Risktech, fintech, regtech… Brextech?

October 7, 2016 –

Alexander Tsigutkin, CEO of AxiomSL, the enterprise-wide data and risk management solutions provider helping firms cope with some of the biggest change management challenges, gives his take on the new tech

Coping with changes to regulations, risk and compliance, as well as to operations and technology, are among the biggest challenges financial firms and corporates face.

With the scope of regulatory focus continuing to expand while budgets are cut, finding the right balance between sustained growth and meeting the needs of high frequency compliance change is an ongoing challenge.

Risk and finance executives agree that the need to embrace unconventional technology is inevitable to manage the quantities of data needed to perform extensive analysis and deliver internal and external reporting, according to the Basel Committee on Banking Supervision (BCBS) 239. As a result, we have seen fintech and, more recently, regtech evolve.

Integrated risk and finance

With tighter regulations, reputational and compliance risk have become perhaps the most significant ongoing concerns among financial institutions. As an example, let’s look at the capital markets – a sector that’s characterized by opacity, enormous deal size with nanosecond speed (both pre-trade and trade environment) as well as complexity and systemic risk. Incumbent financial firms integrating a data-driven change management platform would gain valuable market advantage. This would allow them to leverage their existing technology in a data-rich, analytical manner with increased use of predictive analytics and scenario analysis, to efficiently automate regulatory demands. It is critical that financial firms also address infrastructure-related challenges they face in relation to data risk aggregation, data lineage and data governance.

As the volume and complexity of new rules grow every year, so too does the interconnectedness of regulations. Historically, regulations tended to take a static approach. However, today there is significant overlap between regulations and cross-business functions. International Financial Reporting Standards (IFRS) 9 is a good example, which revolves around the requirement to accommodate the perspective of both risk and finance. These two divisions have previously operated in isolation from one another and have their own language, culture and data granularity frameworks for addressing and analyzing the uncertainties of the future. Trying to combine the goals of accountants and risk managers, leads to the key question: can structured and unstructured big data be managed in a controlled production environment while simultaneously being available for dynamic, flexible and evolving decision support?

The answer is yes. The right technology tools can provide both the controlled environment required by accounting and the flexibility demanded by risk. For instance, AxiomSL’s data-driven collaborative platform, known for its robustness, adaptability and transparency, imposes no constraints on where the data is located and enables financial firms to avoid duplication and double storage; as a result, data can be simultaneously used in a rigid production structure on the one hand as well as in a flexible, dynamic decision support environment on the other.

Data and process

As the quantum of structured and unstructured data grows and the requirement for transparency and traceability by regulators continues, the volume and granularity of data demanded by regulated entities will also grow.

Data is the lifeblood of an organization. It must flow seamlessly through its products and lines of business, not only to support growth strategies but also to meet ever-expanding regulatory compliance mandates. All too often, financial firms attempt to address increasing data volumes by creating more business unit silos. This data fragmentation results in major struggles when aggregating, enriching, analyzing and validating vast amounts of information in order to accurately report overall risk exposure and financial positions.

In addressing the slew of contemporary regulatory mandates – such as Basel III reporting rules, BCBS 239 Principles, the Markets in Financial Instruments Directive (MiFID) II, comprehensive capital analysis and review (CCAR), liquidity (LCR & NSFR) and stress testing requirements, IFRS 9, Fundamental Review of the Trading Book (FRTB), Common Reporting Standard (CRS) and Foreign Account Tax Compliance (FATCA), and many more – financial firms need a robust platform for change to provide data and process lineage data enrichment and automated workflow capabilities that deliver the analytics, reconciliation and validation required. These business functionalities, in addition to providing efficiency gains and saved resources, will enable firms to draw business intelligence from their regulatory compliance data gathering and reporting activities, plugging that intelligence back into their trading, risk management and operations.

Top management sees an opportunity, but in order to realise it, they must address data governance frameworks and data lineage in a controlled environment, and this is no small task. Given financial firms’ challenges, it demands partners like AxiomSL, which offers both a strategic blueprint to quickly adapt to change and the flexible platform to bridge disparate systems that house key datasets. In short, it demands a change manager.

Best option post-Brexit

In the wake of the vote by the UK in favor of Brexit, which compounded the many new regulatory compliance requirements, financial firms need to be swift and decisive while protecting existing business and re-establishing their European headquarters. That entails managing a multitude of time critical projects involving data management, finance, risk management and new regulatory regimes.

A data and process-driven platform, such as AxiomSL, enables financial institutions to make a timely and seamless transition, with the ability to attest the accuracy of data and the analytics when navigating through new regulations and the unknown impacts of Brexit. AxiomSL’s change management platform steps in and acts as an integration and application development layer, which is implemented with minimal internal disruption and without a ‘black box’ mentality. This integrated platform delivers traceability, transparency and greater clarity about the organization’s financial position and risk exposure to meet the requirements of both regulators and company management.

The focus of this work is on process streamlining and change management.

The industry’s technology focus has always evolved – from the early risktech to the fintech startup boom and now regtech. However, technology-led transformation strategy and its relationship to change, is making senior managers realize that it is not about developing new whizzy apps as individual solutions, but about transforming businesses for future success. To this end, it is time to consider new, unconventional methods to deal with the constant state of change.

This article originally appeared in the Autumn 2016 issue of FinTech Finance Magazine.