalized report with key insights and actionable advice.
financial.tr.com/regulatorydatasolutions
THOMSON REUTERS
RISK & REGULATORY DATA SOLUTIONS
Your regulation questions, answered.
Are you fully leveraging
your existing data
to solve your regulatory
challenges?

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Research: How To Manage Regulatory Compliance

  • 1. HARMONISING THE APPROACH TO REGULATORY COMPLIANCE How do you minimise costs and maximise your return through regulatory data harmonisation? This paper provides you with the trusted answers you need to make informed decisions about the opportunities regulatory data commonalities offer you and your firm. 2016 REUTERS/Bob Strong
  • 2. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 2 In the current world of financial reform and regulatory change, sustainable data is king. The financial crisis led to a paradigm shift in the pace and depth of regulatory reform. New legislation has continued to arrive thick and fast on the doorsteps of financial institutions. In order to avoid the high penalties of noncompliance, organisations have had to react quickly, with significant implications on the way they manage their information, IT systems and processes. Almost all organisations recognise that data is at the heart of regulatory compliance. Sound data management underpins the ability of firms to comply with greater ease and accuracy and yet, owing to the speed of reform and the varied nature of new regulations, many institutions have been unable to tap into regulatory commonalities and harness their data in a more efficient way. This insightful paper reveals that change is on the horizon. Organisations are beginning to adopt a more strategic and sustainable approach to data management. They recognise its benefits, such as cost savings and the ability to gain fresh insights and exposure to new opportunities from data consolidation. A more harmonised approach to data management will support both current and future compliance. Marion Leslie is the Managing Director of Thomson Reuters Regulatory, Pricing, and Reference Services business, delivering award-winning pricing, valuations and cross-asset reference data, as well as leading regulatory content and compliance learning solutions to financial services, insurance firms and corporations globally. In prior roles, Marion has run global technology and content teams. Most recently, Marion was the Global Head of Instrument and Pricing Content, creating highly valued content for the equity, fixed income, commodities & energy, foreign exchange and money markets, supported by a team of 1500 experts in 26 countries worldwide. Marion spent nearly four years in India, creating a start up in Bangalore, building the Thomson Reuters office from scratch to 2000 employees across multiple functions, and was an executive board member of Reuters India Private Ltd. A champion of talent and diversity, Marion is sponsor of the Thomson Reuters Business Leader Programme and sponsors Thomson Reuters partnership with Pilotlight, a unique, capacity-building charity matching senior business leaders with charities and social enterprises to support strategic planning for sustainability, development and growth. • 2014-2016 Member of the ESMA Consultative Working Group for the Market Data Reporting Working Group. • Winner of the Award for Achievement at the 2014 Women in Banking and Finance Awards. • Chair of the London Women’s Forum, an exclusive network for senior women working within the financial services industry in London. • Non-executive director for the UK Hydrographic Office (a Government Trading Fund). Foreword Biography Marion Leslie Managing Director Thomson Reuters
  • 3. © 2016 Thomson Reuters S035874/06-16 Only Thomson Reuters has the depth and breadth of data, the global footprint, local knowledge and proven experience to deliver the exact data you need to not just comply – but thrive – anywhere you do business. Step by step guidance for cost-effective compliance, across the board, across the globe, including specialist data sets for: REGULATORY DATA THAT KEEPS YOU ON THE RIGHT COURSE TOOLS TO HELP YOU NAVIGATE THROUGH A SEA OF REGULATION • Basel III • Dodd-Frank • EMIR • FATCA • IFRS • Russian Sanctions • Shareholding Disclosures • Solvency II • + More To find out more, simply email prd.community@thomsonreuters.com or visit prdcommunity.com
  • 4. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 4 Table of Contents Executive Summary 5 Overview 6 The Regulatory Challenge Matrix 7 The Current Approach to Harmonisation 9 Approach Type by Company 10 Approach Type by Region 10 Team Approach 10 Dedicated Teams by Company Type 10 Repurposing Existing Solutions 11 The Benefits of Exploiting Commonalities of Data across Regulations 12 Other Benefits 12 Benefits by Business Function 13 Benefits by Asset Class 13 Obstacles to Harmonisation 14 Obstacle: Organisational and Cultural Hurdles 14 Obstacle: Cost and Budget Constraints 15 Obstacle: Lack of Consistent Data 15 Obstacle: No Regulatory Standard 16 Obstacle: Lack of Clarity on Requirements 16 Obstacle: Rate of Regulatory Change 16 Obstacle: Lack of Resource 16 Obstacle: Tight Lead Times 16 Obstacle: Lack of Market Solutions 16 How Regulatory Programmes are Managed 18 The Banks 18 The Asset Managers 19 The Insurers 19 Drill Down: Commonality of Data Types Across Regulations 20 Commonality of Asset Data Across Regulations 20 Commonality of Entity and Issuer Data Across Regulations 21 The Outlook 22 Next step: data approach 22 Appendix A: Methodology 23 Companies Surveyed 23 Job Function 23 Geographical Breakdown 23 Appendix B: How Can Your Regulatory Data Vendor Help You? 24 You Need Your Vendor to Supply 24 Ingredients for Success 24 Appendix C: Video Reference 25 BCBS 239: Changes, Challenges & Benefits 25 AIFMD & IFRS: Fair Value Measurement & Portfolio Valuations 25 SHAREHOLDING DISCLOSURES: Monitor Thresholds of Ownership 25 SOLVENCY II: Every Cloud has a Silver Lining 25 About Thomson Reuters 26 About Thomson Reuters Risk Services 26 About Thomson Reuters Regulatory Portal 26 About A-Team Group 27
