HARMONISING THE APPROACH TO REGULATORY COMPLIANCE

How do you minimise costs and maximise your return through regulatory data harmonisation?This paper provides you with the trusted answers you need to make informed decisions about the opportunities regulatory data commonalities offer you and your firm.

2016

REUTERS /Bob Strong

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 2

In the current world of financial reform and regulatory change, sustainable data is king.

The financial crisis led to a paradigm shift in the pace and depth of regulatory reform. New legislation has continued to arrive thick and fast on the doorsteps of financial institutions. In order to avoid the high penalties of noncompliance, organisations have had to react quickly, with significant implications on the way they manage their information, IT systems and processes.

Almost all organisations recognise that data is at the heart of regulatory compliance. Sound data management underpins the ability of firms to comply with greater ease and accuracy and yet, owing to the speed of reform and the varied nature of new regulations, many institutions have been unable to tap into regulatory commonalities and harness their data in a more efficient way.

This insightful paper reveals that change is on the horizon. Organisations are beginning to adopt a more strategic and sustainable approach to data management. They recognise its benefits, such as cost savings and the ability to gain fresh insights and exposure to new opportunities from data consolidation. A more harmonised approach to data management will support both current and future compliance.

Marion Leslie is the Managing Director of Thomson Reuters Regulatory, Pricing, and Reference Services business, delivering award-winning pricing, valuations and cross-asset reference data, as well as leading regulatory content and compliance learning solutions to financial services, insurance firms and corporations globally.

In prior roles, Marion has run global technology and content teams. Most recently, Marion was the Global Head of Instrument and Pricing Content, creating highly valued content for the equity, fixed income, commodities & energy, foreign exchange and money markets, supported by a team of 1500 experts in 26 countries worldwide.

Marion spent nearly four years in India, creating a start up in Bangalore, building the Thomson Reuters office from scratch to 2000 employees across multiple functions, and was an executive board member of Reuters India Private Ltd.

A champion of talent and diversity, Marion is sponsor of the Thomson Reuters Business Leader Programme and sponsors Thomson

Reuters partnership with Pilotlight, a unique, capacity-building charity matching senior business leaders with charities and social enterprises to support strategic planning for sustainability, development and growth.

• 2014-2016 Member of the ESMA Consultative Working Group for the Market Data Reporting Working Group.

• Winner of the Award for Achievement at the 2014 Women in Banking and Finance Awards.

• Chair of the London Women’s Forum, an exclusive network for senior women working within the financial services industry in London.

• Non-executive director for the UK Hydrographic Office (a Government Trading Fund).

Foreword Biography

Marion Leslie Managing Director Thomson Reuters

© 2016 Thomson Reuters S035874/06-16

Only Thomson Reuters has the depth and breadth of data, the global footprint, local knowledge and proven experience to deliver the exact data you need to not just comply – but thrive – anywhere you do business. Step by step guidance for cost-effective compliance, across the board, across the globe, including specialist data sets for:

REGULATORY DATA THAT KEEPS YOU ON THE RIGHT COURSE

TOOLS TO HELP YOU NAVIGATE THROUGH A SEA OF REGULATION

• Basel III• Dodd-Frank

• EMIR• FATCA

• IFRS• Russian Sanctions

• Shareholding Disclosures

• Solvency II• + More

To find out more, simply email prd.community@thomsonreuters.com or visit prdcommunity.com

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 4

Table of ContentsExecutive Summary 5

Overview 6

The Regulatory Challenge Matrix 7

The Current Approach to Harmonisation 9Approach Type by Company 10Approach Type by Region 10Team Approach 10Dedicated Teams by Company Type 10Repurposing Existing Solutions 11

The Benefits of Exploiting Commonalities of Data across Regulations 12Other Benefits 12Benefits by Business Function 13Benefits by Asset Class 13

Obstacles to Harmonisation 14Obstacle: Organisational and Cultural Hurdles 14Obstacle: Cost and Budget Constraints 15Obstacle: Lack of Consistent Data 15Obstacle: No Regulatory Standard 16Obstacle: Lack of Clarity on Requirements 16Obstacle: Rate of Regulatory Change 16Obstacle: Lack of Resource 16Obstacle: Tight Lead Times 16Obstacle: Lack of Market Solutions 16

How Regulatory Programmes are Managed 18The Banks 18The Asset Managers 19The Insurers 19

Drill Down: Commonality of Data Types Across Regulations 20Commonality of Asset Data Across Regulations 20Commonality of Entity and Issuer Data Across Regulations 21The Outlook 22Next step: data approach 22

Appendix A: Methodology 23Companies Surveyed 23Job Function 23Geographical Breakdown 23

Appendix B: How Can Your Regulatory Data Vendor Help You? 24You Need Your Vendor to Supply 24Ingredients for Success 24

Appendix C: Video Reference 25BCBS 239: Changes, Challenges & Benefits 25AIFMD & IFRS: Fair Value Measurement & Portfolio Valuations 25SHAREHOLDING DISCLOSURES: Monitor Thresholds of Ownership 25SOLVENCY II: Every Cloud has a Silver Lining 25

About Thomson Reuters 26

About Thomson Reuters Risk Services 26

About Thomson Reuters Regulatory Portal 26

About A-Team Group 27

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 5

Executive Summary

• The regulatory landscape has become increasingly challenging for financial institutions across buy- and sell-side firms globally since the 2008 credit crisis. The range of regulations, which are aimed at reducing systemic risk, now impacting their businesses include the EU’s Solvency II (insurance), Markets in Financial Instruments Directive (MiFID), Alternative Investment Fund Manager Directive (AIFMD), the U.S. Dodd-Frank Act and the Basel capital adequacy requirements.

