Since the outbreak of the financial crisis in 2008, the global financial industry has been facing major regulatory challenges, such as Dodd-Frank, EMIR, and MiFID II/MiFIR. Most financial industry analysts expect to see even more regulation in the future.
The SimCorp Regulatory Center of Excellence monitors the legal environment continuously and stays in touch with different market participants like industry organizations and auditors. The Center’s key task is to transform national and international regulatory requirements into working SimCorp solutions before the regulation kicks in, ensuring you are prepared for regulatory compliance ahead of time.
Employing the services of the Regulatory Center of Excellence leaves you free to focus on your core business, while at the same time puts you in a good position to use regulatory change to gain competitive advantage over your peers by ensuring cost- and time-efficient regulatory compliance.
Adapting your IT platform to regulatory change
Regulatory initiatives have demonstrated that successful investment managers are those that are capable of managing regulatory change efficiently. By actively dealing with the inherent uncertainty and utilizing asset management software solutions that are easily adaptable, fast movers can gain competitive advantage.
Investment managers currently face a host of regulatory initiatives that have different regional origins. Regulatory development always comes with a high degree of uncertainty as to the interpretation of legal requirements compared to real-world operations. This requires close tracking of regulations over time to ensure your investment management system’s regulatory compliance.
In order to deal with these challenges efficiently and ensure their timely implementation, investment managers must:
- Manage the portfolio of relevant regulations carefully and proactively
- Operate their IT department in forward-looking mode
- Have an investment management platform that is prepared to adapt to new regulatory challenges at short notice and enables cost-efficient implementation.
One of the most important areas to monitor are new requirements on your operating platform, because the right timing and steering of the ensuing implementation efforts can have a direct impact on your business performance.
Regulatory change – a real world example
As an aftermath of the global financial crisis, the G20 countries initiated tighter regulatory oversight of the global derivatives markets.
As a result, the regulatory efforts were then undertaken at regional and national levels, producing a flurry of regulations across the globe, including Dodd-Frank in the USA, and EMIR in European Union. SimCorp’s Regulatory Center of Excellence monitored the entire process to define solutions for EMIR and ASIC reporting from SimCorp Dimension®, which are compliant with these regulatory initiatives.
EMIR’s impact as a case in point
In the case of European Market Infrastructure Regulation (EMIR), it features three elements that have a direct bearing on your IT infrastructure:
- Introduction of Central Clearing Parties (CCP) to reduce counterparty risk
- Optimized processing of OTC derivatives
- Increased market transparency with the introduction of trade repositories
Even though there is no uniform penalty scheme across countries and regions, regulators gave clear guidance that non-compliance with the requirements would result in severe penalties.
Combined with the extremely short time-to-market of the regulations, this created pressure and enormous market demand for quick-to-implement solutions in 2013.
EMIR Trade Repository Reporting: a successful solution experience
In a demonstration of best practice in action, between July 2013 and August 2014, SimCorp delivered its EMIR Trade Repository Reporting solution to more than 30 of its clients across Europe – all driven by the SimCorp Regulatory Center of Excellence as the professional services solution provider.
This shows that not only investment managers but also solution providers in the regulatory space benefit from operating a regulatory compliance function. This is because a unit like the SimCorp Regulatory Center of Excellence continuously provides up-to-date information about the regulation at hand, ensuring that solutions are built based on the right information.
From an IT architecture and solution perspective, Trade Repository Reporting has shown that investment managers using multiple systems for their derivatives processing can face significantly higher costs when it comes to fulfilling their regulatory requirements.
Regulatory Services supports you to be adequately prepared to comply with major financial regulatory changes, so that you can focus on your core business.
Legal Rule Set Service
Whatever the event or reason behind regulatory change may be, your firm must initiate numerous actions and adjustments. Even before all the details are available, you must monitor the regulatory discussions in the market, track potential changes, and take action if system changes are required.
This service helps keep track of regulatory changes and their impact on your SimCorp Dimension® installation. The Legal Rule Set Service covers over 700 legal investment restrictions, with the number increasingly annually.
Solvency II Service
Solvency II aims at creating a single EU market for insurance services and improving consumer protection. Solvency II requires insurers to uphold certain solvency requirements, with the aim of achieving a correlation between capital requirements and economic risk.
This service helps you set up the standard model for the quantitative requirements of Pillar 1, as well as authority reporting, public disclosure and risk reporting covered by Pillar 3 of the Solvency II framework.
Trade Repository Reporting Service
EU regulation and ESMA standards specify that both counterparties have reporting obligations for all derivatives. This means you have to report all your derivatives trades daily (OTC and exchange-traded derivatives) to a trade repository. Not only do you have to report trade information but also market value, collateral information, and life-cycle events.
This service helps you gain control of the complete process from data collection and processing, right through to creating reports.