When a new financial regulation is issued, one of the first things that a Compliance team will look at is the requirement for reporting to regulators. Changes may be needed to internal applications and information systems in order to be able to produce the required reports. As more investment firms today look to outsource administrative functions, finding an external service provider that can suck in the firm's data and pump out the necessary reports can become the order of the day. The trouble is, reporting is the last thing that modern regulations are about.

The latest batch of market regulations aims to increase the levels of competition across the market, to increase transparency across the market and to change the way that firms deal with their customers. Complying with this type of regulation means changing business processes, changing IT systems, and then monitoring that those changes have been effective in helping the firm to achieve compliance. Reporting quarterly or annually to regulators is the last step to prove that all of the right changes have been made and that the changed processes and systems are continuing to work in a compliant manner.

Putting regulatory reporting first is putting the cart before the horse, and some investment firms are finding this out the hard way as they now address regulations such as MAD, AIFMD, etc. What solutions they thought that they'd found for regulatory reporting are falling short of their requirements – not just their requirements for reporting but also their overall requirements for making and monitoring changes to their business processes.

Outsourcing administrative functions can make a lot of business sense, but only looking at data and reporting functions isn't enough. Getting equipped early for managing and monitoring business process change is much more critical to achieving compliance cost-effectively.