Managers need their regulatory ducks in a row

From Global Investor Group:

By Clement Miglietti, Chief Product Officer, NeoXam

With the Brexit trade negotiations on hold, a lot remains up in the air, but initial signs highlight strong differences, with equivalence being a high-profile sticking point for the financial sector. While it is too early to predict specifics there is still chance that no agreement on equivalence will be reached, meaning reporting requirements to UK and EU regulatory authorities will likely begin to diverge. This may seem far away now, but investment managers can ill afford not to start-planning now to get ahead of any changes and maximise their reporting efficiency. After all, the UK has to until June 30 to request an extension to the transition period.

In a situation where an agreement on equivalence is not reached, no new UK-related trade or transaction data would be received by ESMA, while the FCA would stop sending data to ESMA. Regulatory divergence is likely to follow as while there are areas in which the FCA and ESMA agree on, differences between the two regulatory bodies have been very high profile, such as the FCA’s criticism of ESMA’s fund rules last year.

If this divergence does occur, then investment managers would need to put two separate systems in place in order to fulfil the different regulatory requirements of the EU and the UK. They will need to have the ability to make changes in their UK market data without affecting their European reporting commitments and vice versa. This means that if the FCA was to issue new rules and thresholds, or tweak existing ones, UK asset managers with branches in multiple jurisdictions would immediately need to comply with any new requirements.

With both the UK and EU due to publish equivalence assessment reports, investment managers need to get ahead of the curve and begin to ascertain what exactly needs to be reported, to whom and when. By establishing this now companies will be in a much better place to react to any changes, ensuring that they are avoiding both non-compliance and over-reporting after the initial grace period after the transition phase.

Ensuring that minimum reporting requirements are met is just one piece of the puzzle facing investment managers. The potential confusion created by no agreement on equivalence is just one problem as companies are currently operating in an incredibly tough regulatory environment, with regulations such as Mifid II, hitting the bottom line of many mid-sized firms. To compound problems further, additional difficulties exist on the horizon as volatile market conditions, which are set to continue, further increase the reporting burden faced by companies.

In the face of these challenges, investment managers are looking to maximise the efficiency of their reporting process in order to drive down costs. In the face of uncertainty around the Brexit trade talks, and the current market turmoil, investment managers are still looking to grow and expand into new markets, which have varying regulatory requirements. As a result, investment managers shouldn’t think of this process simply through the lens of damage control.  In case no equivalency deal is reached, streamlining their internal regulatory processes now will increase efficiency, and facilitate potential future expansion. 

All difficult scenarios have potential benefits. But if investment managers start reviewing their regulatory reporting processes now, they will not only be prepared for the case of no equivalence but will be able to increase efficiency, driving down costs.

Related insights

Download NeoXam brochure

Neoxam needs the contact information you provide to us to respond to your inquiry. You can withdraw your consent at any time. To learn more about the protection of your personal data, we invite you to read our Privacy Policy.