The facilities are aimed at helping firms address the post-trade implications of a Securities and Exchange Commission (SEC) July 2023 rulemaking that mandated central clearing for a wide range of U.S. Treasury (UST) securities transactions including cash, repurchase agreements (repos) and reverse repos.

The UST market sees daily transactions averaging over $700 billion in cash and $4.5 trillion in financing, making it vital for U.S. government funding, monetary policy, and as a safe haven for global investors. The market has grown rapidly and disproportionately where currently, 87% of this trading activity is cleared bilaterally.

Several liquidity events over the past decade highlighted vulnerabilities in the treasury market where the systemic risk of a non-participant failing required mitigating. The SEC’s final rule, adopted in December 2023, aims to expand central clearing to mitigate such counterparty and systemic risks.

The new rule seeks to transition a substantial portion of the daily US $4.9 trillion treasury market activity to central clearing through a central counterparty (CCP). Currently, the only authorised CCP for the UST market is FICC. However, other CCPs have expressed interest, among them London Clearing House (LCH).

Tools of the Trade

The first of the new FICC tools, a Capped Contingency Liquidity Facility (CCLF) Calculator, is designed to increase the transparency into the financial obligations associated with membership in the FICC Government Securities Division (GSD).

The CCLF is a critical risk management facility designed to provide FICC with additional liquidity resources to meet cash settlement obligations in the event of a default by the largest netting members (see DTCC Risk Management Tools). By allowing firms to estimate their potential CCLF obligations, the calculator aids in better liquidity planning and risk management. This can make FICC membership more attractive and manageable for a broader range of market participants, including smaller institutions and buy-side firms.

The calculator helps firms anticipate and plan for the liquidity commitments required under the new SEC clearing mandates. By providing upfront attestations regarding their ability to meet CCLF obligations, firms can ensure they are prepared to comply with the expanded central clearing requirements for U.S. Treasury securities.

Tim Hulse, Managing Director of Financial Risk & Governance at DTCC, emphasized that VaR is a key risk management concept and a primary component of GSD’s Clearing Fund requirements. The calculator uses historical data, volatility, and confidence levels to estimate VaR, thus enhancing market transparency. It allows market participants to calculate potential margin obligations for given positions and market values using FICC’s VaR methodology.

Hulse highlighted the urgency of evaluating firms’ risk exposure with the expansion of U.S. Treasury Clearing, noting that the VaR calculator offers increased transparency into these obligations.

These tools are public and not restricted to member firms This means that as firms consider their optimal approach to access central clearing for compliance with the the new clearing rules, these risk tools can provide the necessary transparency and support as firms evaluate the different types of membership and models with GSD.

The SEC has introduced several measures to make FICC access more inclusive. FICC offers multiple membership models, including Netting Membership, Agented Clearing, Sponsored Membership, and Centrally Cleared Institutional Triparty (CCIT) Membership, catering to a wide range of market participants from large banks to hedge funds. The SEC has provided temporary regulatory relief to address custody and diversification concerns for registered funds.

CCIT membership primarily benefits institutional cash lenders such as corporations, asset managers, insurance companies, sovereign wealth funds, pension funds, municipalities, and State treasuries. It allows these entities to engage in tri-party repo transactions with enhanced risk management and operational efficiency provided by FICC. The central clearing of these transactions helps reduce counterparty risk, ensure the completion of trades, and potentially offer balance sheet netting and capital relief for participants.

The Securities Industry and Financial Markets Association (SIFMA) is actively coordinating multiple work streams that involve both buy-side and sell-side members. These efforts aim to accelerate the necessary transitions for the clearing mandates. Key aspects include engaging with the SEC and other regulatory agencies to address market access issues, particularly for registered funds and margin transfers, which are crucial for ensuring a smooth transition to central clearing.

Developing an operations timeline with key milestones is another critical task. This timeline will guide the transition to full central clearing by June 2026 for repos. Addressing issues related to market plumbing and connectivity is also vital to support the increase from 13% to 100% clearing. This involves ensuring that all participants can effectively connect to and use the central clearing infrastructure.

Regular communication with market participants is planned to keep them informed about progress and strategies for meeting the clearing deadlines. This will include updates on the status of various strategies and the overall progress towards the deadlines. SIFMA will also engage in regular discussions with the SEC and other agencies to ensure they are aware of the progress and any potential needs for timeline adjustments or phased rollouts.

Legal and enforceability issues will be addressed by obtaining netting enforceability opinions in relevant jurisdictions to support large-scale clearing. This step is closely tied to the development of market standard documentation. Additionally, new documentation approaches that leverage modern communication methods will be evaluated to increase efficiency.

Stakeholder engagement is essential to confirm the status of various strategies and ensure alignment with the clearing deadlines. SIFMA plans to reach out to market participants regularly to keep them informed and engaged. This will help ensure that all participants are on track to meet the clearing mandates.

Lastly, future planning includes preparing for additional publications and podcasts to keep the membership and broader public informed about ongoing efforts around Treasury clearing. This will ensure that everyone remains updated on the progress and any developments related to the central clearing mandate.

The post DTCC FICC Releases Tools to Help Firms Address Incoming SEC Central Clearing Mandate appeared first on A-Team.

By David Turmaine, Head of International at Broadridge Consulting Services, and Maria Siano, Head of International Strategy at Broadridge.

Today’s digital world is increasingly complex, characterised by interconnected systems and data that is stored, and widely shared, online. Looking through a financial services lens, cyber threats and incidents are becoming more sophisticated, posing significant risks to financial stability and security.

The number of attack vectors has multiplied in line with the growing reliance on technology and associated spike in remote and decentralised working since the pandemic. A recent survey by the BCI, the global body for resilience professionals, revealed three-quarters of respondents had seen a rise in attempted breaches over the last year, with nearly 40% the victim of a successful cyber-attack.

The system modernisation and digitalisation journey that firms around the world are now undertaking, often to align with market developments such as the shortening of the settlement cycle to T+1, is filled with risks – which has led to a heightened regulatory focus on cybersecurity and operational resilience.

Against this backdrop, the EU’s Digital Operational Resilience Act (DORA) has come into force and in-scope firms – such as banks, investment firms, and designated fintechs – must be compliant from January 17, 2025.

DORA seeks to establish a clearer foundation for security and operational resilience in the financial services sector, while also aligning with other EU measures on cybersecurity and data. It is the most comprehensive resilience regulation currently yet seen in this space, but the thinking is reflected by other jurisdictions around the world, with regulators increasingly demanding that financial institutions bolster their operational resilience.

Japan, for example, has introduced the Economic Security Promotion Act (ESPA), whilst the Australian Prudential Regulation Authority (APRA) has published a new Prudential Standard (CPS 230 Operational Risk Management) that will direct how regulated entities manage operational risks, resilience, and business continuity. In July 2023, the US Securities and Exchange Commission (SEC) adopted rules requiring registrants to disclose material cybersecurity incidents.

