Regulation often includes reporting requirements. Examples are MiFIR, EMIR, SFTR, and AIFMD. It is striking that a very substantial proportion of the ESMA Q&A for all these regulations relates to the reporting requirements.
Why is this?
ESMA tends to publish Q&As when the rules are not clear enough… The scope and depth of regulations is vast and far-reaching. And the reality in finance is extremely complex and dynamic. That’s what makes it interesting!
Another explanation may be that reporting rules have a very measurable outcome: reports. Reports are right or wrong. Or wrong in various ways. Compliance with other conduct rules is often not as clearly measurable. When non-reporting rules are open to interpretation this can actually be a quality: principles based regulation. But highly prescriptive rules, such as reporting, need to have right or wrong outputs. Firms may be more inclined to validate their interpretation to make sure they get this right. Hence lots of Q&As. But also: lots of counsel advice, consultancy and in-house interpretations.
Are ‘robo-rulebooks’ or machine-executable rules a solution?
Making rules available as code seems an obvious way to remove ambiguity. It can certainly help. But it wouldn’t address many of today’s ESMA Q&A on reporting – interpretations remain required. And there’s a much bigger challenge for firms: to produce comprehensive and clean data across many different systems, available when needed for reporting.
An essential but often missing piece that firms need, and can have now, is a robust way to manage interpretations and implementation decisions with respect to regulatory requirements. This piece makes processes robust and boosts productivity. Reporting requirements are a very good example:
- Implementation decisions and interpretations are numerous in regulatory reporting. There are many different fields in each report and many different reporting scenarios within each firm.
- Teams of reporting staff need to work on the basis of consistent and shared reporting interpretations.
- Reporting needs to continue when the rule experts are not or no longer available.
- Interpretations and implementation decisions will need to be re-considered when relevant new rules, guidance or Q&A becomes available. This is not infrequent.
- Firms need to keep an appropriate audit trail.
The best way to achieve this level of productivity and robustness is to use a regulatory knowledge management system such as Single Rulebook. The system maps knowledge onto relevant rules and guidance. It maintains knowledge centrally, allows intuitive access to any one who needs it at any time, allows access to machines, provides for data governance and keeps an appropriate audit trail.
- If you require more information on how to deal with regulatory reporting, please contact us.