  • 5. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 5 Executive Summary • The regulatory landscape has become increasingly challenging for financial institutions across buy- and sell-side firms globally since the 2008 credit crisis. The range of regulations, which are aimed at reducing systemic risk, now impacting their businesses include the EU’s Solvency II (insurance), Markets in Financial Instruments Directive (MiFID), Alternative Investment Fund Manager Directive (AIFMD), the U.S. Dodd-Frank Act and the Basel capital adequacy requirements. • They face pressing deadlines for meeting complex requirements, resulting in a costly and resource- intensive firefighting approach. But is it time to take a more strategic and harmonised approach to data management to both meet these demands and benefit the business? • 95% of financial institutions agree that significant benefits can be gained through a harmonised approach to data management for multiple regulations. • The biggest benefit is seen as consistency of data across the business (79% of respondents), followed by organisational efficiencies (63%), cost savings (50%) and reduction in data sources (44%). • The data types seen as offering the biggest return on effort, based on their level of commonality across regulations, are identifiers (such as the Legal Entity Identifier) and classifiers, followed by credit ratings and pricing data. • Despite such enticing benefits, the gap between the ideal and reality is wide. Only 12% currently have a fully strategic approach to leveraging regulatory commonalities. Nearly half are still firefighting, taking a piecemeal approach, regulation by regulation. • While 53% do have a dedicated team focused on taking a strategic approach across regulations, almost half of firms spend less than 10% of their operational time on it. • Why isn’t more progress being made? – The biggest barriers across all of our respondents are organisational and cultural. The scale and complexity of the firms – politically and technologically – impacted by financial regulations make it difficult to adapt. While regulations are gaining attention of the board and C-Suite, the approach appears to be more one of ‘compliance’ than ‘strategy’. – The sheer cost of the changes required is also seen as a barrier, particularly as ‘investment fatigue’ around regulations grows. – The current lack of data definition and consistency – across multiple source systems and external vendors – means there is no single version of the truth. – Inconsistencies across regulators, a lack of clarity and tight deadlines all make compliance costlier and more difficult, and hamper efforts to be more strategic. • Over time, we expect to see a shift from firefighting towards a more strategic approach. Indeed, efforts to work strategically across regulations will increase at 88% of financial institutions over the next two years. Thomson Reuters recently commissioned an independent survey of data management professionals across business types, sizes and geographies. We asked them a series of questions around the current and future regulatory environment. This paper goes in-depth into what they told us about the challenges and opportunities their enterprises face. First, a brief summary of our findings:
  • 6. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 6 REUTERS/Alistair Scrutton Overview The world’s reaction to the 2008 credit crisis was first to put out the most pressing fires, and then set about assessing what needed to be done to ensure that a failure of this scale could never happen again. Regulators introduced a swathe of new rules and regulations aimed at reducing systemic risk, many of them focused on increasing transparency and forcing financial institutions to understand more fully their exposure to risky investments and activities. After a period of rapid regulatory change, firms scrambled to get up to speed quickly, fearing penalties for noncompliance. The result has been several years of significant investment – particularly in data and data management systems – to meet regulatory obligations. Now, financial institutions are beginning to reassess how they responded to the regulatory tsunami. Many are realising they have an opportunity to leverage the work they have done to boost operational efficiency and derive value from their compliance and regulatory reporting projects, workflows and processes. A key step is the adoption of a harmonised data workflow approach in order to facilitate compliance with multiple regulations. In a survey conducted on behalf of Thomson Reuters, 95% of respondents agree there are significant benefits from taking such an approach. But, for many, there remains a gap between belief in best approach and reality. How many financial institutions really are taking such a harmonised approach? How are they doing it, and where is there room for improvement? We surveyed 66 senior financial data management practitioners to understand: • How many organisations have taken a strategic approach and how many are still operating in piecemeal fashion to meet individual regulations. • Whether financial institutions have a dedicated team working on a more strategic approach to data management across regulations. • How effective their organisations are at leveraging the commonalities. • How regulatory programmes are currently managed across different financial institutions: banks and brokerages, asset managers and insurers. • Whether they seek to repurpose existing data or workflow solutions. • The benefits of a harmonised approach, and where within the business these benefits might be felt most. • The current obstacles to achieving a harmonised approach. • Where did firms see regulatory commonalities across individual asset types and entity and issuer data. • How many firms will now consider a more harmonised approach as a result of taking this survey. • How this picture will change over the next two years. ‘Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.’ Winston Churchill