What are the main components of DORA?

DORA is the most in-depth regulation to date aimed at strengthening cybersecurity amongst financial institutions.

It is seen as a means of compelling more firms to work internally, and with their third-party information and communications technology (ICT) service providers, to improve their threat assessments, cyber incident management, and overall resilience. It is also a positive step towards a more harmonised EU framework that will enhance the digital operational resilience of financial services across the region whilst preventing widespread contagion that could undermine the financial stability of the bloc.

DORA is structured around five pillars, which cover governance, resiliency, incident management, and reporting. A common thread is the protection of data as it passes through both a financial institution and then the ecosystem around it, such as vendors.

The first pillar is ICT risk management, which mandates firms to implement robust risk management practices for their systems to prevent cyber-attacks and disruptions. They must also develop and maintain effective recovery and continuity plans to ensure the uninterrupted provision of critical financial services in the event of a cyber incident.

The second pillar is incident management, with DORA requiring entities to establish and maintain robust mechanisms for identifying, classifying, and recording incidents. Additionally, financial institutions will be required to report significant incidents to regulators within a tight timeframe to ensure timely responses and coordination.

The third pillar is digital operational resilience testing, and here we see some of the newer demands that firms must now quickly familiarise themselves with. Firms must conduct regular resilience testing to verify the effectiveness of their digital resilience strategies, and this includes advanced threat-led penetration testing at least every three years to address higher levels of risk exposure. Test results will need to be sent to the regulator for validation and approval.

The fourth pillar relates to third party risk management and oversight. Recognising that the digital operations of many organisations are closely intertwined with third party providers, DORA puts an emphasis on managing the risks associated with these external partners. Firms will be expected to conduct enhanced due diligence on their providers and include provisions in their contracts to ensure they also comply with strict digital resilience standards.

The final pillar outlines the importance of sharing information and intelligence about cyber threats and vulnerabilities amongst organisations. By creating a more collaborative environment, the hope is firms can tap into a wealth of knowledge and experiences, building their capacity to predict and address challenges. This collective understanding can foster the creation of effective policies and proactive strategies, ultimately improving the digital resilience of individual organisations and the financial industry as a whole.

The key steps to building operational resilience

DORA will place further pressure on firms to implement better cybersecurity measures and bolster their operational resilience in the coming years, but it is already front of mind for many in the financial services industry.

Broadridge’s 2024 Digital Transformation & Next-Gen Technology Study highlighted that in the next two years, financial firms will boost their investments in cybersecurity by nearly a third (28%). Furthermore, cybersecurity is the top capability that executives expect from their technology vendors, outpacing their ability to deliver projects on time and on budget.

As we look towards the DORA compliance date next January, what steps should firms be taking to build up their operational resilience?

It is crucial to assess existing business practices and processes, and identify the gaps, when it comes to meeting the DORA requirements. This will enable firms to create a robust roadmap for compliance whilst implementing stronger ICT risk management practices.

The first thing for firms to do is to ensure they fully digest and understand the regulation, and how it impacts their business model. They can then correlate that against what is already in place for their operational resiliency. Firms then need to identify their risk factors and map them against DORA, as well as their existing enterprise risk framework.

These steps will allow firms to effectively carry out their remediation planning. Resiliency in the past has typically been quite inward looking, with a focus on ensuring their own house is in order. DORA shifts the dial and will mandate them to now extend this externally across third party vendors and strategic partners, analysing the critical paths for the critical functions, whether that is trade data, settlement data, or any other element.

Firms will need a complete line of sight so they can take an informed risk decision on each of their current resiliency stances and provisions in order to make sure they are compliant with DORA.

For larger firms, their size will make it more difficult to locate the risks. They will often have hundreds of internal applications and platforms they will need to dissect to understand the interdependencies and find the critical paths that hold the data. They will also need to ascertain the risks across their vendor community.

For smaller firms, the challenge will be finding the right people to guide this, who can do it alongside their day job. They may struggle to get this project shaped and delivered on time. And they should not underestimate the resources needed to do a thorough analysis and then implement the changes DORA requires. They will also need to effectively ensure ongoing regulatory compliance, which can be costly.

Continuous improvement is an objective of DORA. Some elements of the regulation are prescriptive in terms of duration and frequency – such as annual testing of all critical ICT systems, and the advanced threat-led penetration testing every three years. But it will also be important for firms to make sure they refer back to the regulation and remain compliant whenever they change their IT footprint by acquiring new technology, which potentially introduces new vulnerabilities.

Unlocking new benefits

Whilst the journey towards DORA compliance is complex, it is also one that can unlock significant benefits for ambitious financial services firms.

This includes improved cyber defences; DORA will help financial institutions to enhance their cybersecurity measures and protect their critical systems and data from increasingly sophisticated cyber threats.

By improving long-term operational resilience, DORA can also help to reduce the financial impact of cyber incidents and other disruptions, ultimately saving organisations from costly recovery efforts.

Financial firms can instil greater confidence amongst their customers and stakeholders by demonstrating their ongoing commitment to safeguarding digital assets and services. And, perhaps most importantly, given the increased interconnectivity of firms, DORA can drive greater resiliency across financial markets as a whole. It can help to safeguard the stability of the whole, as well as its parts.

The post DORA: Preparing the Pathway to Enhanced Operational Resilience appeared first on A-Team.

Corlytics is Byrne’s fourth company. He describes how, after the 2018 financial crisis, experiences at his prior company shaped the insights and innovation that would become Corlytics.

“If you look back at the early 2000s, banking was about the P&L but after 2008, banking and the capital markets became about the balance sheet and risk. Compliance and operations practitioners were seeing risk in lots of different places that they’d never seen before.”

This shift in the perception of critical success factors revealed the importance of understanding and managing the settlement risks of complex financial instruments. Regulators globally began looking deeper into the activities of banks and financial service companies, particularly those considered to be systemically important financial institutions (SIFIs).

With an extensive background in fund accounting and post-trade operations, Byrne recognised a growing gap between the understanding of how regulations should be interpreted versus their operational implementation, and a new venture was conceived.

Corlytics launched in late 2013 and Byrne’s aim was to bridge that gap by treating regulation as a class of risk requiring careful management. By risk-ranking regulations and updates into a clear set of obligations, firms could use this to shape and maintain policies that reflect the latest regulatory expectations.

Cognitive Dissonance

Byrne describes the emergence of a “cognitive dissonance” in the financial sector, where “the lawyers could understand the regulation but couldn’t implement them, and the people implementing the regulations didn’t fully understand them and the resulting exposures.”

To address this, Corlytics adopted an alternative approach to regulatory compliance. As Byrne explains “I wanted to look at regulation as a class of risk, rather than just something that had to be done. In many parts of banking and post trade, people take a risk-based approach to credit risk, market risk and counterparty risk. And I felt we should take a risk-based approach to legal and regulatory risk, hence the name Corlytics (compliance risk analytics).”

