News

Press

AQMetrics updates platform for new SEC investment company reporting rules

DUBLIN, June 1, 2017 /PRNewswire/ —

Leading RegTech company, AQMetrics, today announced new enhancements to its cloud-based platform. The updates will provide registered fund clients with updated forms and an advanced risk analytics and monitoring portal to ensure compliance with the Securities and Exchange Commission’s (SEC) new reporting regulations.

The new rules, which go into effect in June 2018, change several registered fund reporting requirements, including the addition of Form N-PORT, Form N-LIQUID and Form N-CEN.

“We are constantly evolving our RegTech solutions to meet the needs of our ever-growing client base,” said Geraldine Gibson, CEO of AQMetrics. “When the then SEC Chair, Mary Jo White, first introduced the concept of updated SEC reporting regulations for investment companies back in 2015, we got to work developing an industry-leading solution that will make complying with the new requirements as seamless, efficient and accurate as possible for our clients.”

Aimed at addressing the fund industry’s significant changes over the last twenty years, ranging from the advent of Exchange-Traded Funds (ETFs) to increased use of alternative strategies, the new SEC reporting regulations modernize and increase the transparency of registered fund reporting to enable investors to more accurately gauge and manage risk. Specifically, the new Form N-PORT, replacing Form N-Q, requires monthly portfolio holding reporting while the new Form N-CEN, replacing Form N-SAR, requires annual reporting of census-type information. Further, Form N-LIQUID promotes effective liquidity risk management for open-end management investment companies.

“Our platform updates and enhancements not only allow our registered fund clients to be confident in their ability to comply with the new regulations, but they go a step further – giving our clients access to robust risk analytics through the monitoring tool suite we’ve developed in tandem with the updated reporting mechanisms,” said Claire Savage, COO of AQMetrics. “When new reporting regulations, like the SEC modernization rules, come down the pipeline, we see an opportunity to not only ease our clients’ compliance burden but to actually offer them more insight into their fund performance.”


Press

AQMetrics Continues Client Growth with Addition of Three Top Firms

DUBLIN, May 25, 2017 /PRNewswire/ —

Leading RegTech company, AQMetrics, today announced new relationships with Alcova Asset Management LLP, Colchis Capital Management, LP and Hibernia REIT plc. The addition of these three firms demonstrates the Company’s ongoing global growth as an increasing number of companies select AQMetrics’ award-winning technology to help meet their regulatory and compliance needs.

“We are delighted that our advanced technology solutions are being adopted globally by very large PLCs and banks through to small to medium-sized firms,” said Geraldine Gibson, CEO of AQMetrics. “Our goal is to consistently provide best-in-class risk, regulation and compliance services to each one of our clients. We look forward to working with our new customers to help them navigate the changing regulatory and compliance landscape.”

As the regulatory space becomes increasingly complex, AQMetrics continues to introduce new technology and solutions to help organizations mitigate risk and adhere to regulatory requirements. The addition of these three firms represents AQMetrics’ growing reach across various sectors in the financial services industry. Alcova is a multi-strategy quantitative hedge fund based in London. Colchis Capital is a leading investment management firm based in San Francisco and focused on specialty finance lending. Hibernia REIT plc is a Dublin- focused Real Estate Investment Trust listed on the Irish and London Stock Exchanges.

“As our client base continues to expand around the globe, I am especially thrilled to see the growing traction in the U.S following our entry into the market last year,” said Ryan Kipp, Head of Sales, Americas, at AQMetrics. “Colchis is a leading investment management firm here in the U.S., and the addition of this company to our impressive client roster reaffirms our growing stateside presence.”

About AQMetrics

AQMetrics is a leading RegTech company focused on delivering regulatory risk and compliance solutions for financial professionals. We recognized that the accepted methods of managing risk and compliance were slow, outmoded, and inefficient. We drew upon our team’s deep experience in innovation, technology, law, and financial services to build a platform that performed markedly better, helping our clients leverage technology to more efficiently meet regulatory obligations. The AQMetrics platform has been tested, proven and perfected.