• They face pressing deadlines for meeting complex requirements, resulting in a costly and resource-intensive firefighting approach. But is it time to take a more strategic and harmonised approach to data management to both meet these demands and benefit the business?

• 95% of financial institutions agree that significant benefits can be gained through a harmonised approach to data management for multiple regulations.

• The biggest benefit is seen as consistency of data across the business (79% of respondents), followed by organisational efficiencies (63%), cost savings (50%) and reduction in data sources (44%).

• The data types seen as offering the biggest return on effort, based on their level of commonality across regulations, are identifiers (such as the Legal Entity Identifier) and classifiers, followed by credit ratings and pricing data.

• Despite such enticing benefits, the gap between the ideal and reality is wide. Only 12% currently have a fully strategic approach to leveraging regulatory commonalities. Nearly half are still firefighting, taking a piecemeal approach, regulation by regulation.

• While 53% do have a dedicated team focused on taking a strategic approach across regulations, almost half of firms spend less than 10% of their operational time on it.

• Why isn’t more progress being made?

– The biggest barriers across all of our respondents are organisational and cultural. The scale and complexity of the firms – politically and technologically – impacted by financial regulations make it difficult to adapt. While regulations are gaining attention of the board and C-Suite, the approach appears to be more one of ‘compliance’ than ‘strategy’.

– The sheer cost of the changes required is also seen as a barrier, particularly as ‘investment fatigue’ around regulations grows.

– The current lack of data definition and consistency – across multiple source systems and external vendors – means there is no single version of the truth.

– Inconsistencies across regulators, a lack of clarity and tight deadlines all make compliance costlier and more difficult, and hamper efforts to be more strategic.

• Over time, we expect to see a shift from firefighting towards a more strategic approach. Indeed, efforts to work strategically across regulations will increase at 88% of financial institutions over the next two years.

Thomson Reuters recently commissioned an independent survey of data management professionals across business types, sizes and geographies. We asked them a series of questions around the current and future regulatory environment. This paper goes in-depth into what they told us about the challenges and opportunities their enterprises face. First, a brief summary of our findings:

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 6

REUTERS /Alistair Scrutton

Overview

The world’s reaction to the 2008 credit crisis was first to put out the most pressing fires, and then set about assessing what needed to be done to ensure that a failure of this scale could never happen again.

Regulators introduced a swathe of new rules and regulations aimed at reducing systemic risk, many of them focused on increasing transparency and forcing financial institutions to understand more fully their exposure to risky investments and activities.

After a period of rapid regulatory change, firms scrambled to get up to speed quickly, fearing penalties for noncompliance. The result has been several years of significant investment – particularly in data and data management systems – to meet regulatory obligations.

Now, financial institutions are beginning to reassess how they responded to the regulatory tsunami. Many are realising they have an opportunity to leverage the work they have done to boost operational efficiency and derive value from their compliance and regulatory reporting projects, workflows and processes.

A key step is the adoption of a harmonised data workflow approach in order to facilitate compliance with multiple regulations. In a survey conducted on behalf of Thomson Reuters, 95% of respondents agree there are significant benefits from taking such an approach.

But, for many, there remains a gap between belief in best approach and reality. How many financial institutions really are taking such a harmonised approach? How are they doing it, and where is there room for improvement?

We surveyed 66 senior financial data management practitioners to understand:

• How many organisations have taken a strategic approach and how many are still operating in piecemeal fashion to meet individual regulations.

• Whether financial institutions have a dedicated team working on a more strategic approach to data management across regulations.

• How effective their organisations are at leveraging the commonalities.

• How regulatory programmes are currently managed across different financial institutions: banks and brokerages, asset managers and insurers.

• Whether they seek to repurpose existing data or workflow solutions.

• The benefits of a harmonised approach, and where within the business these benefits might be felt most.

• The current obstacles to achieving a harmonised approach.

• Where did firms see regulatory commonalities across individual asset types and entity and issuer data.

• How many firms will now consider a more harmonised approach as a result of taking this survey.

• How this picture will change over the next two years.

‘Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.’ Winston Churchill

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 7

The Regulatory Challenge MatrixDepending on their function, financial institutions may face any number of major regulations. These range from the EU’s Solvency II (insurance), Markets in Financial Instruments Directive (MiFID) and Alternative Investment Fund Manager Directive (AIFMD), to the U.S. Dodd-Frank Act and the Basel capital adequacy requirements (see Major Regulations box below).

Tier 1 firms operating in multiple regulatory jurisdictions may need to adhere to local regulations such as Dodd-Frank and MiFID II, while at the same time meeting the global capital adequacy requirements of Basel III. In other cases, service providers are impacted by the regulatory requirements facing their clients. For instance, insurers are turning to their asset managers for help in meeting Solvency II’s ‘look-through’ valuations requirement.

