Fifteen years on from the 2008 financial crisis, significant progress has been made in advancing transparency and managing systemic risk in the global financial markets, thanks in part to the implementation of the trade reporting mandate devised at the 2009 G20 Summit in Pittsburgh. However, despite the consensus on the need for maximum global data harmonization, differences still exist between jurisdictions in terms of reported data, reporting mechanisms, and data standards.
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Presently, as major derivatives jurisdictions embark on regulatory rewrites aimed at further advancing data harmonization and mitigating systemic risk, financial firms face the daunting task of keeping pace with these modifications. While the concept of a "silver bullet" solution may seem appealing, it is a myth. Instead, a multifaceted, strategic approach is vital for firms seeking to stay ahead of the curve.
Successfully steering through the sea of regulatory changes necessitates having the right resources in place. Identifying and securing the necessary partners, budget, and expertise, and building strategic alliances with technology providers, consultants, and legal experts can unlock invaluable insights.
First, a sufficient budget allocation for investment in automation tools and more advanced technology infrastructure is essential. The increased focus on data quality and surge in data volume necessitates a re-evaluation of reporting systems and underlying processes within firms. Many firms operate on a jurisdiction by jurisdiction basis, creating siloed rather than holistic processes for trade reporting across organizations. This approach often leans heavily on in-house solutions, which may result in higher costs and a fragmented view of data in the long run, making compliance and increased transparency more challenging.
Previous experiences of gearing up for regulatory changes holds substantial value but a proactive investment in automation can revamp processes and enhance firms' adaptability to regulatory changes.
"In this constantly evolving regulatory landscape, firms that take a strategic, multi-faceted approach will be well-positioned to navigate forthcoming regulatory rewrites."
Second, to navigate the labyrinth of upcoming rewrites effectively, firms must have a solid grasp of the regulatory modifications. Proactive monitoring of regulatory developments and assessing the operational impact is critical. Paying close attention to variations between regional requirements, including discrepancies in data fields, reporting formats, or submission deadlines, is vital to firms’ trade reporting success.
Participation in industry working groups provides invaluable insights, which can help firms bolster their readiness for regulatory rewrites. These groups foster collaboration among market participants, regulators, and technology providers, creating a thriving knowledge-exchange ecosystem. Active involvement in these forums equips firms with access to shared knowledge, best practices, and evolving trends. By influencing regulatory discussions and contributing to the harmonized standards' development, firms can stay ahead of the game.
The regulatory nuances in EMIR Refit between the UK and the EU jurisdictions are a prime example of a potential trapdoor for firms navigating the changing rules. By staying tuned into industry publications and regulatory updates, maintaining open communication with regulatory authorities, and participating in industry working groups, firms can stay up-to-date and make informed decisions.
Third, and probably the most crucial phase of preparation for regulatory change, is testing. Establishing comprehensive testing protocols and performing rigorous assessments of systems, data quality, and reporting capabilities - all done early and repeatedly - will help to ensure readiness for impending regulatory modifications.
As we survey the ever-changing terrain of global regulatory rewrites, it becomes clear that there is no single solution to staying ahead. Instead, firms must implement a multi-pronged strategy, combining dedicated resources and a focus on operations, gaining a solid comprehension of the full scope of regulatory changes via active participation in industry working groups and with peers, and by ensuring a meticulous system for testing.
In this constantly evolving regulatory landscape, firms that take a strategic, multi-faceted approach will be well-positioned to navigate forthcoming regulatory rewrites. By prioritizing readiness and adopting a comprehensive approach to compliance, firms can not only stay ahead of regulatory changes but, with improved processes, may also increase operational efficiency and reduce risk.
This article was originally published to Thomson Reuters Regulatory Intelligence on June 22, 2023.