As the grace period ends for financial services firms to adhere to regulations like Volcker and Dodd-Frank, and with MiFID II adding to that regulatory burden, there is an increased need for chief compliance officers (CCOs) and other executives bearing responsibility for their firms’ regulatory adherence to take on the role of ‘compliance technologists,’ interpreting regulations in real time to ensure the effectiveness of technology systems and processes.
Bloomberg recently hosted its Bloomberg Vault Compliance Symposium in New York City attended by more than 170 compliance professionals across over 110 different firms. The event featured a regulator enforcement panel, featuring participants from SEC, FINRA and CTFC. The agenda focused on key challenges presented by current and upcoming regulations, including record-keeping, next-generation surveillance, best execution, liquidity analysis, research and regulatory reporting—areas that are proving to be a test of firms’ current capabilities.
In a poll conducted on-site at the event, nearly half (45%) of attendees said their firms were not yet ready to meet upcoming MiFID II and MAD/MAR obligations. And for more than a third (38%), the biggest challenge they continue to face in meeting global regulatory requirements, like MiFID II, is poor technology and an overreliance on manual processes. A third also stated that their understanding of regulatory obligations was a major barrier to ensuring compliance across their organizations.
According to Harald Collet, Global Head of Bloomberg Vault, “MiFID II’s implementation date is fast approaching and covers such a wide swath of company activities that many global firms are beginning to tap teams in the U.S. as well as the EU to address the long list of changes that still need to be implemented. While there is an urgency to act, there are still areas within the regulations that need to be clarified, contributing to a certain level of insecurity for the CCO.”
The incorrect assumption across many enterprises is that data is easy to collect and therefore easy to analyze for compliance purposes. Overcoming the data collection deficit that exists for some financial services firms will become an essential responsibility for CCOs. As such, they are being called upon to step outside of their primary role in oversight and to capitalize on their expertise as advisors, implementing improved processes that will be sustainable in the new regulatory environment.
As companies attempt to take a global approach to compliance, 48% of symposium attendees reported that their organizations take a centralized approach to cross-border regulations, meanwhile some have run into issues scaling the compliance function due to the fragmented nature of local regulations. More than a third of respondents said their firms preferred a regional set-up over a more centralized approach. Beyond the teams themselves, an often overlooked area that CCOs need to consider is how their technology systems will evolve and adapt across the enterprise, particularly as rules are increased or changed in multiple countries and jurisdictions.
With regard to MiFID II, half of attendees said their firms plan to comply by using existing reporting structures. In terms of the recordkeeping components of MiFID II, however, monitoring and surveillance practices will be impacted. These have long since begun the transition from manual and resource intensive to automated and technology-driven. Yet there remain major issues with data quality, security and consistency that many companies are still grappling with that require CCOs to continually navigate the divide between compliance and IT.
Despite the challenges ahead, there is still some good news for compliance departments. Nearly one in five attendees reported that their firms had seen a more than a 100% increase in resources and compliance related investment, allocated to tackling these regulatory challenges. This increase marks a positive change from years past when most firms’ compliance budgets remained stagnant or shrank, despite the increased regulatory demands.
A part of the increase in available resources, which are better equipping CCOs and their colleagues to tackle regulatory challenges effectively, is an increased awareness of the business value of compliant systems and processes. Top CCOs are advancing the case for greater investment by communicating to CEOs and boards the business impact not only of compliance but also the cost of regulatory failures.
Beyond the efforts of the CCO to make the case for compliance investment, increasingly the buy-side, counterparties and other stakeholders, are becoming more aggressive in vetting the compliance processes and systems that will impact company performance. As regulations continue to move in the direction of holding firms accountable for the actions of the third parties with which they contract, this level of due diligence should only contribute further the case for strong compliance systems.
Being able to navigate in this complex ecosystem will ultimately determine the success of today’s CCOs, but it all starts with an advanced understanding of the technology that underlies these efforts.