In many instances, there are common ‘regulatory intents’, particularly with respect to valuation of portfolio holdings, understanding risk exposures to clients and counterparties, and client classifications. Yet, inconsistencies between regulators – often around definitions of data fields – make it difficult to ‘kill two birds with one stone’. Firms often find they need discrete processes or calculations to derive the data they need to comply with separate regulations asking essentially the same question.

The current rate of regulatory activity is growing significantly year-on-year (see Chart 1 on page 8), and 70% of firms expect regulators to publish even more regulatory information in the next year, with 28% expecting significantly more 1 . Some estimates put the cost of regulatory compliance at up to $4 billion per year at some of the largest banks, although it’s hard to measure and will vary greatly firm to firm.

Being able to manage this regulatory deluge in a strategic and harmonised way is increasingly important.

1 Source: Thomson Reuters

Prioritised Regulations – Europe Basel III Solvency II CRD Dodd Frank MifID II AIFMD AML/KYC EMIR Shareholdings disclosure

Impa

ct o

n Fi

nanc

ial

Inst

itutio

ns

Banks Asset managers Brokers Custodians / Fund administrators Insurance companies AIFMs

Direct impact Indirect impact due to counterparties/customers

Table 1: Regulatory Matrix by Company Type

REUTERS /Denis Balibouse

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 8

Chart 1: Regulatory Activity Tracked 2015-2016, Source: Thomson Reuters 2

2 Note: Tracked activity includes document changes, announcements and enforcements by regulators. Average Daily Alerts = Total Alerts Year-on-Year/261 Working Days

2011

2012

2013

2014

2015

2010

2009

2008

TOTAL YEARLY ALERTS

51,563

40,603

26,950

17,763

14,215

12,179

10,075

8,704

A M J J A S O N D J F M

1,000

2,000

3,000

4,000

5,000

6,000

02015 2016

■ Africa (beginning June 2015)

■ Latin America (beginning 2013)

■ Australasia■ Asia■ Middle East■ North America■ UK/Europe

AVERAGE DAILY ALERTS

200

IS YOUR DATA HELPING YOU ADDRESS CROSS-REGULATORY CHALLENGES?Use our diagnostic tool to find out, and receive your personalized report

LAUNCH TOOL ›

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 9

The Current Approach to Harmonisation

The value of taking a holistic approach to data across jurisdictions is widely recognised by survey respondents, with 95% agreeing that there are significant benefits to taking a harmonised approach to data and workflow to facilitate compliance with multiple regulations.

However, there remains a gap between what firms recognise to be beneficial and how they are actually operating. Only 12% currently believe they have a fully strategic approach to leveraging the regulatory commonalities and seeking to derive value from these efforts, and nearly half of respondents are still in firefighting mode, working piecemeal, regulation by regulation. This is driven by tight regulatory deadlines on one side and stretched budgets and resources and restrictive operational structures on the other.

In this paper, we take a look at the details of different approaches, what the perceived benefits of a harmonised approach are and what obstacles are blocking progress.

95%Agreed: Significant benefits can be gained with harmonised approach

12%Currently have a fully strategic approach to regulatory commonalities

Answer choices Responses

Strongly agree 74.24%

Agree 21.21%

Neutral 4.55%

Disagree 0.00%

Disagree strongly 0.00%

Chart 2: “There are significant benefits to taking a harmonised approach to data and workflow to facilitate compliance with multiple regulations”

Answer choices Responses

Fully strategic and worked to future 12.31%

Strategic across several but not all regulations 40.00%

Piecemeal approach working regulation-by-regulation 47.69%

Chart 3: Current Level of Strategic Approach

■ Strongly agree – 74.24%■ Agree – 21.21%■ Neutral – 4.55%

■ Fully strategic and worked to future proof

■ Strategic across several but not all regulations

■ Piecemeal approach working regulation by regulation

47.69%

12.31%

40.00%

74.24%

21.21%

4.55%

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 10

Approach Type by Company

Approach Type by Region

Team ApproachHaving a dedicated team within the financial organisation that works across the enterprise and across multiple regulations can greatly increase the effectiveness of its response to regulations and the ability to leverage opportunities from such a harmonised approach.

Only around half of respondents say their firm has a dedicated team focused on a strategic approach to regulations. Insurers (75%) and asset servicers (80%) typically are more likely to have a dedicated team responsible for a harmonised approach, which is most likely due to the relatively less complex organisational structures when compared with banks (48%) and asset managers (47%).

Dedicated Teams by Company Type Most of the firms without dedicated teams (which represent 46% of the responses) admit that their companies spend less than 10% of their operational time on a harmonised approach and overall 80% of firms spend less than a quarter of their operational time on it.

Banks Asset managers Insurers Asset

servicersStrategic Approach (average: 12%) 10% 21% 0% 0%

Strategic for some, not all regulations (Average: 40%) 40% 26% 50% 60%

Piecemeal Approach (average: 48%) 50% 53% 50% 40%

Table 2: Approach Type by Company % Above average% Below average

UKI Mainland Europe

North America

Asia / Pacific

Strategic approach (Average: 12%) 4% 14% 13% 29%

Strategic for some, not all regulations (Average: 40%) 48% 50% 31% 29%

Piecemeal approach (average: 48%) 48% 36% 56% 43%

Table 3: Approach Type by Region % Above average% Below average

■ Yes – 53.03%■ No – 46.97%

53.03% 46.97%

Chart 4: Dedicated Teams Working Strategically Across Regulations

Company Type Responses

Banks 48%

Asset Managers 47%

Insurers 75%

Asset Servicers 80%

Table 4: Dedicated Teams by Company Type (Average: 53%)

% Above average% Below average

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 11

Repurposing Existing SolutionsOne way to increase the efficiency of regulatory efforts is to repurpose existing solutions for both data and workflow to help meet multiple regulations based on commonalities. Over three-quarters of respondents take this approach. Again, perhaps reflecting the relative level of complexities of their organisations, 100% of insurers and asset servicers are repurposing existing solutions, compared with 83% of asset managers and 79% of banks.

