In our Forecast 2021 series, we bring you reflections and predictions from prominent firms and thought leaders from the industry. Today, we’re highlighting perspectives from the RegTech space, with thought leaders providing their perspectives on the compliance challenges facing the industry today and the trends that will define the regulatory landscape in years to come.

BXS
A trade data analytics and regulatory reporting firm
Michael Post, Executive Vice President

What challenges did market participants face from a compliance standpoint in 2020?

 There were a number of regulatory changes in 2020 that created compliance challenges for market participants. The enhanced reporting requirements for Rule 606 come to mind, as does the implementation of the Consolidated Audit Trail. Beyond these moves, remote work presented another significant obstacle. Setting up employees to trade independently and monitoring their activity from a regulatory/compliance standpoint is a daunting task. Fortunately, this year also saw the rise of both internal and third-party solutions to assist compliance officers in this process.

What are your expectations for the year ahead? What regulatory challenges will firms face and how can they be addressed?

We expect remote work to persist well into 2021, and the ultimate return to the office may be a slow process. As we move further into the pandemic, many companies are weighing critical business decisions, including whether or not to give up real estate. This means that market participants must continue to scrutinize their compliance processes, especially with so much regulatory activity on the horizon. Requests for Rule 606 reports continue to increase, with many buy-side firms demanding them on a quarterly basis. Tools to ease this process, including our platform’s built-in report scheduler, will be key. We’ll also be watching intently as CAT implementation continues to progress, in addition to monitoring for potential changes to Rule 605.

Make a prediction. How will the turmoil of 2020 affect the regulatory landscape going forward?

Watershed moments call for adaptation, and that’s exactly what the industry has done in moving employees to work-from-home situations. The adoption of additional remote monitoring systems means that remote trading will only become more common on both sides of the Street, pandemic or not. These solutions will help firms prepare for an uncertain future, and they also may present benefits for work-life balance, childcare and the like. The trend of increased regulation and transparency in our markets will remain – the difference is that participants now have more and better ways of rising to the occasion.

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Confluence
A global technology solutions provider
Gary Casagrande, VP of Global Market Strategy

 What challenges did market participants face from a compliance standpoint in 2020? 

The biggest challenge of 2020 for the global investment management industry from a regulatory compliance standpoint was simply ensuring that the work that needed to be done to complete monitoring requirements and filings could be completed in the pandemic world where the working environment was changed drastically. As with so many other requirements, the global response from the industry was impressive and unprecedented and, as a result, market participants were able to meet their regulatory requirements and keep customers and shareholders happy. It is a testament to the resiliency of the teams and operations that they have put in place and the technology solutions that are being used across the landscape in order to allow for a distributed workforce to complete complex and critical tasks.

What are your expectations for the year ahead? What regulatory challenges will firms face and how can they be addressed? 

Despite the challenges that the global investment management industry has faced with the pandemic, it has been operating in a largely business-as-usual environment for some time now. As such, the challenges in 2021 will be centered around new regulations – preparing for those with effective dates in 2021 and those that are in the legislation, proposal and comment process. Global regulators’ emphasis on liquidity and systemic risk, derivatives and valuation and reporting to shareholders puts tremendous pressure on funds’ operations teams to optimize their regulatory reporting process. Asset managers and service providers alike will need to ensure that they have the right ecosystem of solutions in place to turn enterprise and market data into filing data without significant stress or disruption on their operations.

Make a prediction. How will the turmoil of 2020 affect the regulatory landscape going forward? Or, what current trends in regulation will accelerate in the years ahead? 

I think that 2020 has actually done more to build confidence in the resilience of the global investment management industry than anything else. As such, I think that the regulatory focus on the global funds market will remain on transparency to shareholders and regulators, liquidity and systemic risk and shareholder reporting. In the years ahead, the most critical trend will be related to operationalizing all of the regulatory requirements and obligations that have been thrust upon the funds so as to not increase costs to shareholders. A focus on data and digitalization of the end-to-end process is sure to be a focus for the next few years.

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Eventus Systems
A provider of software solutions for compliance, trade surveillance and risk management
Joseph Schifano, Global Head of Regulatory Affairs

What challenges did market participants face from a compliance standpoint in 2020?

