Regulatory Data Sourcing: Time For A New Approach?

This year, regulatory reporting requirements introduced under the Dodd-Frank Act—impacting financial institutions engaged in cross-border derivatives transactions with US counterparts—have brought attention to the management of client data. The U.S. reporting requirements form part of the global effort to reduce systemic risk and improve transparency in the derivatives markets, and in a few short months, Europe will follow suit with similar but not identical rules that necessitate the reporting of listed and OTC derivatives transactions to a trade repository. Notwithstanding some of the technical nuisances in the reporting mandates of various jurisdictions, the increased focus on trade reporting provides some thematic similarities with which institutions should consider when reviewing the impacts and action plans for compliance. Namely, more than ever before, client or counterparty data management is becoming a critical function of the new derivatives markets, increasing the focus on this area well beyond the current client on-boarding function, and Know-Your-Customer processes. In the context of the increased burden of reporting requirements, ineffective management of counterparty data has the potential to disrupt client relationships. To mitigate this, the different functions within an institution—including the front, middle and back office—will have to demonstrate a more integrated approach to client data management in order to support the compliance function, ensure successful and streamlined implementation and in turn, minimise impact on the customer experience.