Regtech Can Help Stop the New Regulations Blame Game Forever
- It's impossible to predict which parts of the legislation will become major pain points until it's implemented.
This article was written by Mark Holmes, CEO of Waymark Tech.
When it comes to Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority (FCA), the US’ Securities and Exchange Commission (SEC), Australian Security and Investment Commission (ASIC), and the Cyprus Securities and Exchange Commission (CySEC) are the most widely dealt with authorities in the FX industry.In its most basic sense, regulators help ensure the filing of reports and transmission of data to help police and monitor activity by brokers. Regulators also serve as a countermeasure against market abuse and malpractice by brokers. Brokers adhering to a list of mandated rules are authorized to provide investment activities in a given jurisdiction. By extension, many unauthorized or unregulated entities will also seek to market their services illegally or function as a clone of a regulated operation.Regulators are essential in snuffing out these scam operations as they prevent significant risks for investors.In terms of reporting, brokers are also required to regularly file reports about their clients’ positions to the relevant regulatory authorities. The most-recent regulatory push in the aftermath of the Great Financial Crisis of 2008 has delivered a material shift in the regulatory reporting landscape.Brokers typically outsource the reporting to other companies which are connecting the trade repositories used by regulators to the broker’s systems and are handling this crucial element of compliance.Beyond FX, regulators help reconcile all matters of oversight and are watchdogs for each industry. With ever-changing information and protocols, regulators are always working to promote fairer and more transparent business practices from brokers or exchanges. Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority (FCA), the US’ Securities and Exchange Commission (SEC), Australian Security and Investment Commission (ASIC), and the Cyprus Securities and Exchange Commission (CySEC) are the most widely dealt with authorities in the FX industry.In its most basic sense, regulators help ensure the filing of reports and transmission of data to help police and monitor activity by brokers. Regulators also serve as a countermeasure against market abuse and malpractice by brokers. Brokers adhering to a list of mandated rules are authorized to provide investment activities in a given jurisdiction. By extension, many unauthorized or unregulated entities will also seek to market their services illegally or function as a clone of a regulated operation.Regulators are essential in snuffing out these scam operations as they prevent significant risks for investors.In terms of reporting, brokers are also required to regularly file reports about their clients’ positions to the relevant regulatory authorities. The most-recent regulatory push in the aftermath of the Great Financial Crisis of 2008 has delivered a material shift in the regulatory reporting landscape.Brokers typically outsource the reporting to other companies which are connecting the trade repositories used by regulators to the broker’s systems and are handling this crucial element of compliance.Beyond FX, regulators help reconcile all matters of oversight and are watchdogs for each industry. With ever-changing information and protocols, regulators are always working to promote fairer and more transparent business practices from brokers or exchanges. Read this Term packages, there’s always a scramble to get over the finishing line. This Leads Leads Leads or lead generation are an essential component of marketing and powerful tool by brokers. In its simplest form, leads can be defined as the outreach of customer interest or enquiry into products or services, most often associated with brokerages.These can be created for purposes such as list building, e-newsletter list acquisition, or for sales leads. Amongst marketers, such lists are one of their most important assets and instrumental to sales.There are a variety of methods for generating leads that traditionally fall under the mantle of advertising. However, this may also include non-paid sources such as organic search engine results or referrals from existing customersHow Are Leads Generated?In the FX space, nearly every brokerage has their own list of leads. How exactly these are generated varies to some extent. Most come from a composite of sources or activities.Specific parameters on the Internet such as personal referrals, telephone calls, or even conference attendance either by the company or telemarketers, through advertisements are the most common examples of this.Indeed, content marketing, search engine, and events are all effective ways in bolstering leads over time and account for the highest concentration of lead generation.Leads are also a powerful took by marketers to pursue new clients. This can involve customer relationship management (CRM) technology or follow ups in the form of contacting.The goal of these contacts is the conversion into a client. Simply obtaining a list of leads does not always correlate to business. This is where sales, follow ups, or other methods come into play. Leads or lead generation are an essential component of marketing and powerful tool by brokers. In its simplest form, leads can be defined as the outreach of customer interest or enquiry into products or services, most often associated with brokerages.These can be created for purposes such as list building, e-newsletter list acquisition, or for sales leads. Amongst marketers, such lists are one of their most important assets and instrumental to sales.There are a variety of methods for generating leads that traditionally fall under the mantle of advertising. However, this may also include non-paid sources such as organic search engine results or referrals from existing customersHow Are Leads Generated?In the FX space, nearly every brokerage has their own list of leads. How exactly these are generated varies to some extent. Most come from a composite of sources or activities.Specific parameters on the Internet such as personal referrals, telephone calls, or even conference attendance either by the company or telemarketers, through advertisements are the most common examples of this.Indeed, content marketing, search engine, and events are all effective ways in bolstering leads over time and account for the highest concentration of lead generation.Leads are also a powerful took by marketers to pursue new clients. This can involve customer relationship management (CRM) technology or follow ups in the form of contacting.The goal of these contacts is the conversion into a client. Simply obtaining a list of leads does not always correlate to business. This is where sales, follow ups, or other methods come into play. Read this Term to compliance officers living for months or even years in a constant state of urgency. But why does implementation almost always end this way? And why can you always count on the problems being discovered late in day, rather than earlier on in the process?
