And they think it’s all over…..

July 4, 2019

by Neil Jones

Most of us remember the heady days in 2017 and 2018 when meeting the regulatory deadlines kept us all awake at night. The industry sighed a deep collective breath when finally the EMIR and Mifid programmes were tucked away and we could get our lives back and start having discussions that were not dominated by LEI’s / UTI’s and the plethora of acronyms and message formats that were the bane of our narrow focused Transaction Reporting world.

It was almost a relief to step away and allow ourselves the luxury of focusing on a new set of challenges and new set of acronyms. Even Brexit sounded like a welcome relief to many who had lived through the pressure of the tight deadlines with a regulatory axe hovering over their heads with the fear of potential fines.

Unfortunately for many it’s not yet safe to go back into the water.  I’m afraid the focus for this blog is to explore the reality of Transaction Reporting in 2019 and how the legacy of those tight deadlines are still causing challenges and keeping people awake at night.

First Derivatives Regulatory and Compliance practice was very much battle hardened during the implementation and roll out of EMIR and MIFID2 reporting. For many of our clients we were able to offer services ranging from Regulatory Assessments, Data Discovery, Build out of Technical platforms, Near Shore Testing services and Client Outreach. During this time we gained a unique perspective and a crowd sourced understanding of the pros and cons of how the industry dealt with the challenges.

 As we move into 2019 we felt it was a good time to revisit this space and survey our clients and our regulatory experts to get insight into the new themes and challenges. Of course the headline news stories cover the high profile fines and the new reporting regimes such as SFTR, but also throughout this survey we heard another story repeated again and again across both large global and small regional clients.

The story goes a little like this………

“The deadlines were tight! We were under severe pressure to get over the line! Yes we cut corners – we had to. Both on the technology and the underlying operational and data processes. But then once it was done, the experts who had defined the technology and the processes all moved on – To Brexit/SFTR/FRTB/Libor – whatever the next hot acronym was”

“But the challenges kept on coming. UnderReporting/OverReporting/MisReporting/Additional Reg amendments!”

All of this required fixes and amendments and all done in an environment of continuous cost cutting.

We knew that solid data governance and data cleansing were essential but that’s obvious. What we underestimated was our ability to make change and in particular the QA processes and sign off. The fixes and amendments are not in themselves complex or technically challenging but the sheer volume of incremental change all impacting the same narrow platforms have caused us significant issues with throughput which is amplified by the loss of our key SME’s and the historic knowledge they accumulated.

So the gauntlet laid down by our clients was an organisational challenge. How might we create cost effective remediation services that are able to maintain superhigh velocity rates and yet also build in a sign off process that doesn’t act as a bottleneck.  Clearly establishing a Data Governance platform and process that ensures each data point is strictly controlled is the nirvana for Transaction Reporting – but for many of our smaller clients the investment to achieve this or the complexity of their data platforms makes this a constantly moving target.

Our approach was to zero in on cross functional collaboration. BA’s / Developers and Testers all working together within Onshore/Nearshore Problem Solving Scrum teams to smash through the cross functional speedbumps but also to ensure that our testers were closely involved and invested in the fix as early as possible. For many clients we found that by aligning our scrum teams by Asset Class allowed them to build up close relationships and detailed knowledge of the upstream systems, feeds and stakeholders that helped improve velocity.

Another velocity enabler was the focus on regression testing platforms that empower clients to make cross jurisdiction/asset class changes in one fix rather than repeatedly making (or breaking) the same quick fix over and over again. From a governance perspective the key was retention of a searchable historic audit trail of changes made – what was tried previously / what were the test cases used / what data cleansing was performed etc – all this information is required to avoid repeat errors.

In summary at First Derivatives we feel Transaction Reporting in 2019 is different to almost any other function – our experience is that it requires a very specific approach to deal with the sheer volume of incremental change. Given our history of creating Managed Service Onshore/Nearshore teams and our crowdsourced knowledge of Reg change, we are in an ideal position to help our clients address this challenge in a cost effective manner.

And the future is bringing yet more challenges with the introduction of both new and continually amended regulatory regimes which will all eventually hit the remediation teams workload.

We thought it was all over……it’s not….but we can be smarter about how we manage it!