The Complexities of Compliance

Earlier this month, a group of researchers filed a patent for a “System and Method for Complying with Solvency Regulations”, specifically aimed at helping the buy-side value chain get to grips with Solvency II. This patent application highlights just how complex data compliance has become.

Regulatory compliance is now both truly global and cross-sector. So while Solvency II ostensibly affects insurance companies within the 27 member states of the European Union, in reality it impacts the entire global buy-side industry. This is because insurance does not operate in a vacuum: worldwide, insurance companies and their investment managers must ensure they can deliver the data inputs required by the European insurers they do business with. Indeed, insurers often appear to have an unspoken agreement, requesting that their investment managers should provide them with the data transparency required by Solvency II – a fact of which many investment managers remain unaware.

Regulatory compliance is therefore a huge challenge for a wide variety for insurance companies and investment managers. Whomever is responsible for acquiring and storing the data required for Solvency II reporting can follow one of two approaches to overcome these challenges.

The first is to manage all the data in-house. This might seem like a ‘natural’ approach for some organizations: extending the reach of the in-house data management team and ensuring that data ‘ownership’ remains within the firm.

However, in-house data management on the scale required to achieve compliance with Solvency II – and let’s not forget the raft of similar legislation which other countries are considering – can become very inefficient and expensive. Data is collected from a variety of data vendors and then used by different departments. Different types of reports are then required both by the investment managers and their insurance client, and at a volume and granularity not seen before. Reliably aggregating these disparate sources into a unified database can become too big a task for in-house teams to undertake cost-effectively.

The second approach to this data challenge is to use a managed data service, such as RIMES’. Both insurers and investment managers can benefit from a system-ready data management solution that is fully compliant with the evolving regulatory landscape. Crucially, as they are receiving these capabilities as a scalable managed service, the cost points are exponentially lower than with in-house equivalents.

Such is the growing complexity of data management within buy-side firms it seems clear that the only tenable long-term course is to leave it to the data experts. It is an approach that not only provides peace of mind for businesses seeking compliance, but it allows insurers and investment managers to focus on their core business activities free from the burden of data management.

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