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A raft of new, far-reaching regulations is making it necessary for financial institutions to rethink their compliance procedures from the ground up. With many of these new regulations drawing from the same data sets, the old approach of having siloed compliance teams pull the necessary statistics for each directive in isolation no longer makes sense. Instead, institutions need streamlined data processes that allow them to access exactly the reference data they need when they need it.

Financial Institutions Must Adapt Quickly and Efficiently to Ease the Strain of Compliance

Once upon a time, when financial institutions had to comply with a new regulation, they would create a dedicated team to deal with each specific regulation. This group of compliance professionals would oversee the process from start to finish, acquiring data, parsing it for information needed and assembling the necessary reports and conclusions to relay to the regulating authorities. Every time a rule was passed down from regulators, the process would begin anew, leading to a world where compliance departments were a complex mix of siloed teams, each working on its own to carry out a particular section of the regulatory agenda. Each firm would have a faction for FATCA, a division for Dodd-Frank, a squad for sanctions and so on.

When banks only had a few distinct regulations to worry about, this approach may have made sense, and it’s easy to see how it has continued to endure over the years as new rules slowly trickled out in a piecemeal fashion. Today’s regulations are more complicated and intertwined than ever before. As the pace of rulemaking has picked up, the complex and overlapping directives that have resulted are beginning to look like a plate of regulatory spaghetti. Banks are facing a raft of regulations that draw from nearly every conceivable corner of their data resources. These regulations contain some of the most extensive reporting requirements ever, mandating that firms provide data on trading venues, client order volumes, liquidity and trade execution, among other things. They also require qualitative information showing that firms are adhering to best execution requirements in their trading procedures.  Compliance managers know that regulators will be examining their programs closely and looking for errors or omissions that may be indicative of a larger problem and can set a firm up for additional scrutiny. Even firms’ compliance must be compliant, and to show that they’re making a good-faith effort in this regard, they need procedures that are organized and efficient, making it easier for them to diagnose, correct and ultimately avoid mistakes.

In this environment, traditional siloed approaches seem quaintly outdated at best and dangerously inefficient at worst. To comply with each of the current states of regulations, firms need to access massive streams of data, pulling the correct data and applying the appropriate rulesets. Yet when a siloed approach is used, multiple teams often end up accessing the same data on their own—a situation that not only leads to data redundancy and duplication, data sourcing complexity and convoluted time series management but can potentially also cause serious issues in the event of data discrepancies.

Imagine if anytime you wanted to watch a new movie you had to subscribe to a new streaming service, or if anytime you wanted to listen to a new song you had to download a new music application. Not only would the effort required to take these extra steps build up to mind-numbing proportions, but the end result would be a chaotic hodgepodge of software, data and expenses. If banks do not rethink the way they’re utilizing financial data in today’s regulatory landscape, this could be the scenario for which they are headed.

Complying with even one complex new regulation—such as the rapidly approaching MiFID II—and proving to regulatory authorities that proper reporting standards are being met, is going to require a small army of compliance, software, IT, finance and administrative staff. With new amendments and changes to these regulations almost certain to continue emerging, firms are coming to the realization that a full-scale rethink of how they do things is required. The silos that have defined compliance teams since the beginning are going to have to come down and more innovative solutions are going to have to take their place.

With so much legwork to do, and so much data to delve through, firms will need to streamline their approaches, taking advantage of the common overlapping data sets that major regulations all require. Instead of piling on to their mountains of information, compliance teams should be looking to implement standardized, scalable services that will allow them to easily compile and extract the quality reference data they need, packaged up in the way they need it. This will enable them to unravel their regulatory spaghetti by using the common data shared by various regulations.

The data analysis burden necessary for complying with regulations is quickly becoming more than old-school compliance teams can bear. In order to untangle the knot of requirements, firms are going to have to rethink their processes and take advantage of what today’s innovative data service technology has to offer. Compliance teams are already stretched thin, and they risk major, reputation-damaging errors if they devote their time to tiresome, complex, and redundant data extraction tasks that could be done automatically. They need structured data flows that do the grunt work of mapping things out and allow them to focus on the hard work of creating an effective compliance environment.

The increasing complexity of the financial landscape has undoubtedly made life more difficult for compliance teams than it was in the good old days, but major advancements in data technology are helping them to keep pace and maintain their balance. Those firms that take advantage of these innovations to consolidate their compliance approaches will be able to operate with confidence. Those that do not are likely to get left behind.


Roy Kirby

Roy Kirby is Senior Product Manager at SIX Financial Information and has been with the company since 2015. In this role, he is responsible for identifying and responding to market trends and customer requirements across all financial markets globally. The product team for which Roy is responsible is currently focused on the areas of regulation, asset servicing and corporate actions. A core responsibility of his team is to provide thought leadership and expertise to define solutions that mitigate clients’ risks, improve profitability and improve efficiency. Some notable topics include MiFID II, FATCA, IRS 871(m), Solvency2, cross border taxation, security master files and corporate action workflow. Prior to joining SIX Financial Information, Roy spent 18 years in various roles within the financial markets.

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