Few things cause all the problems
The usual answer is that banks don't have enough detail to put the regulations into practice in a way that they are confident will satisfy the regulators. But in my view the problem is actually far simpler: we can’t identify the specific pain points in the legislation fast enough.
The London Summit 2017 is coming, get involved!
In the 514,000 words that comprise MiFID II and its guidance, there might only be three or four of these pain points that cause 80 per cent of the problems in implementation. For example, over recent months, a good proportion of ink has been spilled about research budgets – a single article in a massive piece of legislation.
These pain points aren’t only about clarity either. They may also result from how legislation overlaps or pulls in a different direction to other existing regulations on our statute books.
For example, MiFID II Article 16(6) and Article 16(7) require financial institutions to keep records of all client interactions and provide regulators with quick access to client data to ensure compliance; while GDPR Article 32(1)(a) requires the introduction of new safeguards and encryption procedures to make sure client data is always kept securely.
Clearly, this conflict poses a problem for compliance managers, and one which they must answer before they can start implementing MiFID II. If they don’t answer this question, they might end up having to rewrite or roll back very quickly at a later date – and risk being noncompliant for this period.
Bloomberg
Identifying these pain points ahead of time
The truth is that it’s almost impossible to predict which parts of the legislation will become major pain points until the industry starts actually trying to implement the legislation. You don’t know there’s a problem until it emerges. This is further complicated by the fact that legislation is also getting longer. The longer the regulations, the more difficult it is for people to identify specific pain points.
Given the length of the legislation, regulators also have to spend a lot of their time writing reams of secondary guidance. The recent Financial Conduct Authority guidance paper on MiFID II is 156 pages in length, which just goes to show how big a task implementation really is for industry, individual officers and the regulators.
If it was possible for the regulators to identify the specific pain points ahead of time, they could focus their energies on writing guidance on this topic first – which would stop the delays later in the implementation cycle.
Regtech is a viable two-way solution
There is no silver bullet for difficult problems like this. Implementing new financial regulations almost always end up in a blame game. Banks blame the regulators for a lack of clarity. The regulators blame the banks for not starting the process early enough.
But there are two ways that regtech can help. First, regtech can provide a digital environment for regulators, banks, and third parties to come together much earlier in the process to discuss implementation. Informal, real-time discussions would help everyone involved identify pain points early.
Formal consultations play an important role in this process. But in the age of the internet, it is now possible to have quick, informal discussions. You can imagine an online platform where regulators, banks, lawyers, and third parties are able to annotate primary legislation in real-time with questions, answers, or comments. This type of platform could be used to dramatically speed up the process of identifying pain points through collaboration. It is something that Waymark is working on right now.
Secondly, the latest AI also makes it possible for computers to digest legislation, and intelligently predict where the pain points will be right at the outset. This might not be perfect, but it will at least point regulators and financial institutions in the right direction.
AI can do this by ‘reading’ the primary legislation and flagging up the sections and paragraphs that it doesn't understand, plus highlighting potential overlaps and conflicts with other pieces of legislation incredibly quickly. This is similar to a type of tool that Waymark recently launched for a number of pilot clients. Think how useful this would be for regulators as well as firms. They could predict problems well ahead of time, and focus their energy of giving guidance there first.
Regtech has the potential to connect together the industry and regulators, inject clarity and speed, and share the burden of this avalanche of new regulations. If we work together we can finally lay to rest the problems surrounding implementation and stop the blame game forever.
