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The trials and tribulations of a Compliance Officer - need for a 'regulatory compliance framework

These days I hear from many people who work in the regulatory compliance world that they are very busy people, working very long hours, their time being consumed with a number of competing and complex priorities. I will be posting a second blog next week outlining a holistic view to tackling these priorities. Though first I aim to analyse just exactly what these priorities and challenges are, and for many working in regulatory compliance they include:

  • Trying to digest the 1,700+ pages of the MiFID II regulatory technical and implementing standards (RTSs) published by ESMA to provide clarity for the January 2017 deadline
  • Providing support for those overseas branches who have customers in countries which haven’t yet implemented the US foreign account tax compliance act (FATCA)
  • Undertaking user acceptance testing of the variation margin requirements for the European Market Infrastructure Regulations (EMIR) due to go live in March 2017
  • Working on finalising their policies, training materials and rollout plan for the 72 pages of the market abuse directive (MAD), to meet June 2016 deadline
  • Trying to fix the problems of the short selling regulation (SSR)
  • Making amendments to the central securities depositories regulation (CSDR) system
  • Gaining management buy-in for the changes required for the packaged retail and insurance-based investment products (PRIIPs)
  • Bringing in consultants to organise the rollout of their anti-money laundering directive IV (AMLD IV)
  • Proving to the Board of Directors that they aren’t engaged in shadow banking regulation (SBR)
  • Talking to their finance director about the capital requirements directive IV (CRD IV)
  • Telling their IT department they need to adopt the common reporting standards (CRS)
  • Negotiating with the legal department about the Senior Managers and Certification Regime
  • Awaiting approval for the bank recovery and resolution directive measures (BRRD)
  • And trying to find time to look at the Alternative Investment Fund Managers Directive (AIFMD)

With all of this on their plate, no wonder those who work in this area are wondering how they can juggle all these non-income earning activities, with no additional budgets for additional systems personnel and subject matter experts.

Recently, such an expert reminisced to me about the days when banking systems were all about debits and credits, and the importance of the 3pm deadlines and “windows” for paper securities. She said that the complexities of option pricing models seems like child’s play when compared with the detail required when on-boarding a new client, or figuring out what the business operating model and technical architecture requirements are for some of these new regulations. The analogy she used, was that it is like trying to tame just one of a racing herd of wild horses.

No matter, this is the situation in which we find ourselves, and we have to move quickly with the times.

However, whereas we now have enterprise-wide counterparty and static “golden source” databases, cross asset class market and credit risk systems, and group general ledger and finance systems, we don’t have many examples of an end-to-end enterprise-wide framework for integrating this plethora of new regulations into a bank in a seamless manner. Most of the regulations identified above are probably being implemented by the department “which is the most affected”.

This was certainly the case for FATCA (where the tax department probably took ownership by default!), and for CRD IV (which was handled by the Finance Department), with all the changes directly relating to customers (e.g. Client Agreements and Legal Entity Identifiers) being handled by relationship managers. Consequently for the Compliance Officers themselves, a ‘regulatory compliance framework’ is certainly required.

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Comments: (2)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 24 November, 2015, 12:33Be the first to give this comment the thumbs up 0 likes

Midway through the implementation of FPS for a Top 5 UK Bank came another major regulation. If my memory serves right, it was called "Pay No Pay". The bank attempted to integrate the two compliance teams and scheduled a meeting to work out the mechanics. A half hour into the meeting, it became amply clear that a common compliance framework would be impossible for more reasons than one viz. turf protection, ego hassles, varying timelines, different IT orgs., etc. I thought things have changed since then when I noticed the rising prominence given to the Chief Compliance Officer title. Any idea why the CCO hasn't been able to develop your ask of "regulatory compliance framework"?

A Finextra member
A Finextra member 30 November, 2015, 12:37Be the first to give this comment the thumbs up 0 likes

Succinctly stated, even though the compliance function has existed for many years it hasn’t, until recently, received either enough senior management or regulator attention concomitant, and on a par with, say the Chief Risk Officer or Chief Financial Officer. With the increasing number of regulators and regulations impacting firms, it is becoming apparent that the siloed approach has left banks vulnerable to missing the ‘big picture’ or from taking a holistic and enterprise wide view of the problem, thereby only creating point solutions.

For Europe MiFID I was the ‘call-to-action’ for the compliance function to stand front and centre and be the first line of defence for ensuring bank employees, systems and processes were compliant.

MiFID II reinforces the compliance function by mandating greater powers and responsibilities, and providing a direct route to the Board or Supervisory body with compliance related issues and risks.

All of this behoves well for the compliance function to receive the appropriate budgets and personnel it needs to fulfil its function, and give serious consideration to the development of an enterprise-wide approach for a regulatory compliance framework.