Corlytics’ foundation was also rooted in Byrne’s desire to combine expertise from different fields, and, like his previous company, he chose to start Corlytics in a university setting, as a campus-based company. This setting fostered an interdisciplinary collaboration with PhDs in law and data science, aimed at building a robust business capable of tackling the complexities of modern regulatory compliance.

Byrne’s previous experience in operationalizing various aspects of banking and post-trade processes, such as fund accounting and corporate actions, provided a strong basis for Corlytics’ mission. In his words, “I wanted to bridge the knowing-doing loop, ensuring that regulations weren’t just understood but effectively implemented.”

Growth Strategy

Last year the company acquired regulatory lifecycle platform ING Sparq and policy management platform Clausematch. Earlier this year, specialist growth investor Verdane took a majority equity stake in the company and has committed to accelerating both organic growth and M&A.

In May the company acquired a RegTech platform from Deloitte UK adding considerable breadth and domain expertise to further Corlytics’ capabilities, from interpreting regulatory change, to mapping and validating policies and implementing controls.,

Corlytics has established strong relationships with 12 of the top 50 SIFIs. Corlytics has also established a strong presence with non-bank payment processors. Byrne points out that “most of the top 10 payment companies in the world are not banks, but technology companies.” These include giants like PayPal, Amazon, and Google. Corlytics has secured about 50% of the market share in this space.

Regulatory Coverage

At the same time, the scope and depth of regulatory scrutiny continues to increase. In the UK, the Financial Conduct Authority (FCA) has introduced the Senior Managers and Certification Regime (SMCR) that requires senior managers to have statements that clearly outline their regulatory responsibilities. These managers are permitted to delegate certain responsibilities to other individuals within the firm, provided they ensure that these delegations are appropriate and properly overseen?.

This is having organizational impacts as Byrne has observed, “if you look at the senior persons regime, it’s very typical now within an enterprise, not just to organize regulations by business units, but actually to start organizing regulations, policies and controls by ‘accountable executive’.”

This has huge implications on the technology, since accountable executives must now be able to demonstrate that the controls they supervise reflect the latest version of the regulations and that these are clearly defined in the latest version of their policies.

Data Science

Corlytics keeps an open mind on the adoption of new technologies but the primary criteria for selecting the latest AI and ML techniques is model accuracy. “We try to work to a level of accuracy of 99% or greater because if a firm is going to automate compliance, it needs very high levels of accuracy. Human error is about 98%, so, by setting a target above the level of human error, ensures you’re automating to a high standard” explains Byrne.

Corlytics combines extensive backtesting on historical data with regulatory subject matter expertise to validate model accuracy.

One consequence of prioritising high accuracy is the need for detailed examination of use cases, in particular when considering advanced AI techniques – GenAI and LLMs. Corlytics approach is to use Gen AI in combination with other techniques rather than just on its own. Byrne sees the value-add of these techniques as a new search technology, particularly for the higher volume, lower risk use cases e.g. ‘can I accept that gift?’, or ‘does this comply with the expense policy?’

Byrne continues “but for a more complex, high-risk use case – e.g., a swaps trader asking, ‘can I put on this trade?’ – we might use something else”

GenAI and LLMs become extremely expensive in compute and storage cost compared the traditional AI when deployed at scale. Also, there’s a growing awareness of the carbon footprint these technologies generate, and Byrne cautions to not fall into the trap of “using a sledgehammer to crack a nut.”

Regulatory Convergence

The convergence of events on the regulatory calendar and regulators adopting a big-bang approach across multiple jurisdictions is creating severe stress on global firms governance risk and compliance (GRC). In some cases, firms are being forced to consider whether it makes economic sense to remain in certain markets.

Regulatory harmonization is a worthy goal but it’s hard enough getting alignment across the regulators within a single jurisdiction, let alone globally. In the meantime, it will be up to the RegTech sector to take the lead as Corlytics has demonstrated with two significant projects.

One of Corlytics’ early projects, making the FCA Handbook machine-readable, was a major step in bridging the gap between text based regulatory content and implementation by the covered entities. Corlytics created the taxonomy (a mechanism for classifying and categorising information) which is structured into sourcebooks and manuals and covering the various sectors and compliance aspects including conduct standards, prudential standards, and reporting requirements.

Byrne’s recounts his experience in creating a regulated subsidiary at his previous firm and being confronted by the original version of the handbook. “If you were to print it out on double-sided paper, it would stand about seven feet tall.”

Each section is methodically organized into modules, sub-modules, and chapters for easy navigation. The handbook’s machine-readable features include XML and JSON formats, enabling automated compliance checks and integrations with RegTech solutions. Byrne recalls, “the FCA CEO at the time describing the initiative as the democratisation of the handbook.” The project went live in 2017.

Corlytics completed a similar project at the Financial Industry Regulatory Authority (FINRA) on the FIRST Rulebook that went live in 2022. With many small firms among its members, FINRA wanted to make sure these smaller players could get value from the website recalls Bryne. “So, we created the taxonomy and redesigned all of the documents making them easy to tag and search. Both FINRA and the FCA have a competition mandate so creating a level playing field for both large and smaller firms is important.”

There are indications that other regulatory authorities are starting to embrace the idea of making their regulations machine readable, but for now, the FCA and FINRA are the thought leaders in this space and Corlytics innovation helped make that happen.

The post Managing Cognitive Dissonance in Regulatory Compliance with Corlytics appeared first on A-Team.

The RegTech Insight Awards recognise established providers and innovative newcomers that offer solutions that are successfully improving firms’ ability to respond effectively to evolving and ever more complex regulatory requirements across the global financial services industry. Winners are selected by A-Team Group’s independent, expert advisory board in collaboration with its editorial team.

Chris Dingley, chief executive of Single Rulebook, spoke to RegTech Insight about the importance of winning this award and explained why and how Single Rulebook was developed and outlined the benefits it can deliver.

A-Team: What does winning A-Team Group’s 2024 RegTech Insight Europe award for Best Solution for Regulatory Change Management mean to Kaizen?

Chris: We are delighted. It’s recognition for all the hard work and effort that our team has made over the last year to develop the platform further and it also recognises the unique Law Compare solution that we have developed with Linklaters, which makes it easier for firms to manage not only regulatory change but also differences in regulation across jurisdictions.

A-Team: What types of capital markets clients does Single Rulebook work with?

Chris: Single Rulebook is a software solution that enables clients to search, share and manage regulatory rules on one digital platform. It was established with the aim of making regulation manageable and easy.

Through powerful and dynamic rule maps, Single Rulebook’s user interface promotes collaboration, and information sharing.

It is especially helpful to banks, asset management companies and law firms – enabling them to work more efficiently with changes and updated to financial regulation. More than just a search tool, the platform also integrates with a client’s own systems and delivers an audit trail of regulatory change and decision making, saving time and cost.

A-Team: What challenges are these clients facing?