  • 7. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 7 The Regulatory Challenge Matrix Depending on their function, financial institutions may face any number of major regulations. These range from the EU’s Solvency II (insurance), Markets in Financial Instruments Directive (MiFID) and Alternative Investment Fund Manager Directive (AIFMD), to the U.S. Dodd-Frank Act and the Basel capital adequacy requirements (see Major Regulations box below). Tier 1 firms operating in multiple regulatory jurisdictions may need to adhere to local regulations such as Dodd-Frank and MiFID II, while at the same time meeting the global capital adequacy requirements of Basel III. In other cases, service providers are impacted by the regulatory requirements facing their clients. For instance, insurers are turning to their asset managers for help in meeting Solvency II’s ‘look-through’ valuations requirement. In many instances, there are common ‘regulatory intents’, particularly with respect to valuation of portfolio holdings, understanding risk exposures to clients and counterparties, and client classifications. Yet, inconsistencies between regulators – often around definitions of data fields – make it difficult to ‘kill two birds with one stone’. Firms often find they need discrete processes or calculations to derive the data they need to comply with separate regulations asking essentially the same question. The current rate of regulatory activity is growing significantly year-on-year (see Chart 1 on page 8), and 70% of firms expect regulators to publish even more regulatory information in the next year, with 28% expecting significantly more1 . Some estimates put the cost of regulatory compliance at up to $4 billion per year at some of the largest banks, although it’s hard to measure and will vary greatly firm to firm. Being able to manage this regulatory deluge in a strategic and harmonised way is increasingly important. 1 Source: Thomson Reuters Prioritised Regulations – Europe Basel III Solvency II CRD Dodd Frank MifID II AIFMD AML/KYC EMIR Shareholdings disclosure ImpactonFinancial Institutions Banks         Asset managers          Brokers         Custodians / Fund administrators          Insurance companies      AIFMs       Direct impact  Indirect impact due to counterparties/customers Table 1: Regulatory Matrix by Company Type REUTERS/Denis Balibouse
  • 8. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 8 Chart 1: Regulatory Activity Tracked 2015-2016, Source: Thomson Reuters2 2 Note: Tracked activity includes document changes, announcements and enforcements by regulators. Average Daily Alerts = Total Alerts Year-on-Year/261 Working Days 2011 2012 2013 2014 2015 2010 2009 2008 TOTAL YEARLY ALERTS 51,563 40,603 26,950 17,763 14,215 12,179 10,075 8,704 A M J J A S O N D J F M 1,000 2,000 3,000 4,000 5,000 6,000 0 2015 2016 ■ Africa (beginning June 2015) ■ Latin America (beginning 2013) ■ Australasia ■ Asia ■ Middle East ■ North America ■ UK/Europe AVERAGE DAILY ALERTS 200 IS YOUR DATA HELPING YOU ADDRESS CROSS-REGULATORY CHALLENGES? Use our diagnostic tool to find out, and receive your personalized report LAUNCH TOOL ›
  • 9. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 9 The Current Approach to Harmonisation The value of taking a holistic approach to data across jurisdictions is widely recognised by survey respondents, with 95% agreeing that there are significant benefits to taking a harmonised approach to data and workflow to facilitate compliance with multiple regulations. However, there remains a gap between what firms recognise to be beneficial and how they are actually operating. Only 12% currently believe they have a fully strategic approach to leveraging the regulatory commonalities and seeking to derive value from these efforts, and nearly half of respondents are still in firefighting mode, working piecemeal, regulation by regulation. This is driven by tight regulatory deadlines on one side and stretched budgets and resources and restrictive operational structures on the other. In this paper, we take a look at the details of different approaches, what the perceived benefits of a harmonised approach are and what obstacles are blocking progress. 95% Agreed: Significant benefits can be gained with harmonised approach 12% Currently have a fully strategic approach to regulatory commonalities Answer choices Responses Strongly agree 74.24% Agree 21.21% Neutral 4.55% Disagree 0.00% Disagree strongly 0.00% Chart 2: “There are significant benefits to taking a harmonised approach to data and workflow to facilitate compliance with multiple regulations” Answer choices Responses Fully strategic and worked to future 12.31% Strategic across several but not all regulations 40.00% Piecemeal approach working regulation-by- regulation 47.69% Chart 3: Current Level of Strategic Approach ■ Strongly agree – 74.24% ■ Agree – 21.21% ■ Neutral – 4.55% ■ Fully strategic and worked to future proof ■ Strategic across several but not all regulations ■ Piecemeal approach working regulation by regulation 47.69% 12.31% 40.00% 74.24% 21.21% 4.55%
  • 10. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 10 Approach Type by Company Approach Type by Region Team Approach Having a dedicated team within the financial organisation that works across the enterprise and across multiple regulations can greatly increase the effectiveness of its response to regulations and the ability to leverage opportunities from such a harmonised approach. Only around half of respondents say their firm has a dedicated team focused on a strategic approach to regulations. Insurers (75%) and asset servicers (80%) typically are more likely to have a dedicated team responsible for a harmonised approach, which is most likely due to the relatively less complex organisational structures when compared with banks (48%) and asset managers (47%). Dedicated Teams by Company Type Most of the firms without dedicated teams (which represent 46% of the responses) admit that their companies spend less than 10% of their operational time on a harmonised approach and overall 80% of firms spend less than a quarter of their operational time on it. Banks Asset managers Insurers Asset servicers Strategic Approach (average: 12%) 10% 21% 0% 0% Strategic for some, not all regulations (Average: 40%) 40% 26% 50% 60% Piecemeal Approach (average: 48%) 50% 53% 50% 40% Table 2: Approach Type by Company % Above average % Below average UKI Mainland Europe North America Asia / Pacific Strategic approach (Average: 12%) 4% 14% 13% 29% Strategic for some, not all regulations (Average: 40%) 48% 50% 31% 29% Piecemeal approach (average: 48%) 48% 36% 56% 43% Table 3: Approach Type by Region % Above average % Below average ■ Yes – 53.03% ■ No – 46.97% 53.03% 46.97% Chart 4: Dedicated Teams Working Strategically Across Regulations Company Type Responses Banks 48% Asset Managers 47% Insurers 75% Asset Servicers 80% Table 4: Dedicated Teams by Company Type (Average: 53%) % Above average % Below average
