Comparing today to five years ago, what kind of challenges are firms up against with regards to regulatory reporting?
If we look back five or 10 years, a lot has changed. First of all, the number of regulatory reports has increased. The second element that has changed is the nature of the information that needs to be provided. Five or 10 years ago the information on regulatory reports were very much about the instrument and the characteristics of the fund, such as the price and the fees.
Now, in the content of regulatory reports we are going deeper and deeper into the portfolio of the funds, plus the transactions of the funds. The level of information we have to provide has become deeper, and we need to look inside the fund more and more, which also means we have to report more and more on the portfolio and its related risk elements.
The third fundamental change is the speed. We are living in a world where speed is increasing on an ongoing basis, which means we have less and less time to produce those reports. Reports have to be produced more frequently than in the past, and with less time in terms of deadlines. The speed of information has increased enormously compared to five or 10 years ago. Obviously, we have also had to change from that perspective.
How are they managing the additional challenges?
Asset managers have historically approached regulations one at a time, in a siloed approach. They didn’t have time to really think about whether that was the right way of approaching it. But there is an alternative. Rather than going regulation-by-regulation, why don’t we look at themes within the regulation and approach it by theme.
What are all the elements related to investor information? That crops up in AIFMD, in PRIIPs, in EMIR, and more. Tackling regulation by themes and categories, will be more efficient, especially when we have new reporting requirements popping up, because it means we don't have to re-invent the wheel. They can be categorised into existing areas. That is a feature we need to look at.
Combined with that, we also need to understand and this is more of a holistic point, how will reporting be affected, for instance, in a blockchain environment. We need to look at the fintech models that are popping up. If we are working in a blockchain environment the reporting will change. The way we produce reports, the nature of it, will change because we are in a different environment.
In a blockchain, nothing would prevent a manufacturer of products from allowing regulators to immediately look at what is going on inside the fund. It's early days, although we are making good progress on blockchain, but the nature of reporting might evolve in the next few years depending on the kind of technology that is affecting our industry.
Will it happen that quickly?
I have thought a lot about this. The first time I was confronted with blockchain was four or five years ago when it popped up with bitcoin. Personally, I thought, forget the currency, think about the blockchain element. At that time, people were saying that this could be ten years in the future. But, three or four years later, there are a lot of actors looking into it and spending money on research. We have already banks working together on common projects, so when it will come is difficult to say, but it appears to me it is not ten years away from now. It could come quicker than we think.
Also, some regulators are looking into it, and not necessarily with a negative attitude. They understand that for them, this type of technology could be of benefit, because it gives them access to all the information they need immediately.
Is there also a cost driver for improving efficiency?
Absolutely, and therefore I am advocating that we should approach it a little bit differently. Today, if we approach it regulation by regulation we can only add costs on top. It's not efficient. Therefore the main driver for optimising efficiency is to optimise the costs.
It’s about the cost, time to market, and accuracy, but approaching it differently doesn’t mean you have to lose one of these elements. You can be more accurate and much quicker if you approach things more holistically.
It’s important that we understand the challenges of regulatory reporting and remember that it is not going anywhere. We will only have to deal with more and more regulatory reports, we need to be more transparent and more efficient, That is just the world we are living in, and it will not go away.