Answer choices Responses

Yes 79.37%

No 20.63%

Chart 5: Repurposing Existing Data Solutions

79.37%

20.63%

■ Yes – 79.37%■ No – 20.63%

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 12

Being strategic when managing the regulatory response can reap many benefits:

Other BenefitsRespondents describe other benefits that result from taking a more harmonised approach to regulatory data. In many cases, the initiative resulted in specific benefits, some unforeseen or unplanned.

Some respondents are able to take the opportunity to look at operational and reputational risk. As one UK-based group data management head at a bank said, ‘For example, on BCBS 239, we are working not only on regulatory reporting, but also on taking out operational risk by focusing on the timeliness of data. BCBS 239 lays out in data management terms what is necessary.’

Avoiding errors and fines is another benefit (and often driver for investment) that can result from such a holistic approach.

Some participants cite specific examples of operational benefits deriving from their approach to regulatory compliance across jurisdictions. For one respondent, the regulatory ‘best practice’ allows his firm to establish a set of success criteria, or metrics, for the BAU (business as usual) team to deliver against. ‘Too often, compliance is achieved and change programmes end’, he said. ‘You have to go the extra mile to get business benefits – for example, to get cost efficiency you may need to switch off systems.’

There are other examples of specific benefits across multiple regulations. One respondent suggests a harmonised approach can benefit global projects where the underlying data needs to be a certain quality and synchronisation, citing Basel’s BCBS 239 and BCBS 265 (Fundamental Review of the Trading Book). Another says his harmonised approach ‘improved our capacity to offer complex regulatory reporting to our clients (risk, Solvency II, AIFMD).’

The Benefits of Exploiting Commonalities of Data across Regulations

Strategies BenefitsData Consistency A coordinated regulatory programme can enable consistent reporting to regulators but can

also feedback consistent data across the enterprise

Organisational efficiencies A coordinated effort can result in fewer people being required and possible systems consolidation

Cost Savings Cost savings through identification of duplicate coverage or reduced data demand through simplified processes

Reduction in Data SourcesA harmonised approach can remove duplication of data, although some cited the converse need for more data to fulfill new data requirements

Table 5: Benefits of Exploiting Commonalities ■ Significant ■ Some Benefits ■ No real benefits

63% 35% 2%

50% 46% 4%

44% 50% 6%

79% 19% 2%

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 13

Benefits by Business Function

Survey respondents, perhaps not surprisingly, say they expect to see most benefit from harmonisation within the post-trade environment. Almost two-thirds of them see improvement in the mid-office reconciliation and back-office settlement areas, with overall improvement in those areas seen by over 90%. Conversely, pre-trade is seen enjoying less of a benefit, with 22% expecting low impact from harmonisation.

Benefits by Asset Class

In terms of most-affected asset classes, respondents clearly highlight OTC markets, including fixed income/rates, derivatives and credit markets, all with 90+% overall benefit rankings, mirroring the current regulatory focus.

Of lesser focus, and therefore less likely to benefit, are commodities and equities, with only 43% and 51% of respondents, respectively, expecting major benefits from a more coordinated approach.

2%35%63%

9%30%61%

2%37%61%

11%40%49%

22%37%41%

Mid-Office Reconciliation

Back-Office Settlement

Back-Office Clearance

Trade

Pre-Trade

Custody 6%60%34%

■ High■ Medium■ Low

Chart 6: Benefit Realisation by Business Function

■ High■ Medium■ Low

Chart 7: Benefit Realisation by Asset Class

23.40%76.60%

21.28%76.60%

30.43%65.22%

10.64%29.79%59.57%

13.33%35.56%51.11%

17.39%39.13%43.48%

Fixed Income/Rates

Derivatives

Credit Markets

FX/Money Markets

Equities

Commodities

2.13%

4.35%

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 14

REUTERS /Jorge Silva

Obstacles to HarmonisationA note about methodology: We asked our survey participants for open-ended responses about the primary obstacles they face when seeking a harmonised approach across multiple regulations. Across our respondents, we had 120 individual data points, which we then grouped into the nine categories below.

Obstacle: Organisational and Cultural HurdlesAs the chart shows, the top obstacle (mentioned by 39%) is in the organisational and cultural category. The causes include a lack of top management buy-in – or a ‘compliance only’ approach from top management, a lack of ‘ownership’ within the business, the siloed nature of these businesses, and fragmented functional processes where the challenge is ‘overcoming functional myopia’.

To quote one UK bank respondent: ‘Organisational challenges and group politics – this is the biggest thing, not technology. It is about getting everyone across countries, regions and lines of business to acknowledge and understand the common goal.’