  • 11. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 11 Repurposing Existing Solutions One way to increase the efficiency of regulatory efforts is to repurpose existing solutions for both data and workflow to help meet multiple regulations based on commonalities. Over three-quarters of respondents take this approach. Again, perhaps reflecting the relative level of complexities of their organisations, 100% of insurers and asset servicers are repurposing existing solutions, compared with 83% of asset managers and 79% of banks. Answer choices Responses Yes 79.37% No 20.63% Chart 5: Repurposing Existing Data Solutions 79.37% 20.63% ■ Yes – 79.37% ■ No – 20.63%
  • 12. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 12 Being strategic when managing the regulatory response can reap many benefits: Other Benefits Respondents describe other benefits that result from taking a more harmonised approach to regulatory data. In many cases, the initiative resulted in specific benefits, some unforeseen or unplanned. Some respondents are able to take the opportunity to look at operational and reputational risk. As one UK-based group data management head at a bank said, ‘For example, on BCBS 239, we are working not only on regulatory reporting, but also on taking out operational risk by focusing on the timeliness of data. BCBS 239 lays out in data management terms what is necessary.’ Avoiding errors and fines is another benefit (and often driver for investment) that can result from such a holistic approach. Some participants cite specific examples of operational benefits deriving from their approach to regulatory compliance across jurisdictions. For one respondent, the regulatory ‘best practice’ allows his firm to establish a set of success criteria, or metrics, for the BAU (business as usual) team to deliver against. ‘Too often, compliance is achieved and change programmes end’, he said. ‘You have to go the extra mile to get business benefits – for example, to get cost efficiency you may need to switch off systems.’ There are other examples of specific benefits across multiple regulations. One respondent suggests a harmonised approach can benefit global projects where the underlying data needs to be a certain quality and synchronisation, citing Basel’s BCBS 239 and BCBS 265 (Fundamental Review of the Trading Book). Another says his harmonised approach ‘improved our capacity to offer complex regulatory reporting to our clients (risk, Solvency II, AIFMD).’ The Benefits of Exploiting Commonalities of Data across Regulations Strategies Benefits Data Consistency A coordinated regulatory programme can enable consistent reporting to regulators but can also feedback consistent data across the enterprise Organisational efficiencies A coordinated effort can result in fewer people being required and possible systems consolidation Cost Savings Cost savings through identification of duplicate coverage or reduced data demand through simplified processes Reduction in Data Sources A harmonised approach can remove duplication of data, although some cited the converse need for more data to fulfill new data requirements Table 5: Benefits of Exploiting Commonalities ■ Significant ■ Some Benefits ■ No real benefits 63% 35% 2% 50% 46% 4% 44% 50% 6% 79% 19% 2%
  • 13. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 13 Benefits by Business Function Survey respondents, perhaps not surprisingly, say they expect to see most benefit from harmonisation within the post-trade environment. Almost two-thirds of them see improvement in the mid-office reconciliation and back-office settlement areas, with overall improvement in those areas seen by over 90%. Conversely, pre-trade is seen enjoying less of a benefit, with 22% expecting low impact from harmonisation. Benefits by Asset Class In terms of most-affected asset classes, respondents clearly highlight OTC markets, including fixed income/rates, derivatives and credit markets, all with 90+% overall benefit rankings, mirroring the current regulatory focus. Of lesser focus, and therefore less likely to benefit, are commodities and equities, with only 43% and 51% of respondents, respectively, expecting major benefits from a more coordinated approach. 2%35%63% 9%30%61% 2%37%61% 11%40%49% 22%37%41% Mid-Office Reconciliation Back-Office Settlement Back-Office Clearance Trade Pre-Trade Custody 6%60%34% ■ High ■ Medium ■ Low Chart 6: Benefit Realisation by Business Function ■ High ■ Medium ■ Low Chart 7: Benefit Realisation by Asset Class 23.40%76.60% 21.28%76.60% 30.43%65.22% 10.64%29.79%59.57% 13.33%35.56%51.11% 17.39%39.13%43.48% Fixed Income/Rates Derivatives Credit Markets FX/Money Markets Equities Commodities 2.13% 4.35%
  • 14. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 14 REUTERS/Jorge Silva Obstacles to Harmonisation A note about methodology: We asked our survey participants for open-ended responses about the primary obstacles they face when seeking a harmonised approach across multiple regulations. Across our respondents, we had 120 individual data points, which we then grouped into the nine categories below. Obstacle: Organisational and Cultural Hurdles As the chart shows, the top obstacle (mentioned by 39%) is in the organisational and cultural category. The causes include a lack of top management buy-in – or a ‘compliance only’ approach from top management, a lack of ‘ownership’ within the business, the siloed nature of these businesses, and fragmented functional processes where the challenge is ‘overcoming functional myopia’. To quote one UK bank respondent: ‘Organisational challenges and group politics – this is the biggest thing, not technology. It is about getting everyone across countries, regions and lines of business to acknowledge and understand the common goal.’ Another UK-based executive director at a bank said the difficulties lay around ‘understanding of the issues, particularly in the front office. [This] needs a massive cultural change that won’t be achieved overnight.’ The head of data governance at a global asset manager said that the level of ‘organisational change required to support harmonised data is a real hurdle.’ A U.S. asset servicer pointed to the general ‘lack of cohesiveness and vision’, whilst a bank data manager said, ‘[We] haven’t got senior executive bought in and enforced top down.’ ■ Organisational and Cultural – 39% ■ Cost & Budget Constraints – 15% ■ Lack of Consistent, Quality Data – 13% ■ No Regulatory Standard – 8% ■ Lack of Resources – 7% ■ Lack of Solutions – 6% ■ Lack of Time – 6% ■ Rate of Regulatory Change – 3% ■ Poor Clarity from Regulators – 3% 8% 7% 6% 6% 3% 3% 15% 15% 39% Chart 8: Obstacles to Harmonisation