More information is available at http://www.aqmetrics.com or follow us on Twitter @AQMetrics

Media contact
Caliber Corporate Advisers
Kristina Pereira Tully
+1-888-550-6385 ext. 5
kristina@calibercorporate.com


Blog

Joining the Dots: The Value of an Integrated Approach to Risk Monitoring and Regulatory Reporting

 

By Geraldine Gibson, Chief Executive Officer, AQMetrics.

Regulatory reporting and risk monitoring are now, quite rightly, both considered high priority for most firms in the financial industry. Yet despite the growing reliance on quality data, analytics and insights to remain compliant in both of these areas, the tendency is still for them to be run on separate systems and monitored individually. In fact, firms that are still collating their data in this manner – instead of taking a unified approach – are not only making it more timely and difficult to respond to regulatory queries, but are also missing out on rich data insights which could prove beneficial to their business as a whole.

Even in terms of data reporting, regulatory bodies are increasingly focused on identifying risk. If your firm is then queried by the regulator about certain outputs, isn’t it much simpler to have one single, unified data system to consult rather than trying to contact multiple vendors? A central, ‘golden data’ source means all your information is available in one place, making responding to regulatory queries a far simpler task. Also, if you’re reporting through one system and calculating risk with another, then you simply don’t have all the dots joined-up to form valuable, rich data insights. But by unifying these systems, you enable additional insights which can then be used to develop more advanced analytics and risk measures.

Accuracy is assured

In today’s investment and asset management industry, being able to generate this level of reliable, insightful data is a must. Not least considering the range of current and upcoming regulatory requirements for this sector, including:

  • MiFID II and MiFIR;
  • The Alternative Investment Fund Managers Directive (AIFMD);
  • The UCITS Directive (UCITS V);
  • The SEC modernisation of fund management regulation, expected to be implemented in 2018.

And on the risk monitoring side, the ability to readily view where your market, credit and even enterprise risks are can be just as vital.

A further point to consider is that if you are still using multiple systems to populate your data, effectively you’re doing the work twice. Or if sourcing the data is a challenge, again you would be better off having one, single system. This enables you to more easily identify and plug any gaps in your data, which in turn helps remove the problem of inaccurate data. But by reporting data to the regulator from one system, and monitoring risk from another, you’re storing a different snapshot of data and cannot be as confident about its accuracy.

Speed and resilience

In addition to a growing focus on risk, new regulatory requirements are also mandating higher volumes of transaction data and more frequent reporting from individual firms. Therefore, the increased latency created by risk systems outside a single source may result in a delay in your frim being able to report. But by using a single source, the speed and efficiency of retrieving your data is assured. Furthermore, running multiple systems can also decrease your company’s overall resilience to cybercrime threats. By operating a single data source, you increase your information security and reduce your risk of multiple points of failure or attack.

So just how difficult is it to create this unified, golden data source? Initially of course, there is the task of retrieving all historical data and having it mapped to the single system. Yet following this one-off data onboarding, that system becomes the new working data source. The process is the same as any migration to a new system. At AQMetrics, we look at the risk level of each individual instrument and then correlate these at an asset class level, before comparing and reconciling them up to a portfolio level. And finally, having the data in one place allows us to view the links between different factors, such as geographic exposures or sector exposures. These are far more difficult to spot when working with spreadsheets or even on disparate systems. A unified, golden data source enables you to ‘slice and dice’ the information in a way that just isn’t possible without it.


Blog

AQMetrics Adds Legal Expert to Lead New U.K. Office

Breige A. Tinnelly joins RegTech Firm to continue driving growth within the U.K.

DUBLIN and LONDON, May 8, 2017 /PRNewswire/ —

Leading RegTech company, AQMetrics, today announced that recognized industry veteran, Breige A. Tinnelly, is joining the firm as Head of Sales, U.K. Tinnelly will oversee AQMetrics’ newest office based in London as the firm takes the next step in its ongoing strategic growth initiative.

Tinnelly’s hire combined with the firm’s growing number of locations reaffirm AQMetrics’ position as a leader in the RegTech space, dedicated to serving the robust global network of clients who rely on its award-winning cloud-based RegTech platform.

