The alphabet soup of regulatory demands continues to occupy our minds and budgets. One constant theme – we are now in an era of constant regulatory change. The global regulators and politicians will see to that. What to do about it?
“If Basel III was an admission that Basel II got things wrong, Basel IV is clear recognition that there is much wrong with Basel III”, say the American Bankers Association. From the capital adequacy regulations coming out of Basel to the other initiatives like Solvency II, AIFMD, Form PF, Form ADV, it is clear that regulators across all sectors are adopting an approach of experimentation and constant change. If this change is in the name of global standards, it has a very long time to play out yet.
Customers are telling us that regulatory change projects are displacing their business-as-usual. What can be done to ameliorate the effects of digging up the road every time things change? We think there are two essential pieces of kit:
* A flexible regulatory reporting system that accepts that there are many different ways to file correct answers on regulatory returns. There is not a single “right way” and “wrong way” to provide values on regulatory returns that apply to all firms. Your reporting solution needs reflect this. It must be informed by legal opinion and allow intelligent and defensible options. Reporting is not a pure technology capability. It has to embed legal and business know-how and cross all relevant jurisdictions.
* A flexible way of automating data extracts from your systems of record into a separate data mart for regulatory reporting. In this era of constant change, there must be abstraction between your operational systems and the data mart used to power regulatory returns. If you have to make changes to systems of record every time regulations change then IT will be in a constant loop of change and the business will be suffocated by rigidity. You may also find yourself locked in to systems or unable to upgrade them for fear of breaking regulatory reporting.
This advice flies in the face of the current perceived wisdom. Traditional data management mantra dictates that silos should be eliminated and a single version of the truth be stored in a single, monolithic database. This is a hopelessly romantic notion of how firms operate in the real world and does not assume that regulators are imposing constant change. When change is constant, taking this purist approach is a road to madness. So, we are advocating creating a silo specifically for regulatory reporting. This separate data mart must be attached to systems of record by a strict, audited mechanism for automatically fetching the relevant data and storing it in the appropriate granularity, that is optimised for powering the reporting system. This way, we have an automatically updated data mart that abstracts operational data from how is needs to be stored to power regulatory returns. When regulatory changes can first be addressed in your regulatory data mart, the systems of record can be left alone and IT resource freed up to work on more productive projects. One size definitely does not fit all.