This May, Steve Cheng, Global Head of Data Management Solutions at RIMES, joined a panel of industry experts to discuss the increasing regulation of buy-side firms. The panel session was part of the European Buy-Side Technology Summit 2016, which took place on May 17th in London. Cheng was joined by panellists from Jupiter Asset Management and BMO Global Asset Management to look at the extent to which regulations are driving uptake of managed services in buy-side firms.
The panel started by outlining the challenge facing buy-side firms: emerging regulations such as Solvency II, MAD II and MiFID II mean that firms will be responsible for monitoring and reporting on a significantly larger volume of market data than in the past.
The panel then made the point that increasingly the regulations affecting the buy-side, such as Solvency II and BCBS 239, are principles-based, and as such offer direction on how firms can achieve compliance. These principles make it clear that firms will need to put in place high-quality processes, procedures and reporting.
So what does this mean in practice? The panel highlighted that firms need to be more flexible than ever, and build good data governance controls into their systems so they can report on the full provenance of the data they handle; including where it might have been transformed and how and when the data will be used. This change often demands nothing less than a complete overhaul of data governance processes and IT systems.
The debate then moved on to how buy-side firms can best transform their data management operations to meet the new requirements of market regulation. The panel agreed that the cost and disruption involved in ripping out legacy IT systems and replacing them with fit-for-purpose alternatives means that the case for third party options such as managed data services has never been stronger.
However, firms using managed data services must bear an important point in mind: ultimate responsibility for compliance remains with the buy-side firm; it does not move to the managed service provider. As a result, firms must be sure that they use a managed service provider able to demonstrate transparency and controls and which can provide the full range of data needed to support compliance.
Significantly, managed service providers must be able to provide reports on both data (prices and benchmarks for example) and metadata (such as the data source, any data transformations, validation checks and access). Metadata is essential for compliance reporting and firms should only work with managed services providers able to record and supply this information.
Finally, the panel discussed the importance to buy-side firms of working with managed service providers that have a proven track record. As data governance has until now mostly been in-house, finding partners with sufficient experience of delivering such services to the buy-side can be difficult. However, with such a large transformation task in front of them, finding an experienced managed service provider will prove vital for buy-side firms.
The panel highlighted once again just how great an effect financial markets regulation will have on the buy-side. It also made clear the important role managed data service providers such as RIMES will have in helping firms adjust to this new environment.