“As a former lawyer with a deep understanding of the needs of AQMetrics’ target market, Breige brings the exact expertise and experience we were looking for to lead the U.K. sales team,” said Geraldine Gibson, CEO of AQMetrics. “In opening a London-based branch, we are employing the proven expansion strategy that enabled our successful entry into the U.S. market. We are committed to continuing our energetic growth trajectory by adding domain experts and expanding our physical presence throughout the world, so that we can continue to meet our clients regulatory risk and compliance needs – wherever those clients may be.”

Tinnelly brings over 20 years of professional experience in law and financial services to her new position as Head of Sales, U.K. Prior to joining AQMetrics, Tinnelly served as Senior Vice President at U.S. Bank and as Vice President of BNY Mellon. Tinnelly was previously a Managing Partner at Carlingford Capital Ltd, an advisory firm providing consulting services to private equity funds and asset managers. Before moving into the financial services sector, Tinnelly practiced law in the U.K. with the firm Cleary Gottlieb Steen and Hamilton and worked at the New York-based law firm Felcher, Fox and Litner.

Tinnelly is AQMetrics’ most recent senior hire as the Company continues attracting top industry talent. In January the firm added Cathal Connolly as Head of Global Regulatory Reporting based in Ireland, and Ryan Kipp as Head of Sales, Americas, based in the U.S.


About AQMetrics

AQMetrics is a leading RegTech company focused on delivering regulatory risk and compliance solutions for financial professionals. We recognized that the accepted methods of managing risk and compliance were slow, outmoded, and inefficient. We drew upon our team’s deep experience in innovation, technology, law, and financial services to build a platform that performed markedly better, helping our clients leverage technology to more efficiently meet regulatory obligations. The AQMetrics platform has been tested, proven and perfected.

More information is available at http://www.aqmetrics.com, or follow us on Twitter @AQMetrics

Media contact
Caliber Corporate Advisers
Kristina Pereira Tully
+1-888-550-6385 ext. 5
kristina@calibercorporate.com


MiFID II:Articles

MiFID II: Time to Tackle Transaction Reporting in Detail

By Steve Barnes, VP of Technology, AQMetrics.

Following the recent changes to mandatory transaction reporting (TR) being introduced under MiFID II, there are now a number of vital new reporting obligations which the markets must rapidly become familiar with. Yet as was revealed by a recent webinar I took part in on TR data and data management challenges, it was clear that the industry is hungry for additional clarity and detail around the specific changes to these reporting requirements.

Scale of the challenge

A particularly concerning point for firms, which I covered in the webinar, involves the new set of reporting fields and the potential difficulties involved in extracting this data from their existing systems. For example, general fields will require extra steps in an ETL process to continue to ensure the quality of the data. There is also an emphasis on the mandatory use of Legal Entity Identifier (LEI) codes. In the case of the buyer and seller fields, all legal entities will need to be referenced against a global LEI database before submitting to the regulator – or the report will fail. This requires extra due diligence to protect the data quality.

In the case of the buyer consisting of an actual person, details such as their first name, last name and date of birth may need to be obtained from the human resources department. A firm’s internal systems may never have had to interface with HR before and, depending on the size of the organisation, the data may also be in siloed systems. This might involve developing a data programme to get these systems working together. Accessing these systems may take a longer time than firms initially expect, which is especially worrying for firms that have not started the process yet.

Additional considerations

Furthermore, the addition of OTC derivatives has complicated matters further in relation to data fields. This is mainly due to questions around how to classify OTC derivatives under the ISO data standards. The algorithms needed to differentiate between decision maker and executer, alongside additional challenges indetermining where to apply the pre-trade waiver to commodity derivatives are proving a certain level of complexity exists above and beyond that seen under MiFIDI. Sourcing the data can also be problematic, particularly if the systems have not interfaced to before, or if they have not been updated for some time.This will ultimately prove to be a key data reporting challenge for most firms.

Webinar participants were also interested in the potential impact of the incoming General Data Protection Regulation (GDPR), due to come into force in May 2018, and the wider data protection issues raised by the mandatory collection of data about individuals. In terms of details such as names and date of birth being required then they ought to be protected by existing data protection rules. In terms of third-party data through an Approved Reporting Mechanism (ARM), then ARM service providers will need to have a GDPR policy.

