SFTR Continuous Compliance challenge
21 January 2020
Firms must look inwards to break down silos and outwards to smooth-out market-wide data inconsistencies to effectively solve the challenges posed by SFTR and other new rule-sets coming down the pipe
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The Bank of England’s ‘Dear CEO’ letter in October 2019, regarding the reliability of regulatory returns focusing on the importance of maintaining regulatory quality and diligence on a continuous basis post go-live, highlighted that some banks have dropped below the regulatory standards required.
While the letter was focused mainly on Financial Reporting Standards (FINREP) and Common Reporting Framework (COREP) reporting the principle will apply to all regulatory reporting obligations.
We believe that banks have an opportunity to adopt a consolidated, consensus model for SFTR continuous compliance. In this article I discuss some of the challenges and a potential solution.
Banks struggle to keep up with the volume of notifications being published by multiple regulators.
In 2015, Deloitte estimated there were 43,000 regulatory updates globally. In 2019, Thomson Reuters estimated there is a new regulatory alert issued every seven minutes. The Securities Financing Transactions Regulation (SFTR) can be expected to add to this overhead.
For the securities finance industry, the SFTR regulation is both comprehensive and complex.
The March 2017 technical standards had 394 pages, the December 2019 XML schema doc had 660 pages, the January 2020 guidance notes had 216 pages, the final report a further 90 pages.
Following detailed analysis of all the associated regulatory documentation and the industry best practice publications, Delta Capita has developed a detailed understanding of the regulation and the reporting challenges. As a result of working with 11 tier-one banks on our standardised SFTR test packs we are also providing traceability (at clause level) to the regulatory and best practice documents. This is mapped to a standard Bank Securities Finance Operating model – data, processes and systems.
Challenge
For any updates or regulatory amendments pre- and post-go live, notifications need to be filtered to identify which are relevant based on the bank’s specific footprint.
It can be difficult for banks to understand which functions of the bank the regulatory change will impact and the impact it will have on their global operating model, systems and people.
Furthermore, banks find it challenging to implement a strategic solution to regulatory compliance as banks’ often siloed approach to change results in a fragmented response at all levels.
As different functions of the bank are often impacted, multiple stakeholders are often tasked with implementing regulatory compliance, yet are not aligned to a single SFTR regulatory agenda resulting in inconsistent and duplication of processes, effort and spend and different interpretations internally within a bank resulting in multiple compliance activities, which are not aligned.
The securities finance industry itself is not aligned and so the SFTR regulation is often interpreted differently which can lead to further challenges in exception management for example.
There is an ever-increasing dependency on key people as the structure of banks are often changing. Knowledge needs to be captured otherwise it’s lost and a consistent ongoing controls function for regulatory compliance needs to be maintained, managed and enforced. Without a strategic approach to continuous compliance tactical changes often fail and cause thousands of technology related remediation actions.
An example requiring active on-going maintenance is the management of exceptions (NAKs) from each trade repository, with an intuitive investigation mechanism, to support NAK remediation.
In our experience most banks implement a new compliance obligation within their ‘reg change’ function. The ongoing reliability of returns obligation commonly sits within the business ‘BAU’ team. It is often this team that carries any future compliance penalties and fines and therefore a risk mitigation approach would be valuable to address the challenges identified.
Solution
In Delta Capita’s opinion, banks would benefit from aligning with a single regulatory change agenda:
They need a solution that addresses SFTR regulatory change across multiple functions thus enabling headcount reduction.
It needs to be scalable and provide a single repository for all requirements, broken down by a single functional model of the bank.
The solution needs to cater for the compliance requirements on go-live and looking forward.
Banks need an aggregated view of compliance across SFTR, that covers all asset classes and entities.
This will give the bank improved command, control, continuity and regulatory transparency and decrease compliance risks.
Post SFTR go-live (for sell side banks on 13 April), there will be significant duplication of effort across the market to track, understand and maintain the required levels of compliance returns.
At Delta Capita as a result of our innovative RegTech initiative on SFTR we will be proposing an SFTR Continuous Compliance service. The solution facilitates a controlled and transparent test strategy for SFTR and enables a comprehensive control solution for ongoing SFTR compliance.
Key benefits:
Ongoing completion of regulatory analysis and production of associated business requirements and functional designs derived from the originating regulation.
Create a client operating model for efficient processing of future regulatory change requirements, reducing duplication of effort and application of best practice processes.
Fully governed and auditable process with full traceability of the change to the SFTR regulation, to support client regulatory analysis, to support client business requirements, to support client functional design to build and test.