Chris: There are three main challenges:

• Ever-changing and new regulations: Global regulation is continually evolving. Not only are new rules introduced but existing rules are continually tweaked and updated. It can be time consuming trying to locate a specific piece of regulation and ensuring it’s the most recent version.
• Sharing and collaborating effectively on regulation: Legal interpretations of regulatory rules need to be kept up to date, shared and communicated across large organisations which can become unmanageable and a company’s view of regulation can change over time.
• Keeping an audit trail of regulatory interpretations and implementation: Firms must demonstrate compliance with each applicable rule and their pathway to regulatory compliance. Some leeway is provided in the initial period after a new piece of regulation is introduced, however regulators’ expectations become more stringent over time and it’s important to be able to demonstrate immediate compliance to auditors and regulators. Spreadsheets and email chains are not effective tools for showcasing a firm’s regulatory interpretations and the implementation of rules. It’s important to demonstrate operational change and regulatory compliance efficiently and Single Rulebook can do this digitally and in real-time.

A-Team: How does Kaizen help customers address these challenges?

Chris: Single Rulebook provides one digital source for regulatory research, making life much easier for legal and compliance teams, with employees able to retrieve regulatory text and rules quickly and efficiently.

Single Rulebook uses natural-language processing to improve many workflows and processes so that regulatory opinion and interpretations can be shared and accessed digitally on one common platform. It provides the functionality to annotate regulation so that the company’s approved stance can be accessed by all team members.

In 2023, we developed Law Compare in conjunction with Linklaters to support their in-house teams and provide their clients with quick and easy access to regulatory comparisons and guidance on the differences and changes brought about by diverging EU and UK MiFID II regimes.

The online Law Compare tool provides a single authoritative source of the most up-to-date regulation and guidance, and offers full coverage of EU and UK MiFID II regimes, from Directives, Regulations, Regulatory Technical Standards to Level 3 guidance, with the potential to extend to other areas of regulation. The legislation hosted on the Single Rulebook platform is complemented by Linklaters’ guidance which provides an invaluable record of the firm’s legal views, interpretation and comments relating to specific provisions and areas of EU-UK divergence.

A-Team: How will you develop the solution over the next year?

Chris: The year ahead will see further regulatory change across many global regulations, particularly in the UK and Europe, with the EMIR Refit and upcoming amendments to MiFID II.

It’s essential that firms can not only keep abreast of these changes but also compare versions. We’re looking forward to continuing to help our clients manage regulation and make it easier for them to navigate the changes ahead. We also have lots of exciting developments and new projects in the pipeline for Single Rulebook, which we will be sharing over the course of the coming months.

The post Kaizen’s Single Rulebook Wins Award for Best Solution for Regulatory Change Management in A-Team Group RegTech Insight Awards Europe 2024 appeared first on A-Team.

Financial institutions now face the challenge of updating their systems, policies, processes and procedures to meet these new regulatory demands, proving once again that in the world of global finance, change is the only constant.

The MiFIR Refit introduces several key changes and updates to the existing framework, aimed at enhancing transparency, improving data quality, and optimising market operations. The implementation is being phased in over a two-year period.

The regulation became official with its publication in the Official Journal on April 14 and entered into force on May 4.

One of the immediate and most debated impacts of this regulation is the prohibition on brokers accepting Payment for Order Flow. This ban is designed to eliminate conflicts of interest, ensuring brokers act in the best interests of their clients.

Another immediate change is the elimination of annual best execution reports for execution venues. This is being replaced by a new consolidated tape system, which will provide comprehensive market data, including the best bid and offer information.

By May of 2025, several significant milestones must be achieved:

ESMA will complete its 12-month assessment of the inclusion of Alternative Investment Fund Managers (AIFMs) and management companies in the scope of transaction reporting

Trading venues and systematic internalisers (SIs) must comply with real-time data access requirements to ensure all market participants have timely access to crucial trading information.

Financial institutions must be ready to adopt standardized reporting formats by this date.

The development and implementation of Regulatory Technical Standards (RTS) by ESMA is another critical aspect of the MiFIR Refit. These standards, which will manage trading halts, price collars, and other market structure enhancements, are expected to be developed and implemented by November 4, 2025.

The consolidated tape system (CTS) is a major structural change and is targeted to be fully operational by May 2026. The initial setup and framework for data submission by contributors and the selection of consolidated tape providers (CTPs) will occur over a two-year period ensuring a smooth transition to the new system. CTPs will provide a unified source of trade information by asset class.

In summary, the MiFIR Refit introduces a structured implementation schedule with key milestones designed to enhance market transparency, data quality, and operational efficiency. Financial institutions and market participants must adhere to these timelines to comply with the new regulatory framework.

Enhanced Regulatory Oversight

The scope of transaction reporting under MiFIR is expanded to potentially include Alternative Investment Fund Managers (AIFMs) and management companies. ESMA will assess this inclusion over the next 12 months.

Investment firms can now act as designated publishing entities for specific financial instruments, improving the clarity and responsibility of transaction reporting. ESMA will maintain a public register of these entities.

Prohibition of Payment for Order Flow (PFOF) prohibits brokers from receiving fees, commissions, or non-monetary benefits from third parties for order execution or forwarding. This aims to eliminate conflicts of interest and ensure that brokers act in the best interests of their clients.

While the prohibition took effect in May, Member States may exempt firms under their jurisdiction from this prohibition until June 30, 2026. Regulatory authorities will monitor brokers’ activities and impose penalties for non-compliance. Brokers must also provide clear and transparent disclosures about their order execution policies.

The introduction of a consolidated tape for each asset class will provide necessary market data, including best bid and offer information, replacing the need for separate reports. As a result, the requirement for execution venues to publish annual best execution reports has been permanently suspended.

Pending Standards

ESMA is consulting on three new regulatory technical standards (RTSs) under the MiFIR to enhance market transparency and data quality. The first standard focuses on pre- and post-trade transparency for non-equity instruments such as bonds, structured finance products, and emissions allowances. This standard aims to ensure timely and clear trade information for stakeholders while balancing the need for real-time transparency with the ability to defer publication when necessary.

The second standard mandates that pre- and post-trade data be made available on a reasonable commercial basis (RCB). This is to ensure that market data is accessible, fair, and non-discriminatory. The consultation includes discussions on the cost-based nature of fees and the applicable reasonable margin, aiming to make this data affordable for users while maintaining fair access.

The third standard addresses the obligation to provide high-quality instrument reference data suitable for both transaction reporting and transparency purposes. The proposed amendments aim to align this data with other relevant reporting frameworks and international standards, thereby improving data quality and consistency across the board.

At this time, feedback from stakeholders is still being collected, and ESMA will publish a final report and submit the draft technical standards to the European Commission by the end of the fourth quarter of 2024. This review process is crucial for ensuring that the technical standards effectively support the regulatory objectives of MiFIR.

Market Structure Enhancements

ESMA is developing RTSs to manage trading halts, price collars, and other market structure enhancements ensuring better market stability during volatility. These are planned to be rolled out by November 4, 2025.

