Earlier this month, Waters Magazine spoke to a number of financial services firms for a feature on the arrival of MiFID II. The Regulation, which comes into force next year, imposes new regulatory reporting requirements on financial firms around trades and transactions, and is intended to beef up protection for investors.
Waters’ findings were unequivocal: buy-side organizations are struggling to digest what is a highly complex piece of legislation. And it’s not just the complexity of the legislation that’s at issue: MiFID II will likely bring about a significant increase in the size and volume of datasets firms must manage and share. The Regulation demands of buy-side firms a step up in their compliance processes and systems; one that many will find challenging.
From RIMES perspective, however, MiFID II is symptomatic of a much wider issue. In addition to the stipulations of MiFID II, buy-side firms are facing a barrage of additional regulations that are going to greatly affect how they manage data within their firms, and how they run their compliance functions. These regulations include, but are not limited to:
- MAR II, which demands buy-side firms up their market surveillance and reporting capabilities;
- Solvency II, which requires insurers to be able to gather a unified view of asset data across multiple managers, firms and vendors;
- and the EU Benchmarks Regulation, which while mostly aimed at benchmark administrators is adding cost and complexity to buy-side data management.
Combined with MiFID II, these regulations are creating a new normal for the buy-side: one marked by high-complexity, confusion and cost. Moreover, with investor faith in the proper function of financial markets of paramount importance to our entire economic system, it’s likely the regulatory burdens imposed on buy-side firms are only going to increase over time.
RIMES’ advice to firms is to take a long-term approach to data management and compliance. In an environment where new regulations are emerging with such regularity, in-house data management and compliance solutions are increasingly less suitable. The in-house model demands firms’ IT teams react to the ever-shifting regulatory landscape and constantly rework their data systems to ensure compliance. This is like trying to plug holes in a boat that keeps springing new leaks, when what’s really required is a completely new hull.
At RIMES, we believe that the time is now right for buy-side firms to abandon in-house compliance and data management systems in favor of managed services taken from cloud providers. Managed data and compliance services are up-to-date by default: firms need only activate the subscription to immediately achieve regulatory compliance and simplify their data management. This allows them to concentrate on managing assets rather than managing data. Moreover, as managed data services remove the need for large capital expenditure on IT projects, the total cost of ownership is significantly lower than with the in-house model.
Therefore, the complexity of today’s regulatory regime need only be a challenge if buy-side firms allow it to be. The emergence of the cloud and managed data services means that data management and compliance can, in fact, be easier than ever.