A Systematic Approach to Staying Ahead of Regulations: Rocket Edition
All firms that participate in the Capital Markets Industry - from Banks, Fund Managers, Institutional Asset Managers, and Corporate Treasuries to Exchanges and Industry Utilities - need to stay abreast of existing and emerging regulations that dictate what, how, when, and where they need to report about their activity.
A major consideration for firms that are either global or that trade with counterparties outside their home country is that regulations across regions are not harmonized and keep evolving. For instance, Derivatives reporting requirements in the EU under EMIR for OTC Derivatives Trade reporting differs from the US requirements under the CFTC, which in turn is fundamentally different to proposed reporting requirements in the US under the SEC for reporting Securities Based Saps (regulation SBSR). Besides the granular details of which elements should be reported and at what precision, basic concepts such as which trade participant is required (or not) to report which essential data elements varies across regulatory regimes.
Besides these divergent requirements, new reporting regimes are on the near horizon, e.g. the aforementioned SEC Regulation SBSR, MIFIR/MiFID II, HKMA Phase II, and SFTR under ESMA. Additionally, existing regulatory reporting specs are going through second and third rounds of revision, e.g. ESMA implemented Level 2 for EMIR reporting last year and a new RTS/ITS was proposed in November 2015, and proposed changes to the CFTC RTS were issued for comments in December 2015.
We recommend that firms take a systematic approach to staying ahead of regulations. This means keeping a calendar of dates that impact compliance – not just for the regulations themselves but the utilities to which you need to report, e.g. Trade Repositories (TR), when they plan to release their specifications, and when they will make their platforms available for testing and production.
Report-it.Trade is a suite of modules that help firms stay in compliance with derivatives reporting regulations, and at Risk Focus we break each regulation into four distinct phases:
- Beta – once a Regulatory RTS is issued we create a set of validation rules against that spec. Once a TR issues their functional or technical specification, those TR-specific validations are added to the Beta version of our software
- Pre-UAT – once a supported TR makes a development environment available to us ahead of their scheduled UAT, we provide our clients with an environment that simulates the TR’s UAT environment against which they can test. This gives our clients weeks to months of lead time to get ready for UAT
- UAT – In addition to providing an environment consistent with the TR’s UAT environment, we also allow clients to “turn off” UAT and test against a simulated Production environment. This has proven invaluable for firms that need to test against a simulated production environment while the TR’s test environment is in UAT.
- Prod – production as the name implies.
The systematic approach that we describe above helps firms take a proactive, planned approach to scheduling their response to, and compliance with regulations. In particular:
- Business Analysts can start identifying impact analysis early in the project lifecycle
- QA teams can design their test cases well ahead of the software being available
- Developers can test early and often against the various versions of the rules
- User Acceptance Testing can be expanded so that it’s not a rush at the end of the project
- Production control teams have a high level of confidence that their new system meets the regulators expectations and the repository requirements.
This article was first published in edition 7 of Rocket, our magazine. Download available Rocket editions here, and save your up to date address in your profile to to indicate your interest in receiving a printed copy of the magazine. Copies are also available to purchase and subscribe to via the shop.
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