On 18th December, Nasdaq released its fifth annual Global Compliance Survey for 2019. Though MiFID II captures the greatest mindshare, attention to regulations such as those related to cybersecurity, Basel III and other national directives is increasing.
Data syndication poses a significant concern for compliance officers according to the report, with around one third of respondents monitoring more than 15 trading venues. Over half plan to invest in data source integration and data quality improvement initiatives in the coming two years.
“Given the number of disparate systems we have at a group level, we are finding that about 10% of the data in production has quality issues,” according to the Chief Data Officer for a national custodial Bank. “We use AI to profile the data and identify critical risks.”
Indeed, understanding new technologies, softening budgets and changes to regulatory reporting requirements are cited as the other critical challenges for compliance in the coming 12 months.
Half of compliance officers indicate that ineffective technology implementations cause execution challenges. Firms are turning to vendors for solutions, approximately 75% now evaluating outsourcing, up from 60% in 2016.
Machine learning techniques, which use data and statistical methods to evaluate operational incidents, are attracting greater investment, with some 42% of firms having invested in this technology in the previous 12 months. Compliance officers seek to reduce false positives using ML, which is a primary concern for some three quarters of respondents.
The report comes close on the heels of UK regulators calling time on lengthy glitches in banking services, proposing that financial market infrastructure firms should set impact tolerances for important services.
Megan Butler, Executive Director at the FCA asserted that she “will be asking Chairs and CEOs [of financial institutions] what strategic decisions and investments they are making to build operational resilience.”
Consequently, consultants at PwC are advising that regulators have now made it clear that senior managers are firmly on the hook for operational resilience.
“These moves bring operational regulation on par with the regulation of financial stability,” concurred Financial Services Partner Angela Greenough at law firm CMS.
As the implementation deadline for the Fundamental Review of the Trading Book nears, compliance officers look set to continue their investment in AI and data governance initiatives.
