The Regulatory Reporting Overhaul: Navigating New Compliance Challenges for Financial Institutions

The next 8 months will see significant changes to the regulatory reporting framework for financial institutions globally. Rewrites of the Japanese Financial Services Agency (JFSA) reporting regulation and the European Market Infrastructure Regulation (EMIR) refit have recently been introduced, with the EMIR equivalent from the UK’s Financial Conduct Authority (FCA) set for the end of September. Upcoming regulations from the Australian Securities and Investments Commission (ASIC) and the Monetary Authority of Singapore (MAS) will be delivered by the end of October, while the Canadian Securities Administrators (CSA) rewrite is expected late 2024 or early 2025.

As a result of the current regulatory focus, incurred fines are predicted in both the pre- and post-trade spaces. For example, MiFID II transaction reporting fines (which are calculated per transaction) are anticipated to impact institutions heavily when they arrive.

Organizations must adopt firm strategies as a result to future-proof workflows while balancing cost, control, capacity, and compliance. Essentially, firms need to de-risk the way they manage regulatory change.

Don’t reinvent the wheel

Currently, senior operations executives are rightly focused on cost reduction, but they are also concerned with how they can make the process of regulatory change management faster and more efficient. Overall, they want to reduce risk in their compliance programs by not having to reinvent the wheel. 

Firms naturally prefer early release of the regulatory text and versions of the logic to test without delay. A reliance on third-party providers to assist with this process, however, is sometimes met with apprehension due to perceived loss of control regarding mapping, testing, and scenario analysis. On the other hand, running these processes with proprietary systems for every single rule change can be an extremely time consuming and expensive task.

Streamlined compliance processes

Rather than undergoing a complete reconstruction every time a regulatory rewrite occurs, another solution is to set up a comprehensive, future-proofing framework to manage and drive regulatory changes properly in the first place. This means that any subsequent rule changes would require only minimal alterations to the system. 

Streamlined compliance and reporting processes should ideally cover data ingestion, integrity checks, eligibility determination, validation, connectivity to repositories, reconciliation, and dashboarding. In addition, effective back reporting tools and error correction facilities can help firms promptly address outstanding issues.

An integral component of this streamlined compliance approach is the incorporation of an industry consensus model for regulatory interpretation. This pre-validation of data ensures complete accuracy before reporting can prevent costly errors. Furthermore, reconciliation services can enhance data reliability and integrity, providing a seamless reporting experience.

A transparent approach based on consensus

Increased regulatory scrutiny necessitates accurate and transparent data flows. Firms must, therefore, maintain visibility and data lineage to avoid reliance on opaque systems. Importantly, a consensus approach provides a sensible way forward because it de-risks interpretation and execution of regulations, ensuring uniform compliance standards. By embracing regulatory changes, institutions can improve compliance frameworks and operational efficiency, ultimately turning challenges into growth opportunities.