Provides an on-line portal to access the service model with visual tracking and monitoring.
Delta Capita’s dedicated teams quickly deliver a thorough solution to any ongoing amendments and changes at a competitive price point reducing ongoing Reg BAU costs and risks.
While the letter was focused mainly on Financial Reporting Standards (FINREP) and Common Reporting Framework (COREP) reporting the principle will apply to all regulatory reporting obligations.
We believe that banks have an opportunity to adopt a consolidated, consensus model for SFTR continuous compliance. In this article I discuss some of the challenges and a potential solution.
Banks struggle to keep up with the volume of notifications being published by multiple regulators.
In 2015, Deloitte estimated there were 43,000 regulatory updates globally. In 2019, Thomson Reuters estimated there is a new regulatory alert issued every seven minutes. The Securities Financing Transactions Regulation (SFTR) can be expected to add to this overhead.
For the securities finance industry, the SFTR regulation is both comprehensive and complex.
The March 2017 technical standards had 394 pages, the December 2019 XML schema doc had 660 pages, the January 2020 guidance notes had 216 pages, the final report a further 90 pages.
Following detailed analysis of all the associated regulatory documentation and the industry best practice publications, Delta Capita has developed a detailed understanding of the regulation and the reporting challenges. As a result of working with 11 tier-one banks on our standardised SFTR test packs we are also providing traceability (at clause level) to the regulatory and best practice documents. This is mapped to a standard Bank Securities Finance Operating model – data, processes and systems.
Challenge
For any updates or regulatory amendments pre- and post-go live, notifications need to be filtered to identify which are relevant based on the bank’s specific footprint.
It can be difficult for banks to understand which functions of the bank the regulatory change will impact and the impact it will have on their global operating model, systems and people.
Furthermore, banks find it challenging to implement a strategic solution to regulatory compliance as banks’ often siloed approach to change results in a fragmented response at all levels.
As different functions of the bank are often impacted, multiple stakeholders are often tasked with implementing regulatory compliance, yet are not aligned to a single SFTR regulatory agenda resulting in inconsistent and duplication of processes, effort and spend and different interpretations internally within a bank resulting in multiple compliance activities, which are not aligned.
The securities finance industry itself is not aligned and so the SFTR regulation is often interpreted differently which can lead to further challenges in exception management for example.
There is an ever-increasing dependency on key people as the structure of banks are often changing. Knowledge needs to be captured otherwise it’s lost and a consistent ongoing controls function for regulatory compliance needs to be maintained, managed and enforced. Without a strategic approach to continuous compliance tactical changes often fail and cause thousands of technology related remediation actions.
An example requiring active on-going maintenance is the management of exceptions (NAKs) from each trade repository, with an intuitive investigation mechanism, to support NAK remediation.
In our experience most banks implement a new compliance obligation within their ‘reg change’ function. The ongoing reliability of returns obligation commonly sits within the business ‘BAU’ team. It is often this team that carries any future compliance penalties and fines and therefore a risk mitigation approach would be valuable to address the challenges identified.
Solution
In Delta Capita’s opinion, banks would benefit from aligning with a single regulatory change agenda:
They need a solution that addresses SFTR regulatory change across multiple functions thus enabling headcount reduction.
It needs to be scalable and provide a single repository for all requirements, broken down by a single functional model of the bank.
The solution needs to cater for the compliance requirements on go-live and looking forward.
Banks need an aggregated view of compliance across SFTR, that covers all asset classes and entities.
This will give the bank improved command, control, continuity and regulatory transparency and decrease compliance risks.
Post SFTR go-live (for sell side banks on 13 April), there will be significant duplication of effort across the market to track, understand and maintain the required levels of compliance returns.
At Delta Capita as a result of our innovative RegTech initiative on SFTR we will be proposing an SFTR Continuous Compliance service. The solution facilitates a controlled and transparent test strategy for SFTR and enables a comprehensive control solution for ongoing SFTR compliance.
Key benefits:
Ongoing completion of regulatory analysis and production of associated business requirements and functional designs derived from the originating regulation.
Create a client operating model for efficient processing of future regulatory change requirements, reducing duplication of effort and application of best practice processes.
Fully governed and auditable process with full traceability of the change to the SFTR regulation, to support client regulatory analysis, to support client business requirements, to support client functional design to build and test.
Provides an on-line portal to access the service model with visual tracking and monitoring.
Delta Capita’s dedicated teams quickly deliver a thorough solution to any ongoing amendments and changes at a competitive price point reducing ongoing Reg BAU costs and risks.
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100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