Enhanced disclosure requirements for commodity derivatives is introduced to curb speculative activities and improve market oversight.

The Double Volume Cap (DVC) mechanism under MiFIR has undergone significant changes aimed at enhancing market transparency and simplifying the regulatory landscape. The updated MiFIR now introduces a single volume cap set at 7% for trading under the reference price waiver. This replaces the previous double volume cap system, which had separate thresholds for individual venues and the entire EU market. By consolidating the thresholds into a single 7% cap, the regulation aims to reduce complexity and ensure a more straightforward approach to monitoring and controlling dark trading activities.

Changes to systematic Internalisers (SI’s) quoting obligations will require technology updates to ensure compliance with new minimum quote size requirements and facilitate better pricing transparency.?Equity SIs must now make public firm quotes based on a minimum size determined by regulatory technical standards (RTS). Non-equity SIs are no longer obligated to publish firm quotes but may do so voluntarily.

Improved Data Quality and Transparency

The regulation requires real-time publication of data to ensure all market participants have timely access to the same information, crucial for making informed trading decisions and maintaining a fair market.

Trading venues and SIs must ensure the accuracy, completeness, and consistency of their data, covering transaction details, order book data, and post-trade information. The introduction of standardized reporting formats is designed to create a more transparent and cohesive market environment.

MiFIR Refit enhances the scope and consistency of transaction reporting by introducing new data fields and aligning reporting standards across EMIR, SFTR, and MiFIR. This standardization facilitates easier comparison and consolidation of data across different platforms.

Technology Impacts

The consolidated tape is a significant component of the MiFIR Refit, aiming to aggregate trade data from multiple sources into a single, unified view for each asset class. This initiative is designed to enhance market transparency, reduce information asymmetry, and improve the quality of market data available to investors.

As of now, the groundwork for the consolidated tape initiative, including the legislative framework and initial criteria for CTP selection are in place.

The consolidated tape system is expected to be fully operational by May 4, 2026. This timeline allows for the necessary steps to be completed, including the selection and approval of CTPs, the setup of data submission frameworks, and the establishment of robust data aggregation and dissemination systems.

Financial institutions will need to update their reporting systems for real time processing and to accommodate new data fields and harmonized reporting standards across EMIR, SFTR, and MiFIR.

The MiFIR Refit and MiFID II updates represent significant steps towards a more transparent, resilient, and competitive financial market environment in the European Union. Financial institutions must adapt to these changes by enhancing their governance frameworks, streamlining reporting workflows, improving data management practices, and updating their technology infrastructure to comply with new regulatory requirements. These efforts are intended to provide a more efficient and investor-friendly market landscape.

View our full agenda and more details here.

The post Navigating the MiFIR Refit in 2024 appeared first on A-Team.

While these requirements are well-understood, they are hard to implement. But emerging AI-powered solutions are beginning to show efficiency gains in compliance use-cases, with the promise of making the regulatory data management and reporting process more efficient.

To explore the current landscape of regulatory reporting, identifying key challenges and practical solutions, A-Team is hosting its Best Practices in Regulatory Reporting webinar on July 16.

In this webinar, we’ll delve into next-generation best practices and innovative technologies, including domain trade data, AI, and machine learning. Our experts will discuss actionable insights on implementation, ensuring you walk away with practical strategies.

You’ll hear from Jehangir Abdulla, Head of Back Office Development at Schonfeld Strategic Advisors LLC.  

Jehangir will be joined by Unmesh Bhide, Director, Securitized Products Valuations at LSEG Data & Analytics and Joshua Beaton Head of Non-Financial Regulatory Reporting (NFRR) at Wells Fargo. 

Finally, Paul Rennison, Director, Corporate Strategy at deltaconX, will be on hand to share his 25 years of experience working for the likes of the London Stock Exchange, Trayport, FIS and now with the Swiss regulatory transaction reporting specialists, deltaconX. Speaking with RegTech Insight Rennison had this message for prospective attendees:

“I think being able to report and manage and track internally up to executive level has been really, really difficult. And I think if you’ve done this alone, i.e. you’ve not used a technology provider who has multiple other clients and experiences, the current low levels of transparency have created unease and uncertainty about whether you are complying. Regardless that this is a market-wide problem not being able to get shared validation of your experiences has made the whole experience far more damaging, I think it is important for people to know that what they are experiencing isn’t unique and it will get better but the experience has been worse for some and that is not a great outcome.”

Don’t miss out on this opportunity to hear about best practices for regulatory reporting and opportunities to unlock significant operational and business benefits.

Register now to discover:

• The current state of regulatory reporting
• The necessity of adopting new approaches
• The latest technologies, services, and solutions
• Practical guidance for seamless implementation
• The operational and business advantages of modernized regulatory reporting

The post Regulatory Reporting: Best Practices in 2024 and Beyond appeared first on A-Team.

Although the figure dropped by 15% from a year, 43% of survey respondents said bans were their preferred solution. That said, the survey also found that 79% of firms are using communication surveillance technology to identify and mitigate against misconduct and culture risk.

Channel Bans

Despite many firms banning WhatsApp at work to mitigate non-compliant off-channel communications, only 50% of respondents believed channel bans alone would withstand regulatory scrutiny.

Enforcement Actions

The report highlights the significant fines issued by U.S. regulators, totalling nearly $450 million, including $81 million in penalties against 16 firms in February.

“Financial institutions are reacting in response to the substantial regulatory penalties,” continued Viall.

“They have got the message and are implementing strategic compliant solutions that ensure the capture, storage, and monitoring of all essential business communication channels. This is no easy task. Compliance and risk officers are more aware that banning social media channels and forbidding the use of personal mobile devices are impractical measures that are difficult to enforce. Many are still in the planning phase but all are tackling this and prepared to show stakeholders and regulators how they best plan to manage off-channel communications.”

RegTech Insight was able to sit down with Viall and discuss the market’s response to the enforcement actions where he noted that” the markets were shocked by the severity of the actions when there was no evidence of harm (i.e. no market abuse violation).”

BYOD and Behavioural Issues

Contrary to industry perception, Bring You Own Device (BYOD) policy usage has increased from 36% in 2023 to 53% in 2024. In response to enforcement actions over personal device usage for business communications, 45% of respondents have clarified their BYOD policies, with 17% moving away from BYOD altogether.

Behavioural issues and “getting staff to comply” was cited as the biggest challenge to e-comms compliance in 2024 with 65.2% of respondents saying it’s the biggest concern when ensuring compliance with business communications policy. This is an increase of 3.7 percentage points over 2023 which indicates the issue of instilling a culture of more compliant behaviour not only persists but is possibly becoming more challenging.

Technology Challenges and AI Adoption

In 2024, the number of respondents that said they have difficulty capturing and storing communication data across all channels has risen by 3.9% to 27%, up from 23.1% in 2023. Conversely, 23.4% of respondents said that they had difficulty monitoring all communication channels in 2024, which has decreased significantly from 53.8% in 2023.

