The wave of new regulations being deployed is being seen as “just layers of costs on top of the business” by some compliance leaders, according to Axioma managing director and head of risk solutions Ian Lumb.
Financial services have had a tough time in 2018 to make sure their systems were ready for the three big regulations to launch, PSD2, MiFID II and GDPR. Since the Global Financial Crisis there has been this strong wave of regulations hitting financial institutions. Increased regulations can be met with both open arms and despair, as while they can help the market, they can bring a lot of costs and potentially fines.
The main challenges that are facing those at financial institutions is the scope, velocity and volatility of regulatory and market change, according to Lumb. Some of the changes have required a lot of upheaval of legacy systems, and others have needed entirely new solutions. Both of these tasks take a lot of time and money to complete. However, the biggest thing that is worrying organisations is just keeping up with all the changes that are happening at the moment.
While institutions are making the effort to adapt their solutions and meet the necessary compliance requirements, they are doing it begrudgingly. Ian Lumb believes compliance leaders are looking at the level of regulation as a “massive headache” and not as an opportunity but “just layers of costs on top of the business.” The main reason for this is because they are not optional, but are compulsory and do not always make sense.
He said, “Case in point: days-to-trade in fixed income is a tenuous concept in a principal market that is not exchange traded. Regulators are asking for things that are not necessarily easy to deliver or natural concepts, and that makes all this even harder.”
The number of regulations institutions have to adhere to, is set to continue. The implementation deadline for Basel III is March 2019, and the final deadline date for the Fundamental Review of the Trading Book Business is December 2019. The fifth anti-money laundering directive, which is set to help combat money laundering and terrorism funding, was adopted in April and it is expected to be implemented by the end of 2019. Earlier in the week, it was reported that the UK is still set to adopt the new EU regulation.
The RegTech sector has been a hot-bed for investment over the past four years and there are no signs of this changing soon, according to data by RegTech Analyst. The sector is currently on its fourth consecutive year of growth, having gone from $750m invested through 108 deals in 2014, to $1bn deployed over 11 deals last year. The first half of 2018 has already seen more than double the capital invested than last year, with a total of $2.5bn raised by just 74 companies already.
However, Lumb perceives the RegTech Challenge as both a problem and as an opportunity. The smart players in the space are seeing the changes as a catalyst to improve their operations and resolve issues which have previously been unfixable. These are the ones that are investing into the technology and are preparing for the future of regulations.
Axioma’s clients are among the financial institutions that are looking to adapt and are interested in whether the company can keep up with the changes in the regulatory environment. Lumb believes that Axioma’s agility and flexibility of its aggregation and APIs enables them to do so, by tailoring different solutions to the various specific needs.
Ian Lumb said, “Axioma Risk is a native cloud-built offering, designed with flexible analytics and reporting in mind. It has hosted data, open interfaces and a web-service based REST API which can be easily integrated with OMS and PMS platforms, reporting solutions or ad hoc test cases. Our Regulatory reporting product is designed to streamline operations, both technologically and in direct submission to regulators.”
Founded in 1998, Axioma is a provider of enterprise risk management, portfolio construction, and risk and regulatory reporting solutions and APIs. It develops and markets innovative risk analysis, portfolio rebalancing and performance attribution products for the global financial services industry. This helps leading financial firms manage risk, increase returns and improve operational efficiency.
The evolution of technology, such as APIs and cloud services, are giving institutions a new sense of flexibility to meet the demands of the regulations.
“Thanks to all this [advancement of technology], the regulators are now getting swamped with information—far more than they’ve ever had before. Regulators are now able to check consistency of reporting and callout institutions that are not being consistent in their reporting, due to a lack of stability in their meta data. So, it’s only going to get more interesting.”
Last year, the risk management sub-sector of RegTech received the biggest share of funding, representing 21 per cent of the total $1bn that was deployed to startups globally, according to data by RegTech Analyst. The space’s share of total investment jumped by 15 per cent, compared to 2016, as solution providers looked to address fraud and trading risks for financial institutions. One of the big deals in the space was Riskified, a Tel-Aviv based fraud prevention solution provider, which raised $33m in series C funding in Q2 2017.
RegTech is being looked at by some financial institutions as a fantastic opportunity but there are also those that are still not sold on the idea and see it as a problem. The benefits a RegTech solution can bring are widely reported, improving efficiency, lowering risk, improving accuracy and so on, but for some the costs out-weigh the benefits.
He added, “There are some who view RegTech as a risk—one that locks them into external vendors. They’re comfortable with their self-managed and self-installed point solutions on their own legacy hardware. But that is a very short-sighted view and that world is shrinking rapidly, because shareholders, COOs and regulators are forcing them to be more efficient, faster to market and reducing costs along the way to mirror the squeezed margins in asset management industry.”
Copyright © 2018 RegTech Analyst
Copyright © 2018 RegTech Analyst
