Streamlining Global Compliance
CHALLENGE: As firms expand into more and more emerging markets, disparate regulations make it difficult to leverage compliance systems enterprisewide, forcing many companies to implement costly and often redundant point solutions to comply with local requirements.
Why It's Important: While MiFID has unified oversight within the European Union, it actually has made compliance for U.S.-based firms that do business on both sides of the Atlantic more complicated. Also, U.S. firms have to comply with several different regulatory bodies in the U.S., including the SEC, the Financial Industry Regulatory Authority (FINRA) and state regulators. Further, as firms expand into more and more global markets, their compliance departments are burdened with responding to the complex local regulations, particularly in emerging markets such as China, Russia, Brazil and India.
Complying with disparate regulations not only requires knowledge of local rules, it often requires multiple technology solutions. "In the past, banks have always had a layer-on-layer, point solution, which is very expensive," observes Peter Horowitz, SVP, managing director, financial services, at BearingPoint. Streamlining global regulations certainly would make compliance less onerous and less costly.
Where the Industry Is Now: In a move designed to reduce redundancy in the U.S., last summer the NASD and NYSE Regulation merged to form a single watchdog, FINRA. "Until the merger, each one of the regulators responded to a unique process or report," according to J.R. Reagan, managing director and global solution leader - risk, compliance and security, BearingPoint. This often would force firms to respond to redundant inquiries.
Regulators also are developing arrangements that enable authorities in the largest markets to pool knowledge and concerns. An example is the Swiss Federal Banking Commission, which organizes meetings involving the U.K.'s Financial Services Authority (FSA) and the Federal Reserve Bank of New York to discuss the business of UBS and Credit Suisse.
The SEC is trying to make it easier for non-U.S.-based firms to operate in the U.S. and has hosted discussions on the mutual recognition of overseas regimes. In 2007, the SEC made amendments to its Foreign Private Issuer Deregistration Rules to make it easier for foreign private issuers to exit the U.S. market.
Focus for 2008: "There is more cross-fertilization of ideas," says Trevor Barritt, head of compliance, Europe, at Actimize, a provider of compliance solutions to brokerages. "We're finding a lot more movement for senior management between countries' regulatory bodies." For example, both the U.S. Public Company Accounting Oversight Board (PCAOB) and the SEC are making more frequent trips to Asia to gauge whether they can find common regulatory ground.
While there is talk of reducing the burden of Reg NMS by making it more principles-based, as is MiFID, officials at the FSA and SEC say there are no firm plans to streamline international compliance. As a result, firms must deploy compliance tools for specific markets rather than implement global solutions. "So firms have eight instances of the same surveillance tool responding to the same type of threat in individual regions," says BearingPoint's Reagan. The immediate focus for firms is to figure out how to leverage existing compliance technologies to meet disparate requirements.
Industry Leaders: The SEC has introduced a consolidated supervised entity (CSE) regime for large U.S. broker-dealers with operations in the EU. The FSA is the EU coordinator for these broker-dealer groups and works closely with the SEC.
Technology Providers: The largest compliance solution providers are Actimize, which provides a MiFID brokerage compliance solution, and SunGard, which released its MiFID Hub solution earlier this year. Others include TurboCompliance and Complinet, whose Tracker Web-based platform tracks regulators' activities across the globe.
Price Tag: Varied, depending on the project's scope. Actimize's MiFID Compliance solution starts at a few hundred thousand dollars for a small project and can reach more than $1 million for larger deployments. The cost of implementing a single global compliance platform is hard to quantify, although the savings to companies using a unified solution could be significant.
Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio
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