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The muddy waters of regulation

Friday 20 January 2012 - by Matt Gibbs


Audit and reporting requirements are only going to increase in future years so it is essential that financial institutions have decent systems and controls in place to deal with this, says Matt Gibbs, product manager for Linedata.

Regulation has been evolving at a shocking rate. Last year, the industry needed to cope with the evolution of Ucits IV, bans on short selling, remuneration, governance and Dodd Frank.

This year proves to be no less of a challenge as the acronyms continue to pile up. Mifid II, RDR, AIFMD, FATCA, Solvency II and Form PF are a few more the industry needs to worry about along with a myriad of further reforms taking shape. In the current state of play, it seems that everyone is looking to get their hands in the water.

The haste with which many of these regulations have been pushed forward, often due to political requirements, has resulted in limited opportunities for comment. As a result, the actual requirements to comply are more often than not, unclear and even contradictory.

Firms find themselves with a blurred roadmap on which they need to invest their resources and indirectly their client's resources to prepare for regulation.

So how can firms move forward? With such wide-ranging initiatives it appears that the key to survival in this quagmire is agility. There are three areas the industry should focus on today to be able to adapt to whatever comes their way, be that from Brussels, Washington or any other geography.


The first step is setting up internal controls. Checks and balances must be clearly laid out, implemented and documented with named responsibilities.

Looking at system capabilities and audit trails is second on the list. Ensure systems relative to those corresponding controls are technically up-to-date and provide the ability to monitor, manage and report on exposure.

Both Mifid II and Dodd Frank have extensive changes that promise an overhaul to the OTC markets and fulfil this commitment by expanding the use of central clearing.

Increasing the scope of CCPs to all asset types will highlight the risks being undertaken by participants and enable regulation to be more proactive rather than reactive but in Europe; where multiple CCPs exist, concern is growing that this will drive up the cost of participation in these markets. This creates broad implications around systems infrastructure.

The final thing that firms should focus on is auditing and reporting. Organisations need to ask themselves if they can aggregate their exposure and prove their internal operational and systems controls.

They also need to report to a myriad of clients, auditors and regulators. With new regulations like Mifid, the audit and reporting requirements will only increase in the coming months.

Although the water is clearing in places, it remains murky in others. Unfortunately this does little to add confidence, so firms need to be proactive and take the necessary actions for compliance.



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