Effort that pays

Overall, data quality is key to most of these requirements. For example, AQMetrics uses programmatic regulatory control checks to ensure the data quality meets the required standards before submitting to the regulator. These checks are relatively simple for certain numerical fields, dates and country codes,  but problems can arise when the data is unstructured such as names or passport details. The source system data may originally be of poor quality for historical reasons. As a result, performing a data quality exercise on the existing systems before data gets channelled through for transaction reporting is essential. Data control is especially key under MIFIR. Moving from manual systems, such as records held on excel spreadsheets, to more automated systems may involve a third-party who can implement better auditing and governance processes.

AQMetrics offers a full range of risk and compliance solutions for MiFID II transaction reporting. AQMetrics is authorising as an ARM under the Central Bank of Ireland and plans on passporting its MiFIDII transaction reporting services to regulators throughout Europe . Firms tend to find that once their TR is being correctly implemented, then the benefits for getting MiFID II right go further than just regulatory compliance. It is very useful for firms to have a single view of the data they are collecting, where is came from and knowing the limits of their systems. This data can then be used elsewhere in the organisation. But the main takeaway I hope practitioners gained from the webinar was simply to not leave updating their systems for the new requirements to the last minute. Many of the necessary changes may be much bigger and more expensive than initially expected, so it really does pay to start early.

The full webinar recording: “MiFID II: Data for transaction reporting” is available here.

Webinar link:

http://resource.datamanagementreview.com/webinar-recording-mifid-ii-mar2017

 


Cyber Security

Cybersecurity Risk and the Need for a Holistic Approach

By Lorraine Toland, Business Development Representative, AQMetrics

Cybersecurity threats are now high on the list of risk mitigation priorities for most firms and institutions – and if not, then they certainly should be. In addition to the reputational damage an attack can cause your firm, it is now widely recognised that they can also wreak serious financial damage, which in turn can negatively impact your investors and shareholders. Furthermore, cybersecurity must now be viewed in relation to all other operational risks. Yet despite the consequences of cybersecurity breaches and the growing regulatory impetus to consistently monitor, as well as evaluate, risk management processes and have a holistic register in place, this is not yet ingrained in the culture of most firms. But change may well be on the horizon.  

 

Outdated methods

The Central Bank of Ireland (CBI) recently highlighted the need for most firms to radically improve their approach to risk monitoring. Since 2015, the CBI has been carrying out onsite thematic and targeted inspections of various firms’ cybersecurity provisions. The concerning issue it has uncovered is that the risk registers in most institutions are completely outdated, of poor quality and are still being updated manually ie, on spreadsheets. In addition, it believes that firms shouldn’t be monitoring cybersecurity in isolation but should instead view it in the context of their wider IT security, business continuity planning and risk management strategies.

The CBI’s findings provide a timely warning to the industry in general, particularly in light of recent high-profile failures and the increasing emphasis from global regulators that firms must adequately monitor all risks. Most regulators and inspectors, for example, require all staff – including board members and non-executive directors – to be aware of what is in their risk registers. It is also important to know that your firm would be required to provide regulators with all necessary documents, which may include your meeting minutes, system logs, user access logs, policies and procedures etc. Yet as the CBI discovered, there is often a noticeable lack of technical knowledge, particularly at board level. To remedy this, the CBI suggests having best practice workshops to strengthen the technical awareness of your board members. 

Standardised and understandable

In addition, when you are initially capturing your operational risk data it is vital to ensure that this information is captured consistently across your whole organisation. This then radically simplifies the process of aggregating all your risk information from across different departments, or even different groups. But instead we still find many firms are trying to manually aggregate large volumes of data from a variety of different spreadsheets in different formats, then trying to formulate this into a meaningful report.