Another UK-based executive director at a bank said the difficulties lay around ‘understanding of the issues, particularly in the front office. [This] needs a massive cultural change that won’t be achieved overnight.’

The head of data governance at a global asset manager said that the level of ‘organisational change required to support harmonised data is a real hurdle.’

A U.S. asset servicer pointed to the general ‘lack of cohesiveness and vision’, whilst a bank data manager said, ‘[We] haven’t got senior executive bought in and enforced top down.’

■ Organisational and Cultural – 39%■ Cost & Budget Constraints – 15%■ Lack of Consistent, Quality Data – 13%■ No Regulatory Standard – 8%■ Lack of Resources – 7%■ Lack of Solutions – 6%■ Lack of Time – 6%■ Rate of Regulatory Change – 3% ■ Poor Clarity from Regulators – 3%

8%

7%

6%

6%

3% 3%

15%15%

39%

Chart 8: Obstacles to Harmonisation

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 15

Current communication and cooperation challenges within firms across multiple regions and teams, often with very different roles, are also an obstacle.

The sheer complexity of the internal infrastructure with multiple legacy systems, none of which talk to each other, makes achieving consistency to support a strategic approach difficult.

This obstacle was summed up efficiently by the head of data management for a global bank:

‘The complexity of legacy systems and reengineering – unpicking mistakes of the past and delivering new systems to aggressive deadlines – while doing everything else that is needed.’

Another aspect of organisational challenge is the reality of the day-to-day business of the financial institutions, which is the reason they exist, rather than to comply with regulatory requirements. Prioritising projects and focus of operational attention often wins out over strategic approaches to regulations. Many firms struggle with a lack of organisational time. ‘So long as we’re in basic compliance, we can get on with the day-to-day business and other business priorities.’

Obstacle: Cost and Budget ConstraintsUnsurprisingly, cost is perceived as a major obstacle to taking a more harmonised approach to regulatory reporting. Ever since the credit crunch – the event that many of the new regulatory initiatives are seeking to avoid recurring – cost has been a major hurdle for any data or IT project. While there is a perception that regulation has been a ‘door-opener’ for many IT projects, survey respondents say the cost of investment to achieve harmonisation is a major obstacle to progress.

While this may seem paradoxical, one respondent says there is investment ‘fatigue’ around regulation. Proving ROI is difficult and frustrating for many respondents, particularly given management’s ‘lack of appreciation for the cost savings associated with optimising holdings in light of differences in regulations’, as well as the wider benefits of harmonisation.

‘There’s the increase in cost from trying to gather the data requirements—the new data elements we have to purchase from the vendors’, said one respondent. ‘But there’s a restriction in terms of the policy in place [on data acquisition]. Also, there are legal complications, which means engaging with legal teams to sort things out.’

Obstacle: Lack of Consistent DataRespondents complain that the lack of consistency across source systems and external data vendors represents a significant barrier to achieving true harmonisation. Because there is no prescribed official source of data, many respondents say they are populating regulatory reports from multiple data feeds and internal systems.

This approach – with varying formats and quality levels, again due to legacy silo-based organisations – makes harmonisation difficult. As one respondent points out, different vendor systems have different data fields, different usage restrictions and different naming conventions, making harmonisation a challenge.

‘I don’t know how much harmonisation is actually possible’, said another respondent. ‘We have $2.5 trillion of assets under management and a lot of lines of business all with different views of data. So getting everyone to agree on the definition of harmonisation and to agree that one piece of data is the same for everyone may not be possible. We are still likely to have multiple versions of the truth. Where I have seen companies with a single version of the truth, no one is using it.’

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 16

Obstacle: No Regulatory StandardInconsistency between regulations is seen as a significant obstacle to a harmonised approach. Survey respondents feel there are inconsistencies between regulations, with regulators in different jurisdictions taking different approaches and requiring different data points while attempting to fulfill similar intentions.

Examples include conflicting definitions of a U.S. person, different classification categories and different views on ontologies. As one exasperated respondent put it, ‘There is no single regulatory data dictionary’.

The absence of a regulatory rules engine that captures client and/or fund attributes in a predefined matrix makes it difficult to determine what’s in or out of scope, according to another respondent. Others suggest regulators are mandating the use of standards and data that is not appropriate for purpose.

Obstacle: Lack of Clarity on RequirementsConnected to this is the overall sentiment that there is a lack of clarity on the requirements. Some attribute this, in part, to uncertainty among regulators about how to use all the data they are collecting, making it difficult for financial institutions to understand what they want. Others suggest there is a lack of trust between regulators and the industry, creating a barrier to collaboration that can boost clarity, cohesion and understanding.

Obstacle: Rate of Regulatory Change

Some respondents perceive the fast rate of regulatory change as a barrier to harmonisation. ‘Regulatory in-scope/out-of-scope conditions continue to evolve’, said one, making it difficult to proceed with any strategic attempt to harmonise.

Obstacle: Lack of ResourceResource constraints hurt respondents’ ability to take a proactive approach to harmonisation. This manifests itself in several ways, with some respondents indicating their teams don't have the time or expertise to research products that could help, and others suggesting the kind of comprehensive overhaul of internal database structures required is beyond their capabilities. Others simply lack subject matter experts, particularly cross-domain specialists.

