Unlocking Reporting Reusability with Digital Regulatory Reporting (DRR)

With regulatory change now the rule rather than an exception, do firms need to start from scratch when managing new regulatory compliance? 

Compliance - A race worth winning
Achieving regulatory compliance is no longer a one-off project, it is now an ongoing fact of life for financial services businesses. It is not a sprint any longer, it is a marathon, of sorts.

I started running marathons around ten years ago and later this month I will run the London Marathon for the first  time. I’ve learned that running marathons is not just about physical fitness. A significant factor in success is mental resilience - the will to keep going in what is a seemingly endless race. The sense of satisfaction and pride you receive for finishing, is well worth the training and the effort. 

I think there are a great many parallels to our line of work, as we help companies to meet regulatory compliance.  To continue the analogy, regulatory compliance is not a sprint, it isn’t really even one marathon - the perception for many out there facing these challenges is: it is a marathon which when you cross the finishing line, take a drink, and start running the next marathon.

But is compliance really an endless race, where each finishing line is the starting line of another?  What if at the end of one race, there was a car waiting to take you 4/5ths of the way to the next finishing line?

The devil is in the interpretation
I remember in 2008/2009, when, in the derivatives industry, all we had to worry about was Dodd-Frank and EMIR, and that was pretty much everything we had to comply with.  Companies would invest in compliance, onboard a new process or two, and that was it - compliance achieved. And everyone could go about the rest of their days, concentrating on the value-add work - developing competitive strategies and searching out alpha.

Today, we know that this is simply not the case any more. Complying with regulation is a constantly evolving challenge. This can be quite draining for firms financially, but it also drains the compliance teams which have to track and predict changing regulatory rules and absorb new ones in new geographies, all against a backdrop of growing complexity.  Teams today have to navigate dense PDFs containing thousands of pages of rules. Sometimes these rules are ambiguous or unclear and working out how to achieve compliance involves significant analysis and interpretation. They then move onto the next volume of rules, and for many firms this is an exhausting cycle. 

Last year, for example, we had four main regulations that went into production. In 2025, we're looking into new major regulations with updates including HKMA in Hong Kong and also CSA rules in Canada. This is quite a significant effort for firms that need to comply with these jurisdictions. Next year we also have MIFID and Switzerland’s frameworks on the horizon.

So it is easy to see why compliance teams and the leadership responsible may dread adapting to new compliance - having gone through such an intensive and expensive process with one set of regulations, who would want to start all over again with a new jurisdiction?

The Common Domain Model (CDM) and Digital Regulatory Reporting (DRR) frameworks offer an excellent basis to share common interpretations of rules between peers and regulators, and provide ways in which technology can automate some of the compliance pain, making regulatory reporting more accurate, more cost effective and quicker to achieve. But we have even more good news for firms struggling with this constant compliance marathon. 

Don’t panic! Here comes the good news
Our extensive research in the regulatory compliance space shows some light at the end of the compliance tunnel.  We have compared all major reporting regimes from a DRR perspective, for derivatives across the world and have found strong reusability of reporting data between jurisdictions - more than 80% in some cases.  

One of the main reasons for this is that global regulators are using a common layer of reporting fields, known as Common Data Elements (CDE).  CDEs were introduced by the International Organisation of Securities Commissions (ISOCO) in 2018 to help ease the burden. Adoption is ongoing.

Now, perhaps ironically, different types of CDEs have been developed in some cases, and CDEs are only part of the reporting requirements, so true comparison between the jurisdictions was tricky to achieve. But our research has found that when we compare CDEs and other common elements, starting with those of the Commodity Futures Trading Commission (CFTC) rules in the US and the European Market Infrastructure Regulation (EMIR) in Europe, we regularly find regulatory alignment between 77% and 86% of all reporting fields reflected in jurisdictions such as the UK, Japan, Singapore, Australia and Canada.

So this should be encouraging for mid-marathon global compliance teams, that not all their hard work is lost as they move to a new regime, as there is a good deal of reporting logic and implementation that they can reuse.  

But there is, of course, still a lot of ‘running’ to do.

The last mile
You may be asking why alignment is not 100%. This is because each regulator acts on behalf of each country’s government. They have their own sovereign regulations which have been set, tailored for their own particular geopolitical positions and cultures.  Whilst we expect alignment will continue to improve as rules are updated across the world, and although CDE adoption continues to grow, 100% alignment is perhaps never going to materialise.

Firms still need access to expertise which can accurately perform like-for-like comparisons and make sure that the interpretation of these fields is exactly the same between jurisdictions. And in areas where there is partial alignment of reporting fields, there is some tweaking and data translation to handle.  

Moreover, there is still the circa 20% of fields which are not aligned at all, to deal with.

But it should be comforting to everyone involved in compliance for derivatives firms to know that they are not starting every new marathon at the starting line each time. You don’t have to ‘just keep running’.

The DRR car is waiting to take you most of the way to the next finishing line.  

The trick is, knowing to look out for it as you cross the tape.