But how can your firm achieve consistent data capture efficiently and ensure it can provide meaningful insights into your risk exposure? To this end, the National Institute of Standards and Technology (NIST) has produced a recommended framework and methodology, consisting of five requirements for firms to use in the cybersecurity processes. This is intended to provide a common language for understanding, managing, and expressing cybersecurity risk, both internally and externally. The five core functions are:

  1. Identify: Develop the organisational understanding to manage cybersecurity risk to systems, assets, data, and capabilities.
  2. Protect: Develop and implement the appropriate safeguards to ensure delivery of critical infrastructure services.
  3. Detect: Develop and implement the appropriate activities to identify the occurrence of a cybersecurity event.
  4. Respond: Develop and implement the appropriate activities to take action regarding a detected cybersecurity event.
  5. Recover: Develop and implement the appropriate activities to maintain plans for resilience and to restore any capabilities or services that were impaired due to a cybersecurity event.

 

Weight of responsibility

These five requirements can be used to help identify your governance procedures, formulate a risk management strategy and then to also run formal risk assessments in-house to review your risk register and how successfully your data is being recorded on an ongoing basis. Having an automated, fully auditable risk register will further strengthen this process. For example, AQMetrics offers single cloud-based platforms which enable firms to capture their risk in a consistent and controlled way across their whole organisation. This also provides full auditability, playback capability and all workflows all accessed from a single platform, so it is all in one place.

 

Ultimately, being able to effectively monitor all risk across the board is now vital: from market and credit risk through to business continuity planning (BCP) and third-party vendor risk. With upcoming regulatory changes, such as the implementation of the General Data Protection Regulation (GDPR) next year, having a holistic view of all your risks is also beneficial for demonstrating to regulatory bodies that your firm is indeed meeting its requirements. In addition, it provides an additional level of comfort for your investors that not only are you capturing all of your risk, but you are in fact ten steps ahead. Of course, some firms opt to outsource much of this risk capture to third-parties instead but this can often create additional, unintended risk. You can outsource your risk but not the responsibility – the onus remains on your firm to ensure you have an adequate risk register in place and that risk mitigation is truly an ingrained part of your business culture.

 


MiFID II, MiFID II:Articles

The capture and release of wild data under MiFID II/MiFIR

By Steve Barnes, VP Technology

Wild data is roaming about your organisation. The new Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) will demand you round it up, process it and release it as trade and transaction reports.

The rules will apply from January 2018 to European Union firms, their branches outside of the European Union and financial institutions operating in the EU. Nearly all instruments are subject to the new regulation and directive, where under MiFID I only equities and exchange-traded funds were affected. Over-the-counter (OTC) trade reporting has been captured within the organised trading facility (OTF) and multi-lateral trading facility (MTF) frameworks, where MiFID I only affected trading of instruments on regulated markets (RMs).

Trade reporting will make public information including volume, price and time of execution via an Approve Publication Arrangement (APA). Transaction reporting to authorities is more substantial and must be conducted via an Approved Reporting Mechanism (ARM).

The increase in data fields for the purposes of transaction reporting under MiFID II – from 24 to 65 – multiplied by the increased number of instruments and range of trading involved gives an indication of the greater complexity of data that will need to be managed.

Pulling data together so that it can be normalised takes considerable effort. In the report by analyst firm Aite Group entitled, “Reconciliation Trends in 2016: Regulation and Nervous Recs”, it was estimated that it takes nearly 65 days to develop and build a single new reconciliation.

Investment firms need to understand how and where to report data, then take the operational steps to make it happen. Collectively, these requirements add up to massive project to aggregate and report data.

 

Get it together

Step one is identifying where this data is generated, if it is already captured and if not how to capture it. Some of the new additional data – for example unique identifiers for traders, such as national ID number – may never have been captured and stored before. The risk around storing data of that granularity is considerable and may well require a review of data security measures.  

Transforming that data into the right format to report, via extensible mark-up language (XML) offers further operational challenges, with new data required than before, and certain reporting not having been needed under MiFID I.

The second step will require firms to develop in-house capabilities that they have not had before. They will need to build test harnesses, then build the platforms, harnesses, testing systems, and the silos. This will require a full technology build-out, setting up a rock solid system that can report to the regulator.

For trade reporting, APAs have a five-minute window, near real-time, in which to take on the trade, pass it to the regulator, receive a response and pass that back to the system to determines whether it has been accepted or not. For high volumes of trading that could create real challenges around data latency. A system failure or a slowing down of processing will lead to challenges in fulfilling obligations. Any system built to handle reporting will also need to be able to scale in order to manage this workload.

