A Day In The Life of a Compliance Officer | Michael Bergfort
This article is part of the “Day in the Life” series, sponsored by RegTek Solutions, in which compliance officers discuss the profession’s challenges, their approach to technology, and wishes for the future.
In the past twelve months what has been your biggest professional challenge?
My team is small so our challenge is to balance the different work streams such as negotiating new German Master Agreements – the German equivalent to ISDA master agreements, reviewing transactions, reading and writing committee submissions for netting opinions and daily work, against project work such as un-cleared margin, MiFID 2 and other regulations.
In the next twelve months what you anticipate being your biggest professional challenge?
Whilst some regulations will be complete in early 2018, others will come along and demand attention such as - for the bank at a whole - GDPR, and very much Brexit. For European firms the impact from Brexit will be major at a practical level. If UK firms add or change their entity structure that means new masters and margin agreements plus all the usual on-boarding work of a new counterparty. What isn’t known is how the UK relationship with Europe will be characterised under EMIR and the many EU regulations – once known that may also generate a considerable work load due to more effected pieces of EU regulation.
How has compliance work in derivatives changed in the past few years?
There are new internal and external influences on the product mix provided, I guess. The external influences include regulation and the economic changes due to capital and margin costs. From personal impression which is a purely documentation reflected one, this has meant a reduced demand for complex products from customers, and a more focused attention on internal approval processes for non-standard products that can eventually require a long lead-time to execute. Compliance work is more streamlined with a ‘simpler’ product mix, but the work load doesn’t get lighter. We see the continuing changes to trade reporting regulations such as the EMIR RTS changes at the end of October and SFTR and a last Variation Margin repapering phase coming up keeping us busy.
What changes would you like to see in the industry in future?
My thoughts are focussed on the relationship between regulators and risk – is regulation there to make politicians comfortable and look active or is it meant to help the entire capital markets industry measure and manage risk in an intelligent way? I would like to see the development of regulations with improvements to risk management as the end-goal, and, notwithstanding some improvements, include even greater market consultation (and realistic timeframes for responses) and forethought before implementation. The trade reporting regulations deliver a vast amount of data to regulators but have no effect on the running of the capital markets as it is carried out post hoc and has no bearing no pre-trade checks. Will we see regulators use their data pile to become risk managers and identify new risk factors in the markets? We shall wait and see.
What is your working day like? What keeps you up at night?
In my role the balance of demand and supply – sometimes the need for compliance and legal work outstrips the team’s or individual’s capacity. This isn’t unusual for anyone in the markets.
What could ISDA, CPMI IOSCO, and other standards bodies do to make life easier for people in OTC derivatives?
The small differences in similar regulations across national jurisdictions seems unnecessary and create extra work – my dream is for common regulations for common purposes across the world. I would also like to see the budget at ESMA increased – they have to represent 27 member states, and translate their regulations in all their languages. Any ambiguity in the regulations only gets worse when translated into local languages, making ESMA’s job harder.
Where does technology help the compliance profession and where could it help more?
There are a couple of areas where there is innovation taking place – monitoring and tracking regulations is something that machines can do well. For a human to absorb each new official document, track the changes and turn these into a compliance plan is hard, especially in a small team (we have a German provider solution). Another area is the creation and negotiation of legal documents. A few firms are developing platforms to move the industry away from Word and Email but it will take quite some time for large scale adoption and the use is limited to situations where there is a critical mass. Perhaps in the long run legal documents need to become machine readable and automated, as suggested by the recent paper from ISDA and Linklaters.
If you had three (professional) wishes, what would they be?
- Rewind the OTC market back to the year 2000 – things were simpler then!
- See more banks enter the market, not see less due to consolidation. More banks means more risk dispersion
- Global Rules better harmonised and avoiding possibility of regulatory arbitrage