This article was written by Mark Holmes, CEO of Waymark Tech.
When it comes to Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority (FCA), the US’ Securities and Exchange Commission (SEC), Australian Security and Investment Commission (ASIC), and the Cyprus Securities and Exchange Commission (CySEC) are the most widely dealt with authorities in the FX industry.In its most basic sense, regulators help ensure the filing of reports and transmission of data to help police and monitor activity by brokers. Regulators also serve as a countermeasure against market abuse and malpractice by brokers. Brokers adhering to a list of mandated rules are authorized to provide investment activities in a given jurisdiction. By extension, many unauthorized or unregulated entities will also seek to market their services illegally or function as a clone of a regulated operation.Regulators are essential in snuffing out these scam operations as they prevent significant risks for investors.In terms of reporting, brokers are also required to regularly file reports about their clients’ positions to the relevant regulatory authorities. The most-recent regulatory push in the aftermath of the Great Financial Crisis of 2008 has delivered a material shift in the regulatory reporting landscape.Brokers typically outsource the reporting to other companies which are connecting the trade repositories used by regulators to the broker’s systems and are handling this crucial element of compliance.Beyond FX, regulators help reconcile all matters of oversight and are watchdogs for each industry. With ever-changing information and protocols, regulators are always working to promote fairer and more transparent business practices from brokers or exchanges. Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority (FCA), the US’ Securities and Exchange Commission (SEC), Australian Security and Investment Commission (ASIC), and the Cyprus Securities and Exchange Commission (CySEC) are the most widely dealt with authorities in the FX industry.In its most basic sense, regulators help ensure the filing of reports and transmission of data to help police and monitor activity by brokers. Regulators also serve as a countermeasure against market abuse and malpractice by brokers. Brokers adhering to a list of mandated rules are authorized to provide investment activities in a given jurisdiction. By extension, many unauthorized or unregulated entities will also seek to market their services illegally or function as a clone of a regulated operation.Regulators are essential in snuffing out these scam operations as they prevent significant risks for investors.In terms of reporting, brokers are also required to regularly file reports about their clients’ positions to the relevant regulatory authorities. The most-recent regulatory push in the aftermath of the Great Financial Crisis of 2008 has delivered a material shift in the regulatory reporting landscape.Brokers typically outsource the reporting to other companies which are connecting the trade repositories used by regulators to the broker’s systems and are handling this crucial element of compliance.Beyond FX, regulators help reconcile all matters of oversight and are watchdogs for each industry. With ever-changing information and protocols, regulators are always working to promote fairer and more transparent business practices from brokers or exchanges. Read this Term packages, there’s always a scramble to get over the finishing line. This Leads Leads Leads or lead generation are an essential component of marketing and powerful tool by brokers. In its simplest form, leads can be defined as the outreach of customer interest or enquiry into products or services, most often associated with brokerages.These can be created for purposes such as list building, e-newsletter list acquisition, or for sales leads. Amongst marketers, such lists are one of their most important assets and instrumental to sales.There are a variety of methods for generating leads that traditionally fall under the mantle of advertising. However, this may also include non-paid sources such as organic search engine results or referrals from existing customersHow Are Leads Generated?In the FX space, nearly every brokerage has their own list of leads. How exactly these are generated varies to some extent. Most come from a composite of sources or activities.Specific parameters on the Internet such as personal referrals, telephone calls, or even conference attendance either by the company or telemarketers, through advertisements are the most common examples of this.Indeed, content marketing, search engine, and events are all effective ways in bolstering leads over time and account for the highest concentration of lead generation.Leads are also a powerful took by marketers to pursue new clients. This can involve customer relationship management (CRM) technology or follow ups in the form of contacting.The goal of these contacts is the conversion into a client. Simply obtaining a list of leads does not always correlate to business. This is where sales, follow ups, or other methods come into play. Leads or lead generation are an essential component of marketing and powerful tool by brokers. In its simplest form, leads can be defined as the outreach of customer interest or enquiry into products or services, most often associated with brokerages.These can be created for purposes such as list building, e-newsletter list acquisition, or for sales leads. Amongst marketers, such lists are one of their most important assets and instrumental to sales.There are a variety of methods for generating leads that traditionally fall under the mantle of advertising. However, this may also include non-paid sources such as organic search engine results or referrals from existing customersHow Are Leads Generated?In the FX space, nearly every brokerage has their own list of leads. How exactly these are generated varies to some extent. Most come from a composite of sources or activities.Specific parameters on the Internet such as personal referrals, telephone calls, or even conference attendance either by the company or telemarketers, through advertisements are the most common examples of this.Indeed, content marketing, search engine, and events are all effective ways in bolstering leads over time and account for the highest concentration of lead generation.Leads are also a powerful took by marketers to pursue new clients. This can involve customer relationship management (CRM) technology or follow ups in the form of contacting.The goal of these contacts is the conversion into a client. Simply obtaining a list of leads does not always correlate to business. This is where sales, follow ups, or other methods come into play. Read this Term to compliance officers living for months or even years in a constant state of urgency. But why does implementation almost always end this way? And why can you always count on the problems being discovered late in day, rather than earlier on in the process?