The report finds general uncertainty about AI in financial compliance, with 17% seeing it as a risk, 10% as a reward, and 32% as both. Despite this caution, 42% of global respondents plan to introduce AI to compliance workflows in the next 12 months, while 57% have no plan to. Notably, 65% of North American firms have no plans to introduce AI within the next year, demonstrating a reticence compared to their European and global counterparts.

Viall noted that over recent months he’s seen “massive improvements” in GenAI and LLM capabilities to the point where voice capture, transcription and translation are now at a level of quality where they can make a significant difference in the e-Comms compliance space.

The post Financial Firms Reliant on Management by Policy for Comms Compliance, Survey Finds appeared first on A-Team.

FRTB was finalized in January 2016 and initially scheduled for implementation by January 2019. However, following feedback from market participant and regulators, the implementation was delayed. The new target date for compliance was revised to January 2023, with full adoption expected by January 2025. The majority of regulatory jurisdictions are targeting this implementation date except for the United States which will start its phased roll-out in July 2025 with anticipated completion by 2028.

One of the primary objectives of FRTB is to enhance the risk sensitivity of the capital framework for market risk. The existing framework under Basel II.5 was criticized for its inability to adequately capture certain risk exposures, particularly during periods of market stress.

Another objective is limiting opportunities for regulatory arbitrage. This refers to the practice of exploiting differences between regulations to gain an advantage, often leading to risk being transferred in ways that are not transparent or adequately capitalized. FRTB aims to reduce opportunities for such arbitrage by providing clearer criteria for the boundary between the trading book and banking book, ensuring that similar risks are treated consistently regardless of where they are booked.

By improving risk sensitivity and reducing arbitrage, FRTB is expected to lead to an increase in capital requirements for market risk. This ensures that banks hold sufficient capital to cover potential losses, thus enhancing the overall resilience of the banking sector. This increase in capital is necessary to address the underestimation of risks observed under the previous framework and to restore confidence in the capital adequacy of banks.

The New Rules and Data Impacts

The FRTB imposes strict requirements to ensure a clear and clean separation between trading book and banking book transactions. This separation is crucial to mitigate regulatory arbitrage and accurately assess and manage risks associated with each book. The additional data requirements necessary to maintain this separation include:

• Each transaction must be clearly classified as either trading book or banking book based on its intent and characteristics. This involves detailed tagging of transactions with metadata that indicate their book classification.
• Maintain comprehensive transaction-level data including trade date, settlement date, instrument type, and purpose of the trade to support the classification.
• Establish and document policies and criteria for classifying transactions into trading or banking books. This documentation should include the rationale for classification decisions and be reviewed regularly.
• Maintain robust audit trails to track the decision-making process for classifying transactions. This includes records of approvals, changes, and reviews to ensure transparency and accountability.
• Use consistent data formats and standards across systems to ensure data integrity and facilitate aggregation and reporting.
• Implement regular data reconciliation processes to ensure that data across trading and banking books are accurate and up to date.
• Implement data quality controls such as validation checks, error detection mechanisms, and data cleansing procedures to maintain high-quality data.
• Establish a single, authoritative source of data (golden source) to ensure consistency across different systems and reports.
• Ensure that data related to trading book transactions are updated in real-time or near real-time to reflect intraday trading activities accurately.
• Implement continuous monitoring systems to detect any discrepancies or anomalies in the classification and reporting of transactions.
• Develop comprehensive reporting frameworks that meet regulatory requirements for both trading and banking books. Reports should include detailed breakdowns of positions, risk exposures, and capital requirements.
• Generate internal reports to support management and oversight functions, providing insights into the risk profile and performance of both books.
• Collect and maintain data on risk factors relevant to both trading and banking books, ensuring that these are properly attributed and segregated.
• Ensure availability and accuracy of market and reference data used for pricing, risk assessment, and capital calculation purposes.

The new rules under FRTB impose stricter requirements for the use of internal models, including rigorous validation processes and backtesting. This is designed to ensure that models used to calculate capital requirements are reliable and accurately reflect the risk exposures.

By standardizing the methodologies and criteria for calculating market risk capital requirements, FRTB helps ensure that the risk-based capital ratios are comparable across banks globally. This consistency is crucial for maintaining a level playing field and for stakeholders to accurately assess and compare the risk profiles of different institutions.

The New Modelling Approaches

The revised Standardized Approach (SA) and Internal Models Approach (IMA) under the FRTB offer distinct methodologies for calculating market risk capital requirements, each with unique data demands and implications.

The SA is more prescriptive and designed to be universally applicable across all banks. It introduces a Sensitivities-Based Method (SBA), which calculates risk based on specific sensitivities (Delta, Vega, and Curvature) across seven defined risk classes. This approach relies heavily on standardized risk weights and correlations provided by regulators, necessitating accurate and granular data from banks’ pricing models to derive capital requirements. The SA capital charge is composed of three main components: the SBA, the Default Risk Charge (DRC), and the Residual Risk Add-on (RRA), each of which has its own data requirements for precise calculation of risk exposures.

In contrast, the IMA allows banks to use their internal risk models, subject to regulatory approval and ongoing performance testing. This approach shifts from the traditional Value at Risk (VaR) method to an Expected Shortfall (ES) methodology, which better captures the risk of extreme market movements and tail events. The IMA requires banks to perform daily profit and loss attribution tests and backtesting at the trading desk level, demanding a higher granularity of data on individual trades and risk factors.

Additionally, the IMA requires comprehensive historical data to model the expected shortfall accurately and to manage non-modellable risk factors (NMRFs), which necessitates frequent data observations to ensure robustness and compliance. NMRFs are subject to standardized charges if they do not meet data availability criteria.

The key difference in data requirements between the SA and IMA lies in the level of granularity and the frequency of data needed. The SA relies on standardized regulatory inputs and is thus less data-intensive in terms of internal calculations. However, it still requires precise input data to apply the prescribed risk weights and correlations effectively. The IMA, on the other hand, demands a much more detailed and continuous flow of data, including high-frequency observations and extensive historical datasets, to validate internal models and meet stringent regulatory standards

These differences underscore the need for robust data management systems and advanced analytics capabilities, particularly for banks opting for the IMA, which faces more stringent data demands to ensure model accuracy and regulatory compliance.

Expected Shortfall (ES) vs Value at Risk (VaR)

Expected Shortfall (ES), also known as Conditional Value-at-Risk (CVaR), is a risk measure used to assess the risk of extreme losses in a portfolio. Unlike Value-at-Risk (VaR), which only provides the potential loss at a certain confidence level, ES gives an average of the losses that occur beyond the VaR threshold.

ES is determined by selecting a confidence level (97.5% or 99%), calculate VaR which represents the threshold loss value, identify all the losses that exceed the VaR threshold and calculate the average of the tail losses. This average represents the Expected Shortfall.