 

Working the system

The key to handling data at scale is the capacity to tag and reuse it. A smart method of handing that process is using EXtensible Markup Language (XML). It handles the multifaceted nature of the data by managing the many relationships that pieces of information have with one another. Every aspect of the trade is tagged which allows it to be handled by different parties according to their needs.

From an internal perspective, if a firm is warehousing this information it can map fields to tags in the XML, and then run programs – typically Java-based applications – to the XML file, and then run a schema validation. The European Securities and Market Authority, the Financial Conduct Authority and the Central Bank of Ireland will all provide an XML schema to validate it the data.

This creates a massive advantage for firms that employ the technology because the XML file that they have created can be validated and if it comes back with no errors, can be sent to the regulator, with near certainty that it will be good, or nearly good.

Using technology effectively in this process allows a firm to round its herd of data up and brand it, so that the business can be certain of what it has and does not have, removing a massive amount of cost and complexity from the validation process.


Press

AQMetrics Named Best Compliance Product for Small and Start Up Firms at HFM US Technology Awards

 

NEW YORK, February 17, 2017 /PRNewswire/ —

AQMetrics, a leading global RegTech company, today announced it was named ‘Best compliance product for small and start up firms’ at the 2017 HFM US Technology Awards ceremony on February 13, 2017.

The HFM US Technology Awards recognize and reward IT and software providers serving the hedge fund sector that have demonstrated exceptional customer service and innovative product development over the past 12 months. AQMetrics also received the same award at the HFM Europe Technology Awards in December, further signifying the Company’s growing global presence.

“We are thrilled to be recognized as a leading RegTech platform in the U.S.,” says Ryan Kipp, head of U.S sales. “As we continue to grow our local footprint in the United States, this award supports our ongoing commitment to build out our sales network and further expand our offerings in this market.”

AQMetrics uses smart technology to build out effective, efficient and scalable risk and compliance tools combined with the expertise of its industry-leading team of professionals. This technology is built with both small and large firms in mind, and in the last 18 months, over 40 per cent of the firm’s new customers have been small and startup hedge funds. The firm has also continued its commitment to strategic global growth with the recent expansion its sales team and partners throughout the Americas.

“It is an honor to be named the leading compliance product this year by the HFM US Technology Awards,” said Geraldine Gibson, CEO, AQMetrics. “Between this accolade and our recognition in the Europe HFM Awards, these achievements are a direct reinforcement that our innovative risk and compliance technology is playing a significant role in shaping the way customers respond to regulatory demands around the globe.”

This win follows AQMetrics’ announcement of last month, introducing enhancements to its platform specifically geared towards helping clients prepare for the January 2018 MiFID II regulatory deadline.

About AQMetrics 

AQMetrics is a leading RegTech company focused on delivering regulatory risk and compliance solutions for financial professionals. We recognized that the accepted methods of managing risk and compliance were slow, outmoded, and inefficient. We drew upon our team’s deep experience in innovation, technology, law, and financial services to build a platform that performed markedly better, helping our clients leverage technology to more efficiently meet regulatory obligations. The AQMetrics platform has been tested, proven and perfected.

More information is available at http://www.aqmetrics.com, or follow us on Twitter @AQMetrics


Press

AQMetrics Strengthens Team in Europe and the Americas with Addition of Top Financial Industry Talent

DUBLIN and NEW YORK, Jan. 26, 2017 /PRNewswire/

— Leading RegTech company, AQMetrics, today announced it is growing its global leadership team with the addition of two financial industry experts, Ryan Kipp and Cathal Connolly. Kipp joins as Head of Sales, Americas, based in the U.S., and Connolly will serve as Head of Global Regulatory Reporting, based in Ireland.

These latest hires reinforce the firm’s commitment to attracting industry-leading talent to support the growing adoption of its award-winning cloud-based RegTech platform.

“Ryan and Cathal each bring a level of expertise and breadth of experience that is difficult to match across the financial and regulatory space,” said Geraldine Gibson, CEO of AQMetrics. “As the needs of our expanding client base evolve, we’re committed to growing our team to help clients around the globe better meet the challenges of today’s shifting regulatory landscape.”

