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The Buy-Side in 2016: A Year of Regulation

2016 has been one of the most eventful years yet for data managers in buy-side firms. Over the course of the past 12 months, the regulatory framework governing buy-side companies has gone through some of the biggest changes in the history of the sector. As a result, data management and compliance officers have had to rethink how they go about their work.

The biggest changes came about in early summer, with two landmark regulations in Europe.

First, the EU Benchmarks Regulation entered into force on June 30. The legislation, which will apply from January 2018, aims to ensure benchmarks are robust and less open to manipulation. While primarily aimed at benchmark administrators, the Regulation will impact the buy-side, mostly through a probable increase in the cost and complexity of benchmark data management.

Second, July 3 saw the Market Abuse Regulation (MAR) come into force. The goal of MAR is to curtail market abuse such as insider trading and market manipulation and places a new set of regulatory burdens on the buy-side, including market surveillance and increased reporting requirements.

Combined, these regulations mean that buy-side firms need to look again at how they manage data; demanding they put in place processes and systems based on greater data transparency, while processing a greater volume of data.

From RIMES’ perspective, these trends have meant that in 2016 the business case for managed data services has become even more compelling. By taking data services from specialist third party providers, buy-side firms can meet the regulatory challenge in a way that is cost-effective, simple to implement and future-proof. The alternative – building new systems and expertise in-house – will, we believe, prove too costly and time-consuming for many firms.

Looking ahead to 2017, it appears that the buy-side is in for more of the same. In addition to preparing for the EU Benchmarks Regulation, buy-side firms must ready themselves for MiFID II, which also comes into force in January 2018. MiFID II represents a sea-change in terms of reporting obligations across the investment cycle. Asset managers will be required to collect and aggregate pre- and post-trade data, increase transparency around record trade executions and enrich the data they collect for post-trade compliance reporting.

Worryingly, there is evidence that many firms have not yet started to prepare for MiFID II. With just over a year to go, firms must build their MiFID II strategy now. RIMES believes the scale of the task facing firms around MiFID II will be another driver for the uptake of managed data services, as the approach enables firms to meet their regulatory obligations almost immediately and with minimal disruption to their operations.

In 2017 we can therefore expect to see the nature of data management and compliance within buy-side firms continue to evolve. Increasingly, buy-side data officers will broker and manage relationships with specialist cloud-based data providers, enabling them to focus on strategic, value-adding tasks, safe in the knowledge they are compliant with all new and emerging regulations. The result will be more agile and competitive organizations.

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