The data requirements for calculating Expected Shortfall (ES) differ from those for Value-at-Risk (VaR) in several key ways:

VaR requires historical data to calculate the loss distribution up to a specified quantile (e.g., the worst 1% of losses for a 99% confidence level).

ES on the other hand requires additional data to assess the distribution of losses beyond the VaR threshold. This means not only identifying the worst losses but also calculating the average of these extreme losses, which demands a more detailed loss distribution analysis.

VaR focuses on the quantile threshold and does not consider the magnitude of losses beyond this point whilst ES needs granular data on all losses in the tail beyond the VaR threshold. Accurate ES calculation depends on having sufficient data points in the tail to reliably estimate the average loss.

VaR can be estimated using simpler models such as historical simulation, variance-covariance, or Monte Carlo simulation. ES requires more sophisticated modelling techniques to accurately capture the tail behaviour of loss distributions. This includes advanced statistical methods and more complex simulation techniques to ensure the tail losses are well understood and averaged correctly.

VaR backtesting involves comparing the VaR estimates to actual losses to see how often actual losses exceed VaR. ES validation is more challenging because it requires that the average of the tail losses is accurate. This involves deeper statistical analysis and validation against observed tail losses.

FRTB Progress – a Tale of Two Continents

In Europe, the FRTB framework is being integrated into the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD) packages. The European Banking Authority (EBA) has provided detailed guidelines and timelines, with initial reporting requirements using the Standardized Approach (SA) starting back in 2021 and a clear path towards full compliance by 2025

This timeline aligns with the UK’s implementation plan, where the Prudential Regulation Authority (PRA) is working towards the same 2025 deadline.

European banks have been active in their preparations, with major institutions like BNP Paribas, Deutsche Bank, and Intesa Sanpaolo already applying for internal model approach (IMA) approvals from the European Central Bank (ECB).

Japan, Canada, and Switzerland have finalized their domestic rules, with Canada and Japan bringing these rules into force by mid-2024. Australia’s implementation is set for January 2025. In the United States, while detailed rulemaking is still pending, regulators have indicated a phased approach, with significant movement expected following the Advanced Notice of Proposed Rulemaking (ANPR) later this year.

Many banks in the Asia Pacific region are favouring the IMA approach, reflecting their commitment to adopting more sophisticated and risk-sensitive models

In contrast, the U.S. approach has been more cautious, with regulators taking additional time to assess the potential impacts on the domestic banking sector. While European banks are moving towards more standardized and prescriptive regulatory frameworks, U.S. regulators are considering a more flexible approach that takes into account the unique characteristics of the U.S. financial markets and the need for a balanced regulatory burden.

There has also been strong resistance to any additional capital requirements from some of the strongest voices in the industry. Jamie Dimon, Chairman and CEO of JPMorgan Chase, has been vocal in his criticism of the Basel III Endgame, including its implications for the Fundamental Review of the Trading Book (FRTB). In his remarks to the Senate Banking Committee in December 2023, Dimon highlighted several concerns regarding the new regulatory framework.

Dimon emphasized that the Basel III Endgame, which includes FRTB, could lead to a significant increase in capital requirements for banks. He argued that this could have harmful effects on the banking sector by reducing lending capacity and increasing costs for consumers. Specifically, Dimon pointed out that the proposal would raise capital requirements for large banks by 20-25%, which he believes could stifle economic growth and innovation within the financial industry.

He also highlighted the complexity and operational challenges associated with implementing the FRTB framework. Dimon noted that the increased data and technological demands required to comply with FRTB would place a substantial burden on banks, particularly in terms of upgrading their risk management systems and ensuring data quality.

In summary, Jamie Dimon has expressed significant concerns about the potential negative impacts of the Basel III Endgame and FRTB on the banking industry, emphasizing the increased capital requirements and operational complexities that could arise from these regulations.

The U.S. implementation of FRTB will begin on July 1, 2025, with a phased approach culminating in full compliance by July 1, 2028. This timeline is part of the broader Basel III “endgame” reforms aimed at enhancing the robustness of the financial system by addressing shortcomings in the current market risk framework. The U.S. regulatory agencies, including the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC), have proposed these changes to align with international standards while considering the unique aspects of the U.S. banking system. More details can be found here – Interagency Overview of the Notice of Proposed Rulemaking for Amendments to the Regulatory Capital Rule.

Staggard Timelines Raise New Concerns

The staggered implementation dates of the FRTB between the United States and other regions, particularly Europe, present several challenges for financial institutions operating across multiple jurisdictions. These challenges include regulatory arbitrage, operational complexities, competitive disparities, and difficulties in achieving consistent risk management practices.

Different implementation timelines can create opportunities for regulatory arbitrage, where firms exploit the differences in regulations to gain a competitive advantage. For instance, banks might shift trading activities to jurisdictions with less stringent or delayed regulations to benefit from lower capital requirements temporarily. This could undermine the global financial stability that FRTB aims to enhance by ensuring consistent risk management standards worldwide.

Financial institutions with global operations will need to manage and comply with different regulatory timelines, which can be operationally challenging. This involves maintaining multiple sets of risk management systems, reporting frameworks, and compliance protocols to meet the varying requirements. The need for dual reporting and parallel systems increases the operational burden and can lead to inefficiencies and higher costs.

Banks in regions where FRTB is implemented earlier, such as Europe, may face higher capital requirements and stricter risk management standards before their U.S. counterparts. This could place European banks at a competitive disadvantage, as they would need to allocate more capital to cover market risks sooner than U.S. banks. The disparity in implementation could affect the pricing of financial products and the competitive landscape of global financial markets.

Achieving consistent risk management practices across different jurisdictions becomes more challenging with staggered implementation dates. Global banks need to ensure that their risk management frameworks are robust enough to comply with the most stringent standards while managing the transition in regions with delayed implementation. This inconsistency can lead to fragmented risk management practices and potential gaps in risk coverage, impacting the overall effectiveness of FRTB.

Coordinating with multiple regulatory bodies across different timelines requires effective communication and strategic planning. Financial institutions must stay abreast of regulatory updates, interpret diverse regulatory expectations, and engage in proactive dialogue with regulators to ensure compliance. The lack of synchronized implementation can lead to confusion and increased regulatory scrutiny, complicating the compliance landscape for global banks.

Despite these challenges, the implementation of FRTB is designed to address critical deficiencies in the previous market risk framework by enhancing risk sensitivity, reducing regulatory arbitrage, improving model governance, increasing capital requirements, and promoting consistency across jurisdictions, and strengthening the stability and resilience of the global banking system.

The post FRTB Compliance – New Rules and Data Challenges for Global Banks appeared first on A-Team.

RegTech Insight

Could you share some background on these two purchases and how the pieces will fit together?