  • 15. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 15 Current communication and cooperation challenges within firms across multiple regions and teams, often with very different roles, are also an obstacle. The sheer complexity of the internal infrastructure with multiple legacy systems, none of which talk to each other, makes achieving consistency to support a strategic approach difficult. This obstacle was summed up efficiently by the head of data management for a global bank: ‘The complexity of legacy systems and reengineering – unpicking mistakes of the past and delivering new systems to aggressive deadlines – while doing everything else that is needed.’ Another aspect of organisational challenge is the reality of the day-to-day business of the financial institutions, which is the reason they exist, rather than to comply with regulatory requirements. Prioritising projects and focus of operational attention often wins out over strategic approaches to regulations. Many firms struggle with a lack of organisational time. ‘So long as we’re in basic compliance, we can get on with the day-to-day business and other business priorities.’ Obstacle: Cost and Budget Constraints Unsurprisingly, cost is perceived as a major obstacle to taking a more harmonised approach to regulatory reporting. Ever since the credit crunch – the event that many of the new regulatory initiatives are seeking to avoid recurring – cost has been a major hurdle for any data or IT project. While there is a perception that regulation has been a ‘door-opener’ for many IT projects, survey respondents say the cost of investment to achieve harmonisation is a major obstacle to progress. While this may seem paradoxical, one respondent says there is investment ‘fatigue’ around regulation. Proving ROI is difficult and frustrating for many respondents, particularly given management’s ‘lack of appreciation for the cost savings associated with optimising holdings in light of differences in regulations’, as well as the wider benefits of harmonisation. ‘There’s the increase in cost from trying to gather the data requirements—the new data elements we have to purchase from the vendors’, said one respondent. ‘But there’s a restriction in terms of the policy in place [on data acquisition]. Also, there are legal complications, which means engaging with legal teams to sort things out.’ Obstacle: Lack of Consistent Data Respondents complain that the lack of consistency across source systems and external data vendors represents a significant barrier to achieving true harmonisation. Because there is no prescribed official source of data, many respondents say they are populating regulatory reports from multiple data feeds and internal systems. This approach – with varying formats and quality levels, again due to legacy silo-based organisations – makes harmonisation difficult. As one respondent points out, different vendor systems have different data fields, different usage restrictions and different naming conventions, making harmonisation a challenge. ‘I don’t know how much harmonisation is actually possible’, said another respondent. ‘We have $2.5 trillion of assets under management and a lot of lines of business all with different views of data. So getting everyone to agree on the definition of harmonisation and to agree that one piece of data is the same for everyone may not be possible. We are still likely to have multiple versions of the truth. Where I have seen companies with a single version of the truth, no one is using it.’
  • 16. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 16 Obstacle: No Regulatory Standard Inconsistency between regulations is seen as a significant obstacle to a harmonised approach. Survey respondents feel there are inconsistencies between regulations, with regulators in different jurisdictions taking different approaches and requiring different data points while attempting to fulfill similar intentions. Examples include conflicting definitions of a U.S. person, different classification categories and different views on ontologies. As one exasperated respondent put it, ‘There is no single regulatory data dictionary’. The absence of a regulatory rules engine that captures client and/or fund attributes in a predefined matrix makes it difficult to determine what’s in or out of scope, according to another respondent. Others suggest regulators are mandating the use of standards and data that is not appropriate for purpose. Obstacle: Lack of Clarity on Requirements Connected to this is the overall sentiment that there is a lack of clarity on the requirements. Some attribute this, in part, to uncertainty among regulators about how to use all the data they are collecting, making it difficult for financial institutions to understand what they want. Others suggest there is a lack of trust between regulators and the industry, creating a barrier to collaboration that can boost clarity, cohesion and understanding. Obstacle: Rate of Regulatory Change Some respondents perceive the fast rate of regulatory change as a barrier to harmonisation. ‘Regulatory in-scope/out-of-scope conditions continue to evolve’, said one, making it difficult to proceed with any strategic attempt to harmonise. Obstacle: Lack of Resource Resource constraints hurt respondents’ ability to take a proactive approach to harmonisation. This manifests itself in several ways, with some respondents indicating their teams don't have the time or expertise to research products that could help, and others suggesting the kind of comprehensive overhaul of internal database structures required is beyond their capabilities. Others simply lack subject matter experts, particularly cross-domain specialists. Obstacle: Tight Lead Times Despite acknowledging the propensity for delays, many respondents say they find the lead times difficult, limiting the potential for a harmonised approach. Simply put: ‘Delivering compliance on time may not fit with building a strategic approach to regulation.’ Obstacle: Lack of Market Solutions Respondents lament the lack of a silver bullet technology solution. ‘No single system alone can provide full coverage’, said one. Others feel there is insufficient internal knowledge and industry tools to aid in harmonisation.