Few things cause all the problems
The usual answer is that banks don't have enough detail to put the regulations into practice in a way that they are confident will satisfy the regulators. But in my view the problem is actually far simpler: we can’t identify the specific pain points in the legislation fast enough.
The London Summit 2017 is coming, get involved!
In the 514,000 words that comprise MiFID II and its guidance, there might only be three or four of these pain points that cause 80 per cent of the problems in implementation. For example, over recent months, a good proportion of ink has been spilled about research budgets – a single article in a massive piece of legislation.
These pain points aren’t only about clarity either. They may also result from how legislation overlaps or pulls in a different direction to other existing regulations on our statute books.
For example, MiFID II Article 16(6) and Article 16(7) require financial institutions to keep records of all client interactions and provide regulators with quick access to client data to ensure compliance; while GDPR Article 32(1)(a) requires the introduction of new safeguards and encryption procedures to make sure client data is always kept securely.
Clearly, this conflict poses a problem for compliance managers, and one which they must answer before they can start implementing MiFID II. If they don’t answer this question, they might end up having to rewrite or roll back very quickly at a later date – and risk being noncompliant for this period.
Bloomberg
Identifying these pain points ahead of time
The truth is that it’s almost impossible to predict which parts of the legislation will become major pain points until the industry starts actually trying to implement the legislation. You don’t know there’s a problem until it emerges. This is further complicated by the fact that legislation is also getting longer. The longer the regulations, the more difficult it is for people to identify specific pain points.
Given the length of the legislation, regulators also have to spend a lot of their time writing reams of secondary guidance. The recent Financial Conduct Authority guidance paper on MiFID II is 156 pages in length, which just goes to show how big a task implementation really is for industry, individual officers and the regulators.
If it was possible for the regulators to identify the specific pain points ahead of time, they could focus their energies on writing guidance on this topic first – which would stop the delays later in the implementation cycle.
Regtech is a viable two-way solution
There is no silver bullet for difficult problems like this. Implementing new financial regulations almost always end up in a blame game. Banks blame the regulators for a lack of clarity. The regulators blame the banks for not starting the process early enough.
But there are two ways that regtech can help. First, regtech can provide a digital environment for regulators, banks, and third parties to come together much earlier in the process to discuss implementation. Informal, real-time discussions would help everyone involved identify pain points early.
Formal consultations play an important role in this process. But in the age of the internet, it is now possible to have quick, informal discussions. You can imagine an online platform where regulators, banks, lawyers, and third parties are able to annotate primary legislation in real-time with questions, answers, or comments. This type of platform could be used to dramatically speed up the process of identifying pain points through collaboration. It is something that Waymark is working on right now.
Secondly, the latest AI also makes it possible for computers to digest legislation, and intelligently predict where the pain points will be right at the outset. This might not be perfect, but it will at least point regulators and financial institutions in the right direction.
AI can do this by ‘reading’ the primary legislation and flagging up the sections and paragraphs that it doesn't understand, plus highlighting potential overlaps and conflicts with other pieces of legislation incredibly quickly. This is similar to a type of tool that Waymark recently launched for a number of pilot clients. Think how useful this would be for regulators as well as firms. They could predict problems well ahead of time, and focus their energy of giving guidance there first.
Regtech has the potential to connect together the industry and regulators, inject clarity and speed, and share the burden of this avalanche of new regulations. If we work together we can finally lay to rest the problems surrounding implementation and stop the blame game forever.