Collaboration to finally realize GFC reforms via digitalization
The good news about compliance is that financial firms are finally getting the last generation of G20 Global Financial Crisis (GFC) regulations under control, said PJ Di Giammarino, CEO of JWG, a financial regulation think-tank based in London. The not so good news is that the industry has been hit with new sets of regulations around digitalization and Covid-19.
“Hundreds of new trading, risk and governance rules introduced since the financial crisis have been tweaked again for COVID, and some of the new obligations which were put on pause last year are now being considered ‘business as usual’.”
Financial services businesses are beginning to show some interest in making the necessary investments in RegTech.
“But fundamentally it is still the operations and tech crowd that carries the burden of helping the business comply, although the business is starting to come to the table and ask how to digitalize the business to grow, as well as remain compliant.”
The leading example of achieving some ROI from compliance is in the derivatives space, Di Giammarino said, specifically the deployment of the common domain model from ISDA. JWG is currently in the process of driving a Global Derivatives Digital Regulatory Reporting program (DRR) in collaboration with banks, regulators, trade bodies, standards organizations and technology vendors.
“The derivatives business trade flows are represented in a model which is being used to create shared processing rules for settlement, clearing and other business needs.”
This makes it possible to encapsulate the data transformations required for daily regulatory reports and link them to ISO standards which have been mandated by regulators across the globe by the end of next year. JWG continues to pioneer the collaboration of all the necessary parties globally, which is especially important post Brexit.
After a decade of dealing with regulation it is no longer an unfathomable cloud of stuff — people and firms have come to understand it and can piece together a more precise definition of what is required.
“There are real signs that over the next year the sector will tie it all together – the industry is at a real tipping point as regulator, regulated and the supply chain see the opportunity to cut costs and achieve better outcomes.”
The sheer volume of regulations is a challenge. Di Giammarino said that his company started 2020 collecting 800 documents per month from 60 jurisdictions and by the end of the year had over 28,000 – a monstrous pile of 380,000 pages which his team enriches and transforms into XML.
“A lot is driven by COVID, but once you eliminate that noise, Green Finance and Brexit drown out the conversation, so you take that away and you find a lot of digtization and FinTech discussions before you get to the core regulatory reforms that really affect a firm’s ability to trade.”
Brexit poses its own set of challenges. JWG’s conference in early February drew eight different regulatory agencies.
“The big challenge with collaboration is always the politics. When you are in the middle of Brexit, it is hard to get permission for the European regulator to come over and discuss the finer points of the reporting data standards agenda.”
JWG offers banks and regulators a look ahead, he added.
“As we scan the regulatory horizon daily, we can take a strategic perspective and quickly aggregate trends to provide insight into where the regulators are heading. This means we can spin up a real dialogue in a truly holistic manner.”
He adds that COVID forced JWG to digitize its business model as well.
“What JWG once did behind closed doors with regulators and firms has now moved online to 127 countries and we have even launched a podcast to pull the pieces of the regulatory puzzle together and share it via social media.”
He likes Cambridge University’s Genome Project which he thinks can help provide an umbrella for JWG and others to address the larger regulation and risk ecosystem.
“Regulators are starting to hire the talent to look at how they are helping to organize the market and organize themselves from a tech point of view. We have seen a big burst of interest in supervisory technology.”
Add SupTech to RegTech
“ISDA and REGnosys developed a digital regulatory reporting pilot for the derivatives reporting regulations set by the Monetary Authority of Singapore (MAS). The solution enables reporting firms to access an executable code version of the regulatory requirements and to run trades through a reporting engine to validate the business logic, which can then be used consistently across the market,” he wrote on the JWG web site.
“In light of the UK Future of Finance Report’s finding that regulatory reporting costs UK banks £2 billion – £4.5 billion per year — the introduction of DRR could have a phenomenal impact” perhaps several hundred million pounds a year as new derivatives reporting rules are introduced.