  • 17. REUTERS/Eddie Keogh EDUCATE YOUR BUSINESS, CHANGE BEHAVIOR AND MANAGE RISK ACT WITH CONFIDENCE IN A COMPLEX WORLD © 2016 Thomson Reuters S036388/6-16 LEARN MORE AT RISK.THOMSONREUTERS.COM/ELEARNING • Anti-Bribery and Anti-Corruption • Anti-Money Laundering • Antitrust • Business Ethics • Certification and Senior Managers Regime (SMR) Suite • Code of Conduct • Compliance Induction • Conduct Risk Suite • Data Protection and Privacy Suite • Directors Duties Suite • FATCA Essentials • Fraud Prevention • Information Security and Cyber Risk Awareness • Introduction to Solvency II • MiFID II • Regulatory Essentials • Sanctions Compliance • Supervision THOMSON REUTERS COMPLIANCE LEARNING Empower your employees to make compliant decisions and protect yourself and your business from risk with Thomson Reuters Compliance Learning. We provide practical, interactive, customizable and cost-effective training programs that assist in changing behavior and supporting a culture of integrity and compliance. Supported in more than 42 languages, our courses include:
  • 18. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 18 REUTERS/Hugh Gentry How Regulatory Programmes are Managed The Banks There was a range of approaches among our survey participants, from highly strategic to piecemeal. Those respondents who say they have a fully strategic approach, point to their use of a homogeneous information platform as the only source for information for regulatory and management processes. They also cite the use of workflows that perform checks at all levels, from middle office to onboarding to KYC and more. The banks that take a strategic approach to some but not all regulations leverage a common infrastructure – covering golden sources of data, data warehouses, validation and assurance processes, and rules engines. According to one respondent, ‘We have a central strategy group that is looking at these issues and is driven by specific pieces of regulation such as BCBS 239. It takes certain aspects from these regulations and uses them for other regulations where possible. We are on the strategic path.’ But banks who still take a piecemeal approach mention obstacles such as budget restrictions, lack of senior management buy-in, lack of resource and political ownership issues (more on page 14). In many cases, they have different teams set up for each regulatory project to deliver solutions tailored to the compliance requirements of each regulation. Often, however, banks in this group say they are aiming to move toward a more strategic, harmonised approach. As one respondent said, ‘[We’re] working on a regulation-by-regulation basis, [and] we may, for example, take some data used for FATCA and also use it for Common Reporting. We are also taking existing solutions and expanding them for new regulations, but as the regulations themselves are not harmonised we can’t put in one set of data fields to meet the requirements of all regulations. That said, I hope we can do more towards harmonising data for regulations.’ One respondent says that MiFID II changes the game, suggesting that its wide-reaching repercussions may push firms to take a more strategic approach. Another says they are looking to hire a head of data change to address this issue, but still expects budget constraints to be a challenge.
  • 19. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 19 The Asset Managers The fully strategic asset managers tell us that cooperation between compliance and operations is essential. These firms typically have a programme of identifying common attributes across the identified regulations, and a workflow that supports change across the enterprise. Those who are strategic across some but not all regulations say that they do look for similarities with existing regulations each time a new one is introduced, and where there are similarities they seek to combine people, processes and technology to deliver compliance. But the reality is that ‘we have a priority and we line up to that. Given our resource and cost constraints, we can’t tackle them all at the same time [so we take a] deadline-by-deadline priority. Whomever shouts loudest...’ The asset managers still taking a piecemeal approach point to a lack of infrastructure, budget, resource and IT alignment from a data perspective, all resulting in a ‘largely ad hoc’ approach. As one said, ‘In an ideal world you’d [do it all strategically], but it’s prioritised against other initiatives in the company. You can’t go and do what you want!’ One asset manager did say that his firm has a strategic approach in place but ‘it has yet to come to fruition for how day-to-day operations are performed.’ The Insurers No insurers say they are taking a fully strategic approach. One insurer says they have created a ‘central data warehouse for period end reporting to cover internal and external investment reporting requirements across European entities.’ Another said, ‘We have a product development team which looks at the impact of new regulations and helps the operational teams with execution.’ Another insurer said, ‘We have just begun to address how we might optimise our investment approach across multiple regulatory jurisdictions.’ REUTERS/Dani Cardona
  • 20. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 20 REUTERS/David Loh Drill Down: Commonality of Data Types Across Regulations We asked our survey respondents three sets of questions about the different data types they believe are most common across the myriad of regulations they have to deal with. The results can help financial institutions understand where the highest level of commonality is, which can help them prioritise their efforts in data sourcing, cleansing and management in order to have the biggest impact on data quality and consistency for multiple regulatory compliance. Commonality of Asset Data Across Regulations Identifiers are the leading asset data type that have the greatest impact across all regulations, with an average of 71% identifying them as having a high level of commonality. This skews towards the banks (where 82% ranked identifiers as having the most commonalities for the regulations that impacted them) and asset servicers (100%). This is logical, given how identifiers are fundamental to all data flowing through the enterprise, but there are still challenges in the industry to try to come to common agreement around identifiers. Indeed, several respondents point to the current initiatives that they hope to see continuing to develop, such as moves towards open security identifiers and technical standards for reporting in certain areas (citing ISO 20022, FPML and more). Pricing data (44%) is also seen as an area of high commonality across regulations. This again is weighted more towards the banks, where 82% see high levels of commonality, and asset managers (67%). ■ High ■ Medium ■ Low ■ Don’t know Chart 9: Commonality of Asset Data Across Regulations 25% 6%48%21% 8% 21%50%21% 26% 13%40%21% 19% 27%29%25% 21% 4%46%29% 10% 4%42%44% 4% 4%21%71% Pricing Data Identifiers Classifiers Look Through Liquidity & Eligibility Indicators Evaluated Prices Terms and Conditions