Kipp will lead the firm’s continued geographic expansion of its sales team and partners throughout the Americas, building on the company’s focused growth in the region. Prior to joining AQMetrics, Kipp served as Global Head of Sales at financial technology company, Cachematrix. Prior to Cachematrix, he was the Director of Client Coverage within the Global Corporate & Investment Banking division of Bank of America Merrill Lynch.  

Connolly brings to his new role over thirteen years of regulatory expertise in senior roles at Citco and most recently State Street, where he served as Global Regulatory Reporting Director.

Kipp and Connolly join AQMetrics on the heels of the company’s rollout of a series of enhancements aimed at helping buy-side and sell-side clients prepare for MiFID II (Markets in Financial Instruments Directive II) ahead of the January 2018 deadline.

About AQMetrics

AQMetrics is a leading RegTech company focused on delivering regulatory risk and compliance solutions for financial professionals. We recognized that the accepted methods of managing risk and compliance were slow, outmoded, and inefficient. We drew upon our team’s deep experience in innovation, technology, law, and financial services to build a platform that performed markedly better, helping our clients leverage technology to more efficiently meet regulatory obligations. The AQMetrics platform has been tested, proven and perfected.

More information is available at www.aqmetrics.comor follow us on Twitter @AQMetrics


MiFID II:Articles, Press

AQMetrics Adds MiFID II Readiness Enhancements to RegTech Solution

DUBLIN and NEW YORK, January 12, 2017 /PRNewswire/ —

Leading RegTech company, AQMetrics, today announced new enhancements to its end-to-end risk and compliance solution as part of its award-winning cloud-based platform. These enhancements will help both buy-side and sell-side firms better prepare for MiFID II (Markets in Financial Instruments Directive II), a year in advance of the regulatory deadline of January 2018.

The recent enhancements include:

  • An updated Supervisory Control Portal and Risk Register to provide client classification and product appropriateness factors and scoring
  • Additional Risk Monitoring analytics to cater to Best Execution and Transaction Cost Analysis (TCA)
  • A new regulatory reporting solution whereby AQMetrics is authorising as an ARM (Approved Reporting Mechanism) under MiFID II. AQMetrics is currently reviewing several MDP (Market Data Processor) specifications from National Competent Authorities to enable passporting of MiFID II regulatory reporting into all European Regulators.

With AQMetrics MiFID II solution, buy-side and sell-side users globally will be able to prove they have made best efforts to ensure their clients are classified correctly; that appropriate products are being sold to those clients; and that best execution is achieved. Furthermore, transaction reporting through the AQMetrics ARM will ensure that end-to-end MiFID II obligations are appropriately met.

“We’ve focused on analysing all Regulatory Technical Specifications for MiFID II holistically to provide our clients with a better way to be ready for next year’s deadline,” said Geraldine Gibson, CEO of AQMetrics. “With a comprehensive solution encompassing an efficient user interface, automated data validation, data analytics and an approved reporting mechanism, we’re able to deliver economies of scale to our customers while still maintaining   information and cyber security, data management, analytics and regulatory reporting.”

As firms around the globe prepare for the January 2018 MiFID II deadline, there is an increasing focus on finding ways to leverage modern technology to ensure proper compliance with evolving regulations. By leveraging AQMetrics advanced technology and extensive understanding of the regional and global regulatory landscape, financial firms can be better prepared for regulatory changes as and when they happen.

As AQMetrics continues to add enhancements to meet evolving client needs, the company has received a number of industry accolades noting its success in delivering innovative products to financial professionals. The company was recently voted the best compliance product for small and start up (Hedge Fund) firms at the 2016 HFM European Hedge Fund Technology Awards. AQMetrics was recently chosen by KPMG and H2 Ventures as one of the 50 emerging fintech stars in the annual 2016 Fintech 100 list and was listed by Irish Tech News as one of the Top 20 Irish Fintech companies in 2016.

