What has changed?

Following the financial crisis, considerable global regulation has been introduced that will transform the trading, risk management, compliance and operations workflow practices of the buy-side – Dodd Frank, EMIR, MIFIR, UCITS V and AIFMD to name but a few. The scope and nature of these new global regulations are driving the need to develop new flexible risk infrastructure to guide investment decision making, manage capital and collateral, as well as meet higher regulated standards of reputational, credit, market and operational risk management. As a consequence, many organizations are having to invest heavily in next generation technology to meet new requirements – a bill that is estimated to cost the industry $50bn over the next 5 years.

This is requiring greater focus on data management and analytics driven aggregation tools for the full end-to-end cycle, to ensure effective investment decision making, compliance monitoring, and real/near time time risk, financial and capital/collateral management. Users are opting for best in-class functional components, either on a standalone basis, or as an integrated suite with a common user interface and rules engine. This enables specific user interrogation, interpretation and monitoring of enterprise risk and compliance requirements.

Where do you focus first?

The priority is to enable enterprise users to adopt, practise and evidence high standards of corporate governance, risk management, compliance and reporting, as required by new regulations, including:

  • Effective data management, pre and post trade analysis and near time reporting;
  • Measure the impact of trades on a standalone basis, as well as on the portfolio and hedging strategies, and with regard to investment guidelines / parameters;
  • Monitor intra-day pricing, valuation and risk measures;
  • Generate integrated risk management views across market, credit and liquidity risk;
  • Run total return and scenario based risk simulations;
  • Integrate collateral management and collateral optimisation/CVA as part of front office pre-deal decision making;
  • Ensure effective pre-and-post trade surveillance and compliance monitoring, both with respect to regulatory requirements but also adherence to fund prospectus, guidelines and internal parameters.

How do you respond?

  • A growing need for a central flexible rules based engine and document repository, containing:
    • A rules library of multi-jurisdictional regulatory requirements;
    • A configurable rule builder for internal client or mandate/fund specific structures and requirements;
    • Relational document and referential data repository, with fully digitised documents and audit history.
  • Multi user workflow functionality to allow users to track regulatory change, assign action plans and manage/evidence associated policies and controls;
  • Modular functionality to allow seamless integration into portfolio management and order/execution and risk management systems, as well as connectivity to service providers and agents;
  • The ability to extend the platform to service providers and other intermediaries where required, and/or investors where a high degree of transparency is required;
  • The flexibility of a customised Enterprise solution, or managed Software as a Service (SaaS) module and service layer.

There are numerous challenges ahead for the industry.  Ensuring effective risk management practices and compliance with the rules will require industry collaboration and substantial technology investment. Firms should not underestimate the amount of work required to meet the recent and impending deadlines.  Start planning your data management and analytics infrastructure now…