Reallocating resources to SFTR – the challenge facing compliance functions, and how to make it an opportunity
The more things change, the more they stay the same.
With the still-growing regulatory and reporting requirements of MiFID II to the challenges of Brexit IT migrations, resources in IT and compliance functions remain thinly spread. The last decade has not been especially kind to firms, being full of intense regulatory burdens including the Dodd-Frank Act, EMIR and the first MiFID.
Despite this, institutions are now considering whether to continue deploying resources toward MiFID II & Brexit completion, or reallocate resources to the upcoming SFTR.
Why? Firms have already spent big on the implementation of MIFIR & MIFID. But SFTR, designed to mitigate the risks in shadow banking and increase transparency via securities lending, is bigger and banks already know it will be expensive.
However, let’s take a step back from this gloomy landscape, as SFTR creates real opportunities for firms to take advantage of – but only if they start preparing right now.
Navigating data management with SFTR
One major challenge facing firms is data extraction, largely due to the volume mandated by SFTR. Firms are expected to report daily and to document all lifecycle events, including collateral valuations and legal entity collateral re-use statistics.
Firms will therefore have to improve their data management to meet SFTR, which could be a roadblock to implementation. In the long run, however, this could lead to improved business intelligence. Why should all that data go to waste? Firms need to use collected data internally to help understand the very nature of securities financing transactions (SFTs) and how their processes can be improved.
New data combinations can be derived from the categories required by the regulator, such as LEIs, UTIs, collateral, settlement, agreement, instrument and business type. Firms can proactively use these data sets to recoup some of the implementation costs of SFTR, rather than solely meeting compliance. They can be used to create reporting dashboards that demonstrate valuable correlation and concentration risks that were previously hidden. These insights can be identified across securities financing activities to inform risk intelligence and improve risk management.
Act now to build insight-driven systems
While SFTR is scheduled to be written in the books January 2019 at the earliest, with the motion becoming effective for banks and MiFID II companies around 13 months later, 15 months is not a long time to prepare. Firms need to ensure they have a sustainable plan in place. By looking beyond simply pulling data from disparate sources together into a single report, organisations can take this opportunity to build insight-driven data management systems.
Institutions are undoubtedly overloaded with regulatory requirements, but as the landscape evolves, firms that take a proactive approach will be able to better understand and use their data to generate business intelligence.
In the wake of MiFIR which began just last January, regulatory fluidity and uncertainty should be expected. This is no excuse for inactivity, however, as SFTR is likely to be more complicated than EMIR and MiFID II. Firms must start planning now to ensure regulatory compliance is met.
Here at Excelian, we leverage our collective product, technical and regulatory knowledge to help clients deliver compliance for a broad range of financial regulations. As digital solution experts, we can help turn regulations into opportunities, by finding ways to integrate technology and make your business more efficient. Click here to contact us at Excelian, the financial services division of Luxoft, to learn more about how we can help you take advantage of the changes ahead.
Geoff is a Business Analyst and Project Manager with over 20 years’ experience in financial and regulatory change. He has worked for many of the world’s top-tier investment banks, and has a background in Management Accounting and Treasury. He is a Chartered Management Accountant(ACMA CGMA) and a member of the Chartered Institute for Securities & Investment (MCSI).