Obstacle: Tight Lead TimesDespite acknowledging the propensity for delays, many respondents say they find the lead times difficult, limiting the potential for a harmonised approach. Simply put: ‘Delivering compliance on time may not fit with building a strategic approach to regulation.’

Obstacle: Lack of Market Solutions

Respondents lament the lack of a silver bullet technology solution. ‘No single system alone can provide full coverage’, said one. Others feel there is insufficient internal knowledge and industry tools to aid in harmonisation.

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How Regulatory Programmes are ManagedThe BanksThere was a range of approaches among our survey participants, from highly strategic to piecemeal. Those respondents who say they have a fully strategic approach, point to their use of a homogeneous information platform as the only source for information for regulatory and management processes. They also cite the use of workflows that perform checks at all levels, from middle office to onboarding to KYC and more.

The banks that take a strategic approach to some but not all regulations leverage a common infrastructure – covering golden sources of data, data warehouses, validation and assurance processes, and rules engines. According to one respondent, ‘We have a central strategy group that is looking at these issues and is driven by specific pieces of regulation such as BCBS 239. It takes certain aspects from these regulations and uses them for other regulations where possible. We are on the strategic path.’

But banks who still take a piecemeal approach mention obstacles such as budget restrictions, lack of senior management buy-in, lack of resource and political ownership issues (more on page 14). In many cases, they have different teams set up for each regulatory project to deliver solutions tailored to the compliance requirements of each regulation.

Often, however, banks in this group say they are aiming to move toward a more strategic, harmonised approach. As one respondent said, ‘[We’re] working on a regulation-by-regulation basis, [and] we may, for example, take some data used for FATCA and also use it for Common Reporting. We are also taking existing solutions and expanding them for new regulations, but as the regulations themselves are not harmonised we can’t put in one set of data fields to meet the requirements of all regulations. That said, I hope we can do more towards harmonising data for regulations.’

One respondent says that MiFID II changes the game, suggesting that its wide-reaching repercussions may push firms to take a more strategic approach. Another says they are looking to hire a head of data change to address this issue, but still expects budget constraints to be a challenge.

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 19

The Asset ManagersThe fully strategic asset managers tell us that cooperation between compliance and operations is essential. These firms typically have a programme of identifying common attributes across the identified regulations, and a workflow that supports change across the enterprise.

Those who are strategic across some but not all regulations say that they do look for similarities with existing regulations each time a new one is introduced, and where there are similarities they seek to combine people, processes and technology to deliver compliance. But the reality is that ‘we have a priority and we line up to that. Given our resource and cost constraints, we can’t tackle them all at the same time [so we take a] deadline-by-deadline priority. Whomever shouts loudest...’

The asset managers still taking a piecemeal approach point to a lack of infrastructure, budget, resource and IT alignment from a data perspective, all resulting in a ‘largely ad hoc’ approach. As one said, ‘In an ideal world you’d [do it all strategically], but it’s prioritised against other initiatives in the company. You can’t go and do what you want!’

One asset manager did say that his firm has a strategic approach in place but ‘it has yet to come to fruition for how day-to-day operations are performed.’

The InsurersNo insurers say they are taking a fully strategic approach. One insurer says they have created a ‘central data warehouse for period end reporting to cover internal and external investment reporting requirements across European entities.’ Another said, ‘We have a product development team which looks at the impact of new regulations and helps the operational teams with execution.’

Another insurer said, ‘We have just begun to address how we might optimise our investment approach across multiple regulatory jurisdictions.’

REUTERS /Dani Cardona

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 20

REUTERS /David Loh

Drill Down: Commonality of Data Types Across RegulationsWe asked our survey respondents three sets of questions about the different data types they believe are most common across the myriad of regulations they have to deal with.

The results can help financial institutions understand where the highest level of commonality is, which can help them prioritise their efforts in data sourcing, cleansing and management in order to have the biggest impact on data quality and consistency for multiple regulatory compliance.

Commonality of Asset Data Across Regulations

Identifiers are the leading asset data type that have the greatest impact across all regulations, with an average of 71% identifying them as having a high level of commonality. This skews towards the banks (where 82% ranked identifiers as having the most commonalities for the regulations that impacted them) and asset servicers (100%).

This is logical, given how identifiers are fundamental to all data flowing through the enterprise, but there are still challenges in the industry to try to come to common agreement around identifiers. Indeed, several respondents point to the current initiatives that they hope to see continuing to develop, such as moves towards open security identifiers and technical standards for reporting in certain areas (citing ISO 20022, FPML and more).

Pricing data (44%) is also seen as an area of high commonality across regulations. This again is weighted more towards the banks, where 82% see high levels of commonality, and asset managers (67%).

■ High■ Medium■ Low■ Don’t know

Chart 9: Commonality of Asset Data Across Regulations

25% 6%48%21%

8% 21%50%21%

26% 13%40%21%

19% 27%29%25%

21% 4%46%29%

10% 4%42%44%

4% 4%21%71%

Pricing Data

Identifiers

Classifiers

Look Through

Liquidity & Eligibility Indicators

Evaluated Prices

Terms and Conditions

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 21

Classification data offers potential for benefits through a harmonised approach, but frustration continues around the lack of standardisation and confusion in classification data (the use of classifiers for banking and finance being one area of confusion).

