Collaboration is key
With the industry in perpetual change, it’s important for firms to work together to take advantage of big data, according to Roy Kirby of SIX
As a vendor, you can see the differences between organisations that just want to buy something to meet a regulation, and those that really have a long-term strategy. In the middle, there is room for different approaches, and what we see as an industry is the movement away from some of our own older business models, towards where we want to be in the future.
Industry leaders are looking at implementing chief data officers (CDOs), but a lot of firms are much further behind on their road maps. They need to be thinking about how to implement these roles into their business—a lot of companies wouldn’t even be ready to implement a first iteration of a CDO yet.
Artificial Intelligence (AI), data mining and big data are just buzzwords in and of themselves, if the technology can’t be harnessed to create useful products that solve a business need. If you have a business need, you might need a very small piece of information, supplied to you in a very certain way that you trust.
There’s simply no need for a massive system that is over-engineered or takes too long to process.
You need to have a strategy. You need to work out what you are paying for and where the overlaps in data are, in order to free up costs. At the moment, the regulations have been coming up thick and fast and nobody has had any respite.
One thing the industry needs to consider is whether this is an inflection point—a time for looking at what we have done in the past and thinking about where we go from here. We need to strip back and make use of the core data we have. We need to know where it’s from and that we can trust it, as well as having good reference points around it, so that it can be used easily.
The second Markets in Financial Instruments Directive (MiFID II) goes live in January and has obviously taken up all of firms’ resources, and more. There are a few more regulations still coming in, but because they aren’t as big as MiFID II, companies may be able to enjoy some respite.
What I hope all firms have done, however, is have a MiFID II 2.0 in place already. When people have created a regulatory project, they tend to have a checklist, collect their data and choose their systems. Traditionally, they will battle over the areas they want to go and fix, but will never get round to actually doing anything.
However, with MiFID II, because there are some things within the regulation that are open to interpretation, if you haven’t planned to keep the project open next year as well, then you are going to have problems. SIX will continue its MiFID II projects next year, despite the regulation coming into effect on 3 January 2018, to help its clients adjust.
In the EU, there has been, and will continue to be, an alignment in regulation and in the way certain things are looked at, for example, investor protection. But, there will always be a per-country interest, primarily because of the economic climate we are in and the difference in business cultures, even inside the EU.
If we look at the US and the EU, the alignment is already there, because the US is such an important trading partner. If you are not aligned with US regulation, laws and taxation, you are not going to do much business. And, because the cross-border issue is there already, people are already starting to align. The mindset of two of three years ago, where people didn’t see this as a top priority, has disappeared. Now, you have to make this a priority in order to do business, or you will be closed down.
In addition, timelines of regulation are always hard to predict, as they often get extended by six months to a year. In this case, the work needs to be done anyway. There was some furore about regulatory changes when the administration changed in the US, but it hasn’t happened yet. The regulations are still there; they might look slightly different, but they haven’t been ripped up.
The US government’s Internal Revenue Service (IRS) states that people must pay tax on financial instruments that reference US equity. Firms in Europe that create a financial products with a US underlying have to realise that there is a US tax obligation for investors. Things like dividend payments come into scope with that. It’s a new theme—the government is trying to get some revenue, it has found a regulatory loophole and is working on closing it. US firms are worried about it, but European firms should be worried too.
With regards to the back office, you need to know what is in your products and whether you are tax liable or not, but these rules also influence product creation. Obviously, there is a balance that needs to be met, if you can get a 1 or 2 percent return, and there is a taxation element of 5 percent then maybe it isn’t worth it. It’s something that we will see more of across Europe.
In addition, banks will start to clock on to where you are domiciled. If you have three different banks in three countries, then it is important to take into account the tax implication of where those products will come from.
We would love to see a lot more collaboration between customers and providers. When regulation comes out, don’t look at it in isolation. Join a working group or a forum and speak to each other to find a common way of solving it.
A bank doesn’t make money out of dealing with it, but if it is better positioned than other banks to deal with regulation, then it will be much more competitive. There are many common themes that banks in the industry should push onto the vendors, and we don’t see them doing that a lot. It happens individually, but not as a forum.
In addition, vendors need to communicate more as well. We each have core strengths, so if we pull together then we will be able to provide better products to our customers. It has always been about ‘me and my team’, and now the industry as a whole might be under pressure from other areas, so all the different players will have to work together.
Collectively, the industry sees the regulators as doing a good job, but, two or three years ago, everybody would have said the regulators were over-regulating and doing too much. The regulators are much closer to the industry now, and this is down to more transparency in the industry, which conferences and events can help to achieve. It’s no longer just a sales pitch—the industry is honing in on some key discussion points.