Setting the Stage for Regulatory Change in 2015  


Written by: Joe Dunphy

Financial institutions have emerged from the rigorous regulatory and data demands of 2014 a little battle weary, suffering a few scrapes and scars, but otherwise unscathed. On a whole, 2014 will be remembered as the year when regulators started to flex their muscles, levying a record number of fines and promising to become more involved at an earlier stage, making many financial institutions finally sit up and take notice.   Joe Dunphy 2

2015 is being hailed by many commentators as the turning point for financial regulation. However, looking at the regulatory roadmap for the year ahead, 2015 may actually offer financial institutions a well-needed respite from regulatory implementation. Don’t get us wrong – there are plenty of regulatory requirements to be getting busy with, but it appears that a lot of the execution comes in 2016 and beyond. Therefore, in 2015, financial institutions will have the opportunity to set the stage and make the necessary preparation to help them meet the regulatory demands facing them over the coming years. Some of the topics that we feel will garner more attention this year include:

Data Security
With an increasing amount of trade reporting across all corners of the world, data security will definitely play a critical role in 2015. The question still remains as to what regulators will actually do with the raft of data that is transmitted to Trade Repositories (TRs), but one thing is for sure – financial institutions will be eager to protect their client confidentiality.

Data Quality
One of the biggest complaints with regards to trade reporting regimes currently in place has revolved around the actual quality of data that has been transmitted thus far. With more and more deadlines approaching, institutions must face this issue head-on by researching and investing in central repositories and improving workflow and processes – or it will only become a bigger problem further down the line.

Data Centralization
As more and more reporting regimes are introduced, financial institutions may have to conceptualize a strategy around how they will handle sending potentially the same records to multiple TRs. Centralizing data will be key to this and ensuring that a high level of data quality is maintained in the process. Already with the introduction of various regulatory compliance measures (e.g. FATCA, Dodd-Frank, EMIR, MiFID II, Canadian Derivatives, APAC Derivatives), many financial institutions are implementing central repositories (either logical or physical) for the storage of client and counterparty data and documentation to support regulatory compliance and reporting requirements across a number of regulatory frameworks. We see this trend continuing in 2015.

Back-Loading Trade Data

A lot of the new OTC derivative rules (e.g. Canadian, APAC, EMIR, MiFID II) will require the back-loading of trade data to report a pre-existing transaction. This will prove to be an arduous process and one that requires a lot of IT input. However, with the regulatory breathing space afforded in 2015, financial institutions would be advised to focus on getting this right and researching the technologies and processes needed to meet these deadlines.

Beneficial Ownership

Beneficial ownership is set to take centre stage in 2015 as a final rule is expected to be introduced by FinCEN (US Treasury’s Financial Crimes Enforcement Network). Under this rule, covered financial institutions will be required to identify beneficial owners (i.e. persons having a direct or indirect 25% or more ownership interest in the legal entity) of new legal entity customers, subject to certain exemptions. This is expected to be mirrored in the 4th EU Money Laundering Directive, however, the timetable for this provision is so far unclear. The focus on centralizing data and documentation will greatly enhance the ability to identify ultimate beneficial owners (UBOs).

Getting Back to Business As Usual

Over the last few years since the onset of the financial crisis, financial institutions have endured series after series of heightened and new regulatory rules and enforcements designed to put right the wrongs committed in the lead up to 2008. However, it’s been a long, hard seven-year stretch since the financial crisis and, right now, a lot of compliance officers are suffering from the effects of regulatory fatigue. Financial institutions need to get out of the path of regulatory fire and get back to the business of banking. A lot of our own clients are undertaking fresh reviews of operational processes that impact client experience in an effort to streamline regulatory data capture and compliance processes, to expedite onboarding times, improve time to revenue and ensure a satisfied client at the end of the process.

Leverage Regulatory Breathing Space in 2015

With a number of smaller regulatory deadlines to meet in 2015, our advice would be to make valuable use of the regulatory breathing space afforded this year to set the stage in preparation for regulatory change over the coming years.


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