This article was written by Lisa Roitman, Business Strategist for Regulatory Compliance Technology at Bloomberg.
Regulatory changes may differ, but all seem to have one thing in common: the requirement that sell side firms collect more and more data, documents and affirmations from their clients.
Exchanging and negotiating all this new documentation, or repapering, takes up time that is in short supply on both sides. The result is a painful back-and-forth that can strain – or even destroy – client relationships, and pose challenges to meeting compliance deadlines.
A Bloomberg poll of 10 top tier sell-side firms in London found as many as 2.5 million documents may need to be exchanged across their client base if they are to become MiFID II compliant by the January 2018 deadline.
Comparable recent repapering exercises show the scale of the task. In the U.S., industry CSA execution rates (required to comply with new swap variation margin requirements) were reported at 40.72% by the March 1, 2017 deadline. And that was the result of a last-week rush: on February 22, the rate was just 8%. Overall ISDA Protocol adherence rates have dropped precipitously since 2013.
The key to hitting regulatory deadlines while preserving long-term customer relationships is to build a better client outreach project.
“A flexible, cradle-to-grave process is critical for success,” says Michael Beaton, Managing Partner at Derivatives Risk Solutions. “The elements of the repapering process should include initial data scrubbing, playbook construction and maintenance, negotiation, authority checking, execution and data capture.” Inflexibility in any component part serves only to increase costs.
Technology has a vitally important role to play.
“MiFID II will impose significant requirements on firms to share and collect data from their clients,” says Jack Scard Morgan, Chief Operating Officer EMEA, TP ICAP Global Broking, the world’s largest inter-dealer broker. Firms require technology solutions that can help the “quickly understand what the new rules will mean to their trading relationships, especially around trade execution, reporting and transparency.”
Solutions that have been engineered to maximize operational efficiency, ensure compliance and smooth the client experience can help “simplify the repapering process in preparation for MiFID II, a regulation which will have far reaching implications for the industry we operate in,” says Breteau.
5 steps to building a better client outreach process:
- Start earlier – Firms cannot count on regulators extending deadlines for compliance or waiving penalties. Instead prepare early. Start with the housekeeping tasks that don’t require client involvement, such as preliminary data cleansing and creating an internal ‘playbook’ for the project.
- Improve coordination – Identify key stakeholders both internally and externally and have a ready-made list of all those who must be consulted in the process, as well as a method for tracking and evaluating progress.
- Think more about the process – Develop clear objectives that are supported by a flexible process. If a high completion rate is your goal, avoid unique solutions to the repapering problem.
- Leverage the right technology – Implementing the right technology to assist with the process can help with workflow management and provide audit trails of the exchanges. Solutions that encrypt communications, data and document exchanges can provide security for sensitive client information and deliver a streamlined, technology-driven process that improves the overall client experience.
- Plan for a return to normalcy – Ultimately the goal is to get back to business as usual, with happy clients. Every step of the outreach planning process should be undertaken with this singular goal in mind.