  • 21. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 21 Classification data offers potential for benefits through a harmonised approach, but frustration continues around the lack of standardisation and confusion in classification data (the use of classifiers for banking and finance being one area of confusion). The only differences regionally appeared to be a heavier weighting for terms and conditions data in Asia/Pacific at 67%, above identifiers and pricing data. North American firms also weight evaluated pricing (after identifiers and pricing data) at 36%, ahead of classifiers, when compared with Europe. Commonality of Entity and Issuer Data Across Regulations Respondents see most potential for harmonisation in areas such as entity identifiers, credit ratings and smart ratios. Of less importance are domicile information, country of risk and corporate actions, and even less for shareholding disclosures and filings information. Interestingly, a relatively high proportion of respondents (33%) are unsure about smart ratios, while 17% say they are uncertain of the impact on entity data. Drilling down into company type, bank respondents place the highest importance on identifiers, with 64% identifying a high impact from harmonisation. This is followed by domicile information (59%), credit ratings (45%) and country of risk (41%), with the rest at 23% or below. Asset managers similarly see greatest potential from identifiers, at 69%, followed by domicile (63%), country of risk (56%) and credit ratings (50%). Asset servicers see the greatest potential in domicile information with 75%. Identifiers and credit ratings are each cited by 50% of respondents. Insurance companies cite credit ratings and domicile at 33% each, with the remainder having medium potential impact (identifiers, country of risk, corporate actions). Across the board, smart ratios are cited the least, perhaps reflecting some respondents’ unfamiliarity with them. Regionally, domicile is of higher importance in Europe compared with North America, where credit ratings are key. Asia/Pacific sees identifiers as the most common entity and issuer data type, with credit ratings next, followed by smart ratios (50% rating them as high commonality), whereas smart ratios didn’t feature on European or North American lists as high commonality. ■ High ■ Medium ■ Low ■ Don’t know Chart 10: Commonality of Entity and Issuer Data Across Regulations 50%50% 17%67%17% 67%33% 17% 33%50% 50%50% 17%17%67% Smart Ratios Credit Ratings Identifiers (LEI)/Classifiers Domicile Country of Risk Corporate Actions Shareholding Disclosures Information Filings 67%33% 67%33%
  • 22. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 22 The Outlook Based on the overwhelming enthusiasm for the idea of exploiting commonalities across regulations, it’s likely that firms will take a more strategic approach to harmonising their data activities. Indeed, almost 90% of respondents say they plan to take a more strategic approach in the next two years. As major regulations take effect, the market’s response shifts from firefighting to instituting better processes for ongoing compliance. This can be a slow and painful process, requiring senior management buy-in, dedicated resources and clear priorities. But once firms have been through the initial setup and understand the task – and costs involved – they will work to bring compliance into their BAU processes. Some respondents acknowledge that a more standard response to requirements across regulations could eventually reap significant rewards in terms of operational efficiency and risk mitigation. How that can be developed in reality remains to be seen, although the benefits could be significant. ‘If we came to a harmonised view of data across regulations and that drove how asset managers, the brokerage community and custodians represented their data, that could change the industry’, said the head of data governance from a major U.S. investment management firm. ‘If everyone harmonised data to meet regulatory needs, there could be compelling synergies that could reduce errors, improve STP and speed up settlement.’ Next step: data approach If you hadn’t previously considered a harmonised approach to data across regulations, will you now consider it after having taken part in this survey? ■ Increased efforts to work strategically across regulations ■ Decreased efforts to work strategically across regulations ■ No change How do you think this will change over the next two years Answered 66 Skipped 0 Chart 11: The Two-Year Outlook 10.61%87.88% 1.52% Answer choices Responses Yes 86.49% No 13.51% Chart 12: Future Data Approaches 86.49% 13.51% ■ Yes – 86.49% ■ No – 13.51%
  • 23. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 23 Appendix A: Methodology Companies Surveyed For the survey, A-Team conducted a mix of online polls and qualitative phone-based and in-person interviews with senior data managers and compliance officials across a range of financial institutions globally. Respondents included data and compliance professionals from banks and broker/dealers (47%), asset and fund managers (29%), insurers (6%) and asset servicers and custodians (8%). The ‘other’ category includes consultants engaged in client regulatory projects and an association. Job Function Job titles of respondents included chief data officers, heads of reporting services, data management directors, regulatory reporting specialists, enterprise data managers and heads of strategic change. Geographical Breakdown Geographically, survey respondents were based in Europe (60%, made up of UK & Ireland 39%, Mainland Europe 21%), North America (24%), Asia/ Pacific (11%), South America (3%) and Africa (2%). Answer choices Responses Bank 46.97% Asset Manager 28.79% Insurance Company 6.06% Asset Servicer 7.58% Other (please specify) 10.61% Chart 13: Company Type Answer choices Responses UKI 39.39% Mainland Europe 21.21% North America 24.24% Asia/Pacific 10.61% South America 3.03% Africa 1.52% Chart 14: Geographical Breakdown ■ Bank – 46.97% ■ Asset manager – 28.79% ■ Insurance company – 6.06% ■ Asset servicer – 7.58% ■ Other (please specify) – 10.61% 46.97% 28.79% 10.61% 6.06% 7.58% ■ UKI – 39.39% ■ Mainland Europe – 21.21% ■ North America – 24.24% ■ Asia/Pacific – 10.61% ■ South America – 3.03% ■ Africa – 1.52% 21.21% 39.39% 10.61% 24.24% 3.03%1.52%
  • 24. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 24 REUTERS/Kim Kyung-Hoon Appendix B: How Can Your Regulatory Data Vendor Help You? In this globalised and regulatory-driven age, the emphasis must be on sourcing trustworthy data inputs and services from independent partners such as Thomson Reuters. Robust pricing and reference data and services are a major part of the equation in addition to risk management applications, systems and processes. Any oversights or miscalculations can become magnified once the data is aggregated at a corporate level, creating potentially dangerous distortions in reported risk exposures and or in accurate compliance reporting. You Need Your Vendor to Supply: • High-quality, timely and comprehensive regulatory data coverage to meet your business activity, risk, regulatory and compliance needs. • Consistent regulatory data across feeds, applications and desktops. • Experience in real-time and non-streaming regulatory data provision. • Commercials geared towards enterprise usage. • Deep understanding of the regulations and a proven ability to provide content ready for regulatory reporting. • Responsive service and support models. Ingredients for Success: • Comprehensive regulatory data coverage – Access to large amounts of regulatory market and reference data, advanced modeling capabilities and numerical methodologies. • Complete transparency – The entire valuation and reporting process with capability to audit data inputs, modeling choices, calibrated model parameters, numerical methodologies and product cash flows. • Dedicated support – Rapid and easy-to understand responses to queries, including help with price challenges. • Most up-to-date market data – Supported with stringent quality control checks.
