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MiFID II looks set to remain the key regulatory focus for financial services firms in 2017, but for all its challenges firms can’t afford to have tunnel vision when it comes to their compliance obligations next year. There seems to be no immediate end in sight when it comes to the increasing regulatory burden on firms, with both the Securities Financing Transactions Regulation as well as initial margin requirements for non-centrally cleared trades under EMIR also requiring attention. With the process of responding to regulations on an individual basis proving both costly and time consuming, 2017 may well be the year in which we see a large scale change in approach.
Given the extent of regulation that firms will need to address in 2017, there needs to be a shift towards a more flexible response. Since the financial crisis, solutions have largely addressed specific regulatory requirements as and when they arise. This approach may have resulted in cost savings in the short-term, but as new products and solutions have had to be developed to respond to the shifting regulatory environment, the cost burden has risen over the longer-term. Firms must now invest in a more robust, agile operational structure which can address changing requirements more efficiently and at a lower cost.
This is one of the main drivers of regulatory technology. There is a growing need for a more holistic solution which can be modified over a shorter time-span and at a lower cost to respond to a wider variety of issues. This type of platform could amalgamate the streams of information currently collected by multiple products, and consolidate it in a central point, where it is available to then be fed into whatever system or report as required. When new regulation is introduced, or changes to an existing regulation occur, the consolidation of data should allow for a faster and more nimble response.
A move towards RegTech platforms that offer a more flexible, rapid and affordable solution should address the significant costs that continue to plague financial institutions and also aid firms in staying abreast of further regulatory changes in the year ahead.