The pandemic created a number of challenges from a compliance standpoint, with employees working remotely and firms dusting off their BCPs. For many, it provided a moment of clarity as to how their workflows and systems function. For example, managers couldn’t just walk by someone’s desk; they had to rely on virtual tools and communications methods and trust that employees had the training and diligence to operate more autonomously. There were also challenges around the functioning of critical tools – surveillance, data management, trading mechanisms and the like – as well as the general obstacle of keeping pace in a less structured environment.

That said, and despite the pandemic, there were business-as-usual compliance challenges too. Sustained market volatility in the spring and negative oil prices caught our collective attention. Artificial intelligence and machine learning continued to garner attention in the surveillance space, prompting compliance officers to consider how to best leverage these techniques. The digital assets industry continued to expand, which sparked conversations globally as the regulatory picture evolves. Then, of course, there’s the fact that regulators didn’t lose a beat. In addition to a number of significant regulatory initiatives globally, the pace of enforcement actions relating to market manipulation and anti-money laundering continued.

What are your expectations for the year ahead? What regulatory challenges will firms face, and how can they be addressed?

I expect that compliance departments and regulators will conduct post-mortems on 2020. They will examine the issues outlined above and conduct internal reviews to determine lessons learned. These reviews will cover a wide range of topics including trading/surveillance tool performance, data validation and service interruptions. I also expect that firms will face increased pressure to upgrade surveillance and monitoring-related technology. This is due to both the general pace of technological innovation and the fact that regulators continue to update their own systems. Regulators have proven to be really good at mining data; firms are going to want to keep pace. To that end, market participants must continue their efforts to shed legacy technology and develop new-age surveillance technology that allows them to detect anomalies, cast a wide net for problematic behavior, and leverage machine learning and automation tools to refine alerts and maximize resources.

Make a prediction. How will the turmoil of 2020 affect the regulatory landscape going forward? Or, what current trends in regulation will accelerate in the years ahead?

 I’ll offer a few. For one thing, I believe the trend of increased regulation in the digital assets space will continue. As such, I imagine we’ll start to see some consolidation in digital asset businesses at some point. I also think European and Asian regulators, like their U.S. counterparts, will step up their efforts to go after bad actors. Despite a new administration in the U.S., the regulatory landscape will continue to evolve, and regulators aren’t going to let up.  Lastly, I expect regulators will continue adopting advanced technologies to surveil the markets, and firms will have to follow suit.

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n-Tier
A regulatory reporting solutions provider
Peter Gargone, Founder and CEO

What challenges did market participants face from a compliance standpoint in 2020?

Firms have faced a significant challenge in keeping up with the pace of change and growing number of data sets under regulatory scrutiny. For instance, broker-dealers now have only three days from the time the trade is executed to correct any incorrect data previously submitted to CAT. As the OATS successor, the new CAT reporting system includes more data fields, more events and now requires options reporting for the first time. This is coupled with the need for firms to adjust their regulatory operations to meet the new reporting requirements.

What are your expectations for the year ahead? What regulatory challenges will firms face and how can they be addressed?

While the regulators started taking a more data-driven approach to enforcing compliance ten years ago, their scrutiny is higher today than it has ever been. Regulators have heavily invested in technology to police and monitor regulatory reporting data quality. And with the 2021 calendar of changes already in place, firms can expect an increase in the data sets under regulatory scrutiny. This leaves firms with no option but to address reporting in an automated fashion to validate all data submitted to regulators, detect and correct data issues as they arise and provide an overall data governance framework across different regulatory reporting requirements.

Make a prediction. How will the turmoil of 2020 affect the regulatory landscape going forward? Or, what current trends in regulation will accelerate in the years ahead?

We don’t see the turmoil of 2020 having much impact on the regulatory data trends. Enforcement has been and continues to become stricter and broader, which has been evidenced by a recent $400 million fine against Citibank for failure to establish effective data governance programs and controls. The umbrella of overall data governance is something that has emerged in 2020 with significant penalties behind it. We expect this to become an ongoing trend driving firms to institute broader, automated data governance systems. Global firms must be ready as this shift is also happening across Europe and Asia.

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