The only differences regionally appeared to be a heavier weighting for terms and conditions data in Asia/Pacific at 67%, above identifiers and pricing data. North American firms also weight evaluated pricing (after identifiers and pricing data) at 36%, ahead of classifiers, when compared with Europe.

Commonality of Entity and Issuer Data Across Regulations

Respondents see most potential for harmonisation in areas such as entity identifiers, credit ratings and smart ratios. Of less importance are domicile information, country of risk and corporate actions, and even less for shareholding disclosures and filings information. Interestingly, a relatively high proportion of respondents (33%) are unsure about smart ratios, while 17% say they are uncertain of the impact on entity data.

Drilling down into company type, bank respondents place the highest importance on identifiers, with 64% identifying a high impact from harmonisation. This is followed by domicile information (59%), credit ratings (45%) and country of risk (41%), with the rest at 23% or below. Asset managers similarly see greatest potential from identifiers, at 69%, followed by domicile (63%), country of risk (56%) and credit ratings (50%).

Asset servicers see the greatest potential in domicile information with 75%. Identifiers and credit ratings are each cited by 50% of respondents. Insurance companies cite credit ratings and domicile at 33% each, with the remainder having medium potential impact (identifiers, country of risk, corporate actions).

Across the board, smart ratios are cited the least, perhaps reflecting some respondents’ unfamiliarity with them.

Regionally, domicile is of higher importance in Europe compared with North America, where credit ratings are key. Asia/Pacific sees identifiers as the most common entity and issuer data type, with credit ratings next, followed by smart ratios (50% rating them as high commonality), whereas smart ratios didn’t feature on European or North American lists as high commonality.

■ High■ Medium■ Low■ Don’t know

Chart 10: Commonality of Entity and Issuer Data Across Regulations

50%50%

17%67%17%

67%33%

17% 33%50%

50%50%

17%17%67%

Smart Ratios

Credit Ratings

Identifiers (LEI)/Classifiers

Domicile

Country of Risk

Corporate Actions

Shareholding Disclosures Information

Filings

67%33%

67%33%

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 22

The OutlookBased on the overwhelming enthusiasm for the idea of exploiting commonalities across regulations, it’s likely that firms will take a more strategic approach to harmonising their data activities. Indeed, almost 90% of respondents say they plan to take a more strategic approach in the next two years.

As major regulations take effect, the market’s response shifts from firefighting to instituting better processes for ongoing compliance. This can be a slow and painful process, requiring senior management buy-in, dedicated resources and clear priorities. But once firms have been through the initial setup and understand the task – and costs involved – they will work to bring compliance into their BAU processes.

Some respondents acknowledge that a more standard response to requirements across regulations could eventually reap significant rewards in terms of operational efficiency and risk mitigation. How that can be developed in reality remains to be seen, although the benefits could be significant.

‘If we came to a harmonised view of data across regulations and that drove how asset managers, the brokerage community and custodians represented their data, that could change the industry’, said the head of data governance from a major U.S. investment management firm. ‘If everyone harmonised data to meet regulatory needs, there could be compelling synergies that could reduce errors, improve STP and speed up settlement.’

Next step: data approachIf you hadn’t previously considered a harmonised approach to data across regulations, will you now consider it after having taken part in this survey?

■ Increased efforts to work strategically across regulations

■ Decreased efforts to work strategically across regulations

■ No change

How do you think this will change over the next two years

Answered 66 Skipped 0

Chart 11: The Two-Year Outlook

10.61%87.88%

1.52%

Answer choices Responses

Yes 86.49%

No 13.51%

Chart 12: Future Data Approaches

86.49%

13.51%

■ Yes – 86.49%■ No – 13.51%

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 23

Appendix A: MethodologyCompanies SurveyedFor the survey, A-Team conducted a mix of online polls and qualitative phone-based and in-person interviews with senior data managers and compliance officials across a range of financial institutions globally. Respondents included data and compliance professionals from banks and broker/dealers (47%), asset and fund managers (29%), insurers (6%) and asset servicers and custodians (8%). The ‘other’ category includes consultants engaged in client regulatory projects and an association.

Job FunctionJob titles of respondents included chief data officers, heads of reporting services, data management directors, regulatory reporting specialists, enterprise data managers and heads of strategic change.

Geographical BreakdownGeographically, survey respondents were based in Europe (60%, made up of UK & Ireland 39%, Mainland Europe 21%), North America (24%), Asia/Pacific (11%), South America (3%) and Africa (2%).

Answer choices Responses

Bank 46.97%

Asset Manager 28.79%

Insurance Company 6.06%

Asset Servicer 7.58%

Other (please specify) 10.61%

Chart 13: Company Type

Answer choices Responses

UKI 39.39%

Mainland Europe 21.21%

North America 24.24%

Asia/Pacific 10.61%

South America 3.03%

Africa 1.52%

Chart 14: Geographical Breakdown

■ Bank – 46.97%■ Asset manager – 28.79%■ Insurance company – 6.06%■ Asset servicer – 7.58%■ Other (please specify) – 10.61%

46.97%

28.79%

10.61%

6.06%

7.58%

■ UKI – 39.39%■ Mainland Europe – 21.21%■ North America – 24.24%■ Asia/Pacific – 10.61%■ South America – 3.03%■ Africa – 1.52%

21.21%

39.39%

10.61%

24.24%

3.03%1.52%

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 24

REUTERS /Kim Kyung-Hoon

Appendix B: How Can Your Regulatory Data Vendor Help You?In this globalised and regulatory-driven age, the emphasis must be on sourcing trustworthy data inputs and services from independent partners such as Thomson Reuters. Robust pricing and reference data and services are a major part of the equation in addition to risk management applications, systems and processes. Any oversights or miscalculations can become magnified once the data is aggregated at a corporate level, creating potentially dangerous distortions in reported risk exposures and or in accurate compliance reporting.

