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How to get on top of regulatory compliance?

Regulatory compliance is probabaly the banks’s and corporate treasury department’s biggest problem today, e.g. KYC, AML, MiFID, BEPS. Two major types of solution are emerging: 1) database driven solutions (there are aleady many today) that use their indepth knwledge about a particular regulatory area and then prompt the user to carryout certain actions and policies, and 2) a new solution is emerging where regulations are automatically incorporated into companies’ policies. Last week the Wall Street Journal explained that, “This would allow businesses to more quickly and more accurately conform to regulatory changes, let them better deploy their human compliance personnel and give regulators immediate visibility into companies’ compliance efforts.”

Database driven solutions. e.g. Thomson Reuters MiFID II services

Last week Thomson Reuters went live with its key MiFID II services, helping the financial services industry meet the new regulatory requirements. These new services are part of Thomson Reuters programme of providing a comprehensive suite of solutions to assist the financial services industry with ensuring ongoing compliance with MiFID II requirements based on their huge database of requirements as to what is required. 

Services with major updates since January 3rd include:

  • Updated, MiFID II compliant data already available to clients from 57 global exchanges and eight new MiFID II trading and reporting venues, including Tradeweb’s Approved Publication Arrangement (APA) and MTS BondVision’s Multilateral Trading Facility (MTF).
  • An enhanced Multilateral Trading Facility, which went live with trading and MiFID II compliant trade reporting taking place as required from the morning of January 3rd
  • Updated instrument reference data capabilities to ensure comprehensive coverage of the key financial instruments covered by the regulation, including the addition of 1.6 million new pre-fixed individual identifiers (ISINs) for over-the-counter (OTC) derivatives from the ANNA Derivatives Service Bureau (DSB); coverage of 300,000 new financial instruments; additional data for 900,000 existing instruments; and the addition of over 5 million records from the Financial Instruments Reference Data System (FIRDS).

The scale of what is required to comply with MiFID II and keep up with the changes as policy changes is immense. It is no wonder that banks are signing up for the new Thomson Reuters service. 

Other database solutions

But the scale of the problem is not just restricted to MiFID, database driven solution are also available for:

  • KYC where lead providers include Bloomberg, Thomson Reuters, and KYC.Com
  • AML where there are a large number of specialist providers
  • BEPS where lead providers include Thomson Reuters as well as the big accounting firms

There are many other database driven solutions to help banks and corporates comply with regulations, as regulation complexity grows (and it will) corporates are going to have to rely on third parties to help them survive.

Machine executable compliance rules

It seems a dream, but experts are working on embedding regulations into algorithms and it has been proven possible in a recent test. Ben Pietro reported in The Wall Street Journal last week that the momentum is building to, “make regulations machine-executable and to reduce the amount of human oversight needed to interpret and implement rules. The breakthrough heralds a future far different from the one that exists now, where regulators issue rules, companies take months to figure out what they mean, then more months to configure their systems to conform to the new rules.”

Pietro quoted Andrew Burt, chief privacy officer at U.S. technology firm Immuta, which operates a data-management platform used by companies in the finance, government and life sciences sectors that, “One of the reasons why this is momentous is it stands for this position that regulators can really embrace technology and that law and technology can intersect in ways that they haven’t previously”

Obviously there are cybersecurity concerns about embedding regulations into code, but it is not very different from using a third party’s database to decide what to do to comply with a regulation.

CTMfile take: Is where we are going here is: third party database service from Thomson Reuters combined with machine executable code sitting in a corporate’s accounts payable, and tax systems? How would your company react to such a solution?

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