Brace Yourselves: How to Prepare for the New Regulatory Landscape
2018 saw a great commotion among the financial and trading spheres, with the introduction of MiFID II early in the year, on January 3rd. While MiFID II only relates to the EU, it had a wide-ranging impact on a significant number of international investment firms.
ESMA (European Securities and Markets Authority), the EU regulatory body that spawned MiFID and its updates, has announced 2018 to be an unofficial transitionary period for the implementation of the measures required to sufficiently adhere to the increased stricture of the MiFID II standards.
However, this initial leniency leads industry professionals to believe that a tough stance will be taken toward any non-compliant investment firms going forward.
As a result of this increased scrutiny, Regtech firms have been turning out compliance solutions to streamline the reporting and compliance requirements.
Cyprus gets a head start
In Cyprus, a hub for trading and investment firms both international and European, CySEC (Cyprus Securities and Exchange Commission) are poring over their licenced investment firms and making a proactive approach to ensure their compliance by the beginning of 2019.
On June 22nd this year CySEC announced their action plan for investigating firms that are failing or avoiding the required compliance measures, including the hiring of consultants and staff to implement the plan.
As a largely international centre for investment firms, Cyprus has also become the home of a large number of Regtech solution providers, and prominent among them is Leverate’s Cyprus-based Regyoul8.
Regyoul8 was originally launched in the latter half of 2017 to assist firms in implementing the procedures and practises needed to meet the necessary level of reporting rigour required by ESMA after MiFID II.
But recently, with the enforcement of the Cyprus Investment Firms Law by CySEC, Regyoul8 has been relaunched with extra compliance measures and a newly optimized internal management tool.
A minefield for the non-compliant
The regulatory environment has become strict and unforgiving for those who don’t comply with the rules. Sanctions for non-compliance are harsh and uncompromising, with public statements of infringement, cease and desist orders, prohibition from working in the industry (for natural persons), and minimum fines of €5 million.
And while MiFID II brought increased transparency and reporting duties, global AML policies brought increased scrutiny on KYC and money movements.
Although €5 million may not sound much when you have a multi-million Euro turnover, when those fines can increase up to twice the financial benefit gained from avoiding compliance, it no longer makes financial sense to try and avoid the burden of achieving a fully compliant business model.
However, in the new regulatory landscape across Europe there are so many reporting responsibilities one must undertake that most brokers will find the task daunting. To answer for it, new Regtech tools must combine different data collection and reporting measures and provide everything in the most streamlined manner possible.
On that front, Leverate’s Regyoul8 covers much more ground than the previous iteration. 2018’s Regyoul8 incorporates automatic best execution reporting measures for RTS27 and RTS28, along with RTS22 and EMIR reporting, AML standards, KYC policies, and the creation of regularly updated Key Information Documents (KIDs) for every product in the broker’s portfolio.
“The secret in today’s regulatory environment is to combine the necessities of compliance with the benefits of operational efficiency”, says Mrs. Chen Ben Nun, Head of Sales and Business Development at Leverate. “When rules are in continuous development, we’ve realized that our clients need a streamlined process to ensure they meet their compliance targets”.
Reporting and reaping the benefits
But regulation technology today is about more than reporting. The inflation of scrutiny measures has a positive by-product, in that it compels financial institutions to have more transparency and take better command of their internal procedures. That in turn can reflect also outwards in the form of better engagement with current or future customers.
“Regyoul8 is not just a reporting and compliance solution. All the information that Regyoul8 collects and prepares for reporting purposes can be made available for internal management, marketing material, and publication”, Says Pablo Schvartzman, Head of Customer Success Department at Leverate.
Given the abundance of legal and risk management measures at hand here, brokers need a valuable internal management tools, that give them the ability to keep abreast of changes in how they execute orders before their clientsnotice themand before they have to report them. A good compliance solution has to be a dynamic tool for maintaining policyadherence, and also an indicatorthat this policy may need updating.
“Regyoul8 can help brokers improve internal monitoring, attract new clients, and retain existing ones by proving their compliance with the most rigorous demands”, Says Pablo.
But showing your compliance is just one step towards better client engagement. Providing clear evidence of symmetrical slippage, the fairnessof your prices in relation to the execution of client orders, and your approach to product governance, showsyour competitiveedge to those same clients.
As Pablo sums it up, “Your business may need the compliance service that Regyoul8 was designedto provide, but it wants the increased client retention and new client acquisition that competitive performance reporting can bring”.