You Need Your Vendor to Supply:• High-quality, timely and comprehensive

regulatory data coverage to meet your business activity, risk, regulatory and compliance needs.

• Consistent regulatory data across feeds, applications and desktops.

• Experience in real-time and non-streaming regulatory data provision.

• Commercials geared towards enterprise usage.

• Deep understanding of the regulations and a proven ability to provide content ready for regulatory reporting.

• Responsive service and support models.

Ingredients for Success:• Comprehensive regulatory data coverage –

Access to large amounts of regulatory market and reference data, advanced modeling capabilities and numerical methodologies.

• Complete transparency – The entire valuation and reporting process with capability to audit data inputs, modeling choices, calibrated model parameters, numerical methodologies and product cash flows.

• Dedicated support – Rapid and easy-to understand responses to queries, including help with price challenges.

• Most up-to-date market data – Supported with stringent quality control checks.

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 25

REUTERS /David Loh

Appendix C: Video Reference

BCBS 239: Changes, Challenges & Benefits

Marion LeslieManaging Director – Thomson Reuters

AIFMD & IFRS: Fair Value Measurement & Portfolio Valuations

Jayme FagasGlobal Head of Valuations & Transparency, PRS – Thomson Reuters

SHAREHOLDING DISCLOSURES: Monitor Thresholds of Ownership

Tim LindGlobal Head of Financial Regulatory Solutions – Thomson Reuters

SOLVENCY II: Every Cloud has a Silver Lining

Tim LindGlobal Head of Financial Regulatory Solutions – Thomson Reuters

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 26

About Thomson ReutersThomson Reuters is the world’s leading source of intelligent information for businesses and professionals. We combine industry expertise with innovative technology to deliver critical information to leading decision makers in the financial and risk, legal, tax and accounting, intellectual property and science and media markets, powered by the world’s most trusted news organisation. Thomson Reuters shares are listed on the Toronto and New York Stock Exchanges (symbol:TRI).

For more information, go to thomsonreuters.com.

About Thomson Reuters Risk ServicesRisk Management Solutions from Thomson Reuters combine what no one else can – trusted information, managed services and software, and human expertise – to help you manage risk efficiently and accelerate business performance. With this combination, you can confidently anticipate and act on customer, third party, compliance, enterprise, and financial risk while you elevate corporate governance and controls across your organisation.

About Thomson Reuters Regulatory PortalAre you fully leveraging your existing data to solve your regulatory challenges? Use our diagnostic tool to find out, and receive your own personalised report with key insights and actionable advice: financial.thomsonreuters.com/regulatorydatasolutions

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 27

REUTERS /Eric Gaillard

About A-Team GroupA-Team Group has worked since 2001 with data, software and technology vendors targeting capital markets to create compelling content, like this white paper, to help raise awareness and brand recognition, demonstrate thought leadership and generate sales leads across buy- and sell-side financial institutions.

We leverage our domain expertise in trading technology and data management across the financial enterprise, our ability to take complex topics and turn them into compelling content assets, and our significant communities of engaged readers, to deliver ROI on your marketing budget.

Find out more and download our free guides to content marketing on a-teamgroup.com. Or contact us at +44 (0)20 8090 2055 or theteam@a-teamgroup.com.

Harmonising the Approach to Regulatory Compliance: How do you Lower Costs and Maximise Your Return through Regulatory Data Harmonisation? – 2016 Page 28

Index of Charts and Tables

Chart 1: Regulatory Activity Tracked 2015-2016, Source: Thomson Reuters 8

Chart 2: “There are significant benefits to taking a harmonised approach to data and workflow to facilitate compliance with multiple regulations” 9

Chart 3: Current Level of Strategic Approach 9

Chart 4: Dedicated Teams Working Strategically Across Regulations 10

Chart 5: Repurposing Existing Data Solutions 11

Chart 6: Benefit Realisation by Business Function 13

Chart 7: Benefit Realisation by Asset Class 13

Chart 8: Obstacles to Harmonisation 14

Chart 9: Commonality of Asset Data Across Regulations 20

Chart 10: Commonality of Entity and Issuer Data Across Regulations 21

Chart 11: The Two-Year Outlook 22

Chart 12: Future Data Approaches 22

Chart 13: Company Type 23

Chart 14: Geographical Breakdown 23

Table 1: Regulatory Matrix by Company Type 7

Table 2: Approach Type by Company 10

Table 3: Approach Type by Region 10

Table 4: Dedicated Teams by Company Type (Average: 53%) 10

Table 5: Benefits of Exploiting Commonalities 12

Use our diagnostic tool to find out, and receive your own personalized report with key insights and actionable advice.

financial.tr.com/regulatorydatasolutions

THOMSON REUTERS RISK & REGULATORY DATA SOLUTIONSYour regulation questions, answered.

Are you fully leveraging your existing data to solve your regulatory challenges?