Richmond

We agreed a strategic investment from HG in March 2024 – see Cube and Hg Unite – and that was very purposeful for us in the market. We think there’s a significant need in the RegTech sector for companies to have scale, which is needed to deliver the level of capability – and infrastructure – that will ensure data quality is paramount. The comprehensiveness and accuracy of what we do is critical for us and for our customers. That means you need to have lots of different resources that co-exist alongside the technology, AI, and infrastructure to deliver high-quality solutions that ‘don’t miss.’ We deliver solutions that our customers can trust to meet their regulatory requirements.

RegTech Insight

So, it’s really about achieving scale?

Richmond

That’s really what it comes down to. We’ve enjoyed strong growth as a leading tech platform in regulatory intelligence, and we’ve signed many amazing customers globally. We’ve done very well as a firm already, but that’s just the start of Cube’s journey. We see a market opportunity aligned with our strategy to integrate highly adjacent firms that complement the Cube platform and service. We focus on financial services, banking, asset management, investment management, payments infrastructure, and insurance. These areas are all highly synergistic – both in terms of customer focus, as well as adjacent industries.

Reg-Room and the global regulatory intelligence businesses at Thomson Reuters have fantastic pools of subject matter experts (SMEs), regulatory experts, legal experts, researchers, editors, and journalists who have all been creating huge amounts of content over the last 20 years. That expertise is invaluable for augmenting and improving our solutions, which means we can provide more human-curated and human-in-the-loop services. We can now leverage a huge amount of data and human expertise in regulatory analysis, impact assessments, and summarisations.

This purposeful targeting of the acquisitions we’ve done in quick succession gives us absolute scale and synergy with our product proposition. The new combination brings a wealth of data learning, rich expertise, and accelerated R&D and innovation. The data is crucial, providing highly curated, structured, high-quality information for learning and model training.

This is a powerful combination and will allow to innovate and serve a broader set of global customers. We’ll be able to go faster and deliver truly transformative work. With a thousand customers globally, we now have a critical mass to determine what to solve for tomorrow. That’s not to take away what the team has done until today in terms of delivering a strong platform, but we aim to represent the industry more effectively in the future given our larger customer base. We believe we sit in an unparalleled position in the market.

This might look like everything’s happened very fast at Cube and, yes, we’ve been incredibly busy in the last few weeks, but this is very much part of a long-term strategy. We didn’t just come up with a plan overnight. In terms of the long-term goal, we will have all our customers on the Cube platform.

These acquisitions bring complementary technology and product capabilities. We’re integrating the best features into the Cube platform, focusing on unification. It’s all about one Cube, not multiple products in the market.

RegTech Insight

AI has been part of the Cube story from the beginning. Can you discuss where you see frontier AI technologies – generative AI and LLMs – in the Cube roadmap?

Richmond

We use AI extensively across everything we do, from computer vision and data structuring to NLP for text classification and extraction. We also use machine learning for data capture and in-product applications, improving based on customer interactions. In the world of GenAI, we’ve developed our proprietary language model and use LLMs for summarising regulatory obligations, understanding imperative statements, and identifying key topics in regulations.

We’ve built a proprietary language model for regulatory analysis, which we use extensively. We’re pioneering the delivery of AI that customers can use in many ways. We know that more advanced data learning and generative models will further augment and automate compliance processes, which achieves better compliance and also transforms internal efficiencies.

RegTech Insight

Having effectively digitised the path from Regulation to a set of obligations that can be automatically checked against Internal Policy and Procedure, the next step would seem to be connecting this to production systems and measuring compliance as processes are being executed. How are customers leveraging Cube interoperability with internal systems and controls?

Richmond

This involves automating the mapping of customer obligations to policies, procedures, and controls. We aim to provide granular, risk-based insights and full traceability for customers. The next stage is measuring adherence to control requirements related to obligations and creating industry standards and benchmarks. We can present this data in a way that connects to internal processes, helping customers implement and measure compliance effectively.

We have an API that our customers use. We have solutions today where customers will call our API to be able to work out what the regs are in a customer onboarding process or for the mortgage account opening process. So, we see regs at the infrastructure level as rules that can be consumed by machines. “Decision by Machine” is a key part of our roadmap, and that’s part of how Cube is already being used today.

RegTech Insight

FINRA and FCA both make their regulations machine-readable to facilitate regulatory intelligence, but regulatory harmonisation still feels a long way off. How are you finding working with regulators in other geographies?

Richmond

There are two observations to make here. First, the regulatory environment is very pro-quality solutions and technology that can help improve compliance, so we get a lot of positive engagement, good support, and collaboration from the regulators.

But the second challenge always remains: there isn’t the same join-up and the same way in which regulations are produced, classified, and taxonomised. And alongside this, there are differences of interpretation across jurisdictions.

t’s the role of Cube to enable the customer to be fully informed of what they need to know about, we help to remove that cross-jurisdictional cross-regulator complexity.

This means customers can make the right decision but do it in a fully informed way. Then, work with regulators as effectively as possible, possibly via APIs. But really, it’s about good dialogue and good collaboration.

RegTech Insight

How does Cube handle translation with regulations published in multiple languages?

Richmond

Language support is crucial, given the variety of languages regulations are published in. We use multiple translation engines and our proprietary models to ensure high-quality translations. About 7,000 languages are spoken worldwide, but fortunately, only about 70 languages are used for publishing regulations. We have built models around each of these 70 languages to ensure accurate translations. Without consistency and accuracy in translation, everything else falls apart.

We use different engines that are best at handling the core languages, and we overlay our proprietary capabilities to ensure high-quality translation. This process includes our team of 25 regulatory linguists who help train these models and ensure they can detect and interpret regulatory language nuances. Accurate translation is fundamental because it drives the classification of regulations and their applicability, making consistency and accuracy critical for our solutions.

The post Cube Scales Globally with Two Strategic Acquisitions appeared first on A-Team.

This year’s RegTech Insight Awards Europe included more than 30 categories ranging from Best Solution for Sell-Side Regulatory Compliance to Best Transaction Reporting Solution, Best Trade Surveillance Solution, Best Client On-Boarding Solution, Best Cloud-Based Solution for Regulatory Compliance, Best Solution for Buy-Side Regulatory Compliance, Best Solution for Sanctions Management, Best Regulatory Data Solution, and more.

An editor’s recognition award for European RegTech Industry Professional of the Year was given to Dawd Haque, Global Lead Market Initiatives, Regulatory Transformation and Strategy at Deutsche Bank.

Andrew Delaney, President and Chief Content Officer at A-Team Group, said: “Congratulations to the award winners and thank you to all the vendors that entered A-Team Group’s RegTech Insight Awards Europe 2024, to our RegTech Insight community that voted for its preferred solutions, and to our independent, expert advisory board that worked in collaboration with our editorial team to select this year’s winners.”

A complete list of winners and their solutions can be found in the RegTech Insight Awards Europe 2024 report.

You can find out more about A-Team Group awards, which also cover data management, trading technology and ESG here.

The post A-Team Group Announces Winners of RegTech Insight Awards Europe 2024 appeared first on A-Team.