Broker Dealers: Beyond Capital and Compliance Challenges

November 21, 2016 – By: Alexander Tsigutkin, CEO – AxiomSL

The latest SEC and CFTC compliance mandates addressing customer asset protection compel broker dealers to evaluate their firm’s operations with respect to accountability, transparency and risk management. Intensifying transparency and data granularity demands in an increasingly complex market structure are forcing firms to break down traditional silos and re-architect their operating models in order to gain a holistic picture of their front-to-back operations.

Broker dealers are struggling to keep up with the stricter regimen for compliance regulations that include myriad rules such as- Rule 17a-5 that requires testing and auditor sign off of computations performed to comply with the Uniform Net Capital Rule (15c3-1) and the Customer Protection Rule (15c3-3) among many others. Unfortunately, the majority of sell-side firms are currently struggling with legacy systems that are aggregated with manual spreadsheets to support their reporting processes. In addition, compliance requirements have moved increasingly from post-trade data gathering and analysis to more real-time analytics and reporting. This shift has amplified the need for broker dealers to invest in more sophisticated, real-time data management platforms to meet mandated integration of structured and unstructured data sets for regulatory reporting requirements.
The market has reached a point where, sell-side investments in data collection and analysis will need to be front and center in the technological requirements for the firm. The storm of regulatory compliance (large volume of granular data collection), the need for integration (pre-trade, post-trade and real-time), and portfolio manager workflow optimization pressure has led firms to tackle the large undertaking of upgrading long awaited back end data management systems. Capabilities to integrate and reconcile heterogonous data sources, drill down and traceability into these sources from the reporting layer with full data and process lineage and conduct ad-hoc analysis are integral functionalities that have become a necessity for sell side broker dealer firms.
Institutions need to make investments in a combination of dynamic and flexible data-management architectures, along with aggregation capabilities and with a user-friendly GUI or reporting layer. Once data is collected, the workflow should involve a continuous process of aggregation and normalization, and data mapping to create order lifecycle, followed by analysis and reporting. This new platform should be able to interface with existing data sources, without any conversion, which in turn provides compliance officers and auditors with complete transparency over risk and capital computations. The only way that institutions can optimize their IT infrastructure is to address multiple regulations on one change management integrated platform. In other words, institutions should use an integrated platform to perform position and transaction reporting, for capital computation and liquidity measurements, as well as other reports such as: US Treasury -TIC, Shareholding Disclosures or even CRS/FATCA.
These regulatory compliance activities involve an ongoing process of preventing, detecting, investigating and remediating areas of noncompliance. The platform should also provide capabilities to re-use the same data for other internal and external analytics and reporting requirements. In addition to integration capabilities, it is important, that while making new investments, institutions should consider platforms that have the ability to integrate with client’s ongoing system. They should be adaptable so existing systems can perform ongoing tasks while sorting out the areas in need. Money invested in developing efficient processes and investing in advanced data management platforms will pay off in the short run.
To facilitate broker-dealers and to change this challenging situation into an opportunity, AxiomSL has introduced a change management platform that provides integrated, transparent and granular analytics and reporting along with the ability to re-use data. Its pre-built and tested calculation engine, provides a flexible, transparent and auditable solution enabling broker dealers to meet changing requirements and financial and management reporting. The integrated platform can be used for multiple mandates – including both traditional and taxonomy-based reporting – as well as analytics and audit process. The platform aggregates large volume of data across business functions and provide the data lineage to the source data (including transaction, process, etc.). It facilitates the ability to drill down from the risk data and dashboards summary into detailed sub-report and source information. It is user configurable, and also provides rules-based flexibility through visual business rules that enable business analysts to configure business reporting logic without traditional programing skills requirement. AxiomSL’s robust data-driven technology platform automates workflow for transaction level data to be processed into intra-day, daily, monthly, quarterly and annual reports.
The pressures of increasing compliance, continuous market structure changes and growing investor transparency concerns, sell-side firms have no option but to implement long-delayed technology upgrades to data management that facilitate transparency, data reconciliation and lineage, and deliver the level of granularity demanded by regulators. Sell side institutions should consider the data requirements of the proposed rules and ascertain whether or not current infrastructure is sufficient to meet such requirements.
Those firms that invest now to make the real-time analysis, data transparency and exchange of data part of their everyday workflow across the front, middle and back-office functions will be primed for both compliance and profitable growth. The sooner IT leaders and business leaders act to address these challenges, the more successful they will be in meeting the compliance and data-management requirements of this new era.

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