  • 25. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 25 REUTERS/David Loh Appendix C: Video Reference BCBS 239: Changes, Challenges & Benefits Marion Leslie Managing Director – Thomson Reuters AIFMD & IFRS: Fair Value Measurement & Portfolio Valuations Jayme Fagas Global Head of Valuations & Transparency, PRS – Thomson Reuters SHAREHOLDING DISCLOSURES: Monitor Thresholds of Ownership Tim Lind Global Head of Financial Regulatory Solutions – Thomson Reuters SOLVENCY II: Every Cloud has a Silver Lining Tim Lind Global Head of Financial Regulatory Solutions – Thomson Reuters
  • 26. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 26 About Thomson Reuters Thomson Reuters is the world’s leading source of intelligent information for businesses and professionals. We combine industry expertise with innovative technology to deliver critical information to leading decision makers in the financial and risk, legal, tax and accounting, intellectual property and science and media markets, powered by the world’s most trusted news organisation. Thomson Reuters shares are listed on the Toronto and New York Stock Exchanges (symbol:TRI). For more information, go to thomsonreuters.com. About Thomson Reuters Risk Services Risk Management Solutions from Thomson Reuters combine what no one else can – trusted information, managed services and software, and human expertise – to help you manage risk efficiently and accelerate business performance. With this combination, you can confidently anticipate and act on customer, third party, compliance, enterprise, and financial risk while you elevate corporate governance and controls across your organisation. About Thomson Reuters Regulatory Portal Are you fully leveraging your existing data to solve your regulatory challenges? Use our diagnostic tool to find out, and receive your own personalised report with key insights and actionable advice: financial.thomsonreuters.com/regulatorydatasolutions
  • 27. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 27 REUTERS/Eric Gaillard About A-Team Group A-Team Group has worked since 2001 with data, software and technology vendors targeting capital markets to create compelling content, like this white paper, to help raise awareness and brand recognition, demonstrate thought leadership and generate sales leads across buy- and sell-side financial institutions. We leverage our domain expertise in trading technology and data management across the financial enterprise, our ability to take complex topics and turn them into compelling content assets, and our significant communities of engaged readers, to deliver ROI on your marketing budget. Find out more and download our free guides to content marketing on a-teamgroup.com. Or contact us at +44 (0)20 8090 2055 or theteam@a-teamgroup.com.
  • 28. Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 28 Index of Charts and Tables Chart 1: Regulatory Activity Tracked 2015-2016, Source: Thomson Reuters 8 Chart 2: “There are significant benefits to taking a harmonised approach to data and workflow to facilitate compliance with multiple regulations” 9 Chart 3: Current Level of Strategic Approach 9 Chart 4: Dedicated Teams Working Strategically Across Regulations 10 Chart 5: Repurposing Existing Data Solutions 11 Chart 6: Benefit Realisation by Business Function 13 Chart 7: Benefit Realisation by Asset Class 13 Chart 8: Obstacles to Harmonisation 14 Chart 9: Commonality of Asset Data Across Regulations 20 Chart 10: Commonality of Entity and Issuer Data Across Regulations 21 Chart 11: The Two-Year Outlook 22 Chart 12: Future Data Approaches 22 Chart 13: Company Type 23 Chart 14: Geographical Breakdown 23 Table 1: Regulatory Matrix by Company Type 7 Table 2: Approach Type by Company 10 Table 3: Approach Type by Region 10 Table 4: Dedicated Teams by Company Type (Average: 53%) 10 Table 5: Benefits of Exploiting Commonalities 12
  • 29. Use our diagnostic tool to find out, and receive your own personalized report with key insights and actionable advice. financial.tr.com/regulatorydatasolutions THOMSON REUTERS RISK & REGULATORY DATA SOLUTIONS Your regulation questions, answered. Are you fully leveraging your existing data to solve your regulatory challenges?