RIMES Client Conference Debrief #4: the buy-side needs a new approach for compliance

The need for sophisticated compliance systems in the buy-side has never been greater. Speaking at RIMES’ recent Client Conference, Bruno Piers de Raveschoot, COO of our regulatory division, outlined the pressures facing firms.

First, there is the fast-changing regulatory landscape. For the past 15 years, businesses in the sell-side have been in the cross-hairs of the regulators, and as a result have developed advanced compliance and market surveillance systems. The focus today is on the buy-side, with regulations such as the EU Benchmarks Regulation, MAR II and MiFID II placing unprecedented pressure on firms. These firms must go through the same changes the sell-side faced 15 years ago.

The cost of not doing so is significant. Since the financial crisis firms have spent in excess of $150bn in fines, while the cost of compliance has grown steadily: the Bank of America, for example, spends $15bn per year on compliance. There is evidence that financial sector firms have had to increase compliance spend by as much as 25%.

For Bruno, the challenge facing buy-side firms is clear: they need to adapt quickly, completely and cost effectively. As a first step, asset management firms must put in place robust compliance policies and a framework to identify and control market abuse. There is clear best practice for asset managers to follow:

  • Minimize the risk of receiving but not identifying inside information
  • Monitor ‘wall crossing’ or giving access to insider information
  • Use pre-trade controls to reduce the risk of market manipulation and insider trading
  • Conduct post trade surveillance across asset classes and venues using appropriate systems to monitor and investigate suspicious trades and orders
  • Detect suspicious transactions or attempts of influencing a benchmark, the price of funds or any derivatives

To help asset managers meet best practice, RIMES has launched RegFocussm, the first buy-side monitoring and detection solution for the Market Abuse Regulation (MAR). The solution, which provides an out-the-box solution to the compliance challenges facing the buy-side, works by analyzing orders and trades, visualizing the market impact and comparing trades against benchmark data. Any suspicious activity generates an alert and provides a workflow for compliance officers to follow.

Services such as RegFocus will play a crucial role in helping firms meet today’s compliance burden, as they are specifically developed for the buy-side, with analytics focusing on asset management challenges. The RIMES approach, which provides access through RIMES’ service environment, is light-touch and will allow firms to upgrade the compliance function cost effectively, rapidly and with no disruption to their operations.

The scale of the compliance challenge facing buy-side firms is unprecedented, but the market is stepping in with new approaches. Firms must review their compliance framework immediately and decide on what steps they need to take to update their systems.

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