About AQMetrics  

AQMetrics is a leading RegTech company focused on delivering regulatory risk and compliance solutions for financial professionals. We recognized that the accepted methods of managing risk and compliance were slow, outmoded, and inefficient. We drew upon our team’s deep experience in innovation, technology, law, and financial services to build a platform that performed markedly better, helping our clients leverage technology to more efficiently meet regulatory obligations. The AQMetrics platform has been tested, proven and perfected.

More information is available at http://www.aqmetrics.com, or follow us on Twitter @AQMetrics


Blog

Combating Spreadsheet Risk in Private Equity Firms

By Geraldine Gibson, CEO, AQMetrics

Since the introduction of the Alternative Investment Fund Managers Directive (AIFMD), Private Equity firms have been coming under increased regulatory pressure to demonstrate stronger systems and controls, particularly around data management.

Many PE firms however still rely heavily on Excel spreadsheets for a range of critical tasks, including portfolio valuations, risk calculations, capital accounts allocations, performance analysis and financial reporting.

This is a problem.

It is estimated that over 90% of spreadsheets in use today contain errors. Which means that PE firms dependant on such spreadsheets face significant – and unacceptable – levels of operational risk.

Operational Risks

The risks are many and varied.

First of all, spreadsheets are powerful tools that put programming capabilities into the hands of non-IT users, which means that critical “systems” can be developed without the normal safeguards, oversight and testing that would be associated with a typical development environment.

As a result, errors – particularly in complex formulae – can slip through and lead to incorrect valuations, which can remain unnoticed for long periods of time.

Secondly, spreadsheets are often not subject to change management controls, which means that users can – either inadvertently or maliciously – make incorrect updates, which again may go unnoticed until it is too late.

Another common problem is the fact that the original author of the spreadsheet may no longer be with the firm. As a result, people could be relying on figures without any understanding of how those figures are being calculated.

Add to this all the other poor practices that have evolved around spreadsheet usage, such as multiple versions existing within a single organisation; poor security and lack of password protection; cutting and pasting cells; etc. and it is clear why over-reliance on spreadsheets can lead to unforeseen operational risks.

Expert Systems

To combat such risks, PE firms are increasingly adopting expert systems, designed specifically to perform their most critical tasks in a controlled and consistent way.

In addition to enabling PE firms to perform core processing functions such as fund accounting and reporting, these expert systems ensure that consistent data definitions and standards are in place, enabling better management information around key metrics, for example.

Such systems can also include: pre-populated data fields to prevent data errors; management and control of complex algorithms used to measure portfolio and credit risk (for example); knowledge upkeep and transfer when people leave an organisation, thus eliminating “key man risk”; and much greater levels of security, with full revision management and audit trails both around who has accessed the system and who has changed data.

Additionally, these expert systems can provide documentation management, for example enabling the storage and indexing of documents relating to specific tasks ans risks.

Making the Change

So, what is stopping PE firms moving from Excel spreadsheets to expert systems?

In some cases, it is nothing more than inertia and an “if it ain’t broke, don’t fix it” mentality. Unfortunately for such firms however, overconfidence in the spreadsheets they have relied on for years can prove extremely costly, once errors do eventually surface.

Other firms may realise they need to do something but may not be aware that better solutions are available, or they may believe that such solutions are expensive and only available to larger organisations. But with the latest cloud-based solutions, barriers to entry are actually much lower than they may think.

In conclusion, with PE firms increasingly coming under the regulator’s microscope, and with data management as a key area of concern, firms who are able to demonstrate that they have the right systems and controls in place will not only be in a much stronger position for regulatory compliance, but will also minimise their operational risk and provide greater transparency to their clients, resulting in competitive advantage.


Blog, MiFID II:Articles

2016 Regtech Reflections & Five Predictions for 2017

shutterstock_435902356With 2016 fading fast into the rearview mirror, we’ve taken a close look at the key regulatory and technology trends from the past year and put together our thoughts on what’s to come in 2017. With regulation constantly changing around the globe, financial professionals would be remiss not to reflect on 2016 themes and consider important milestones for the next year.

2016 Lessons – Culture & Conduct Failures… and All Those Fines

This past year, significant fines were imposed around the globe on financial institutions that failed to implement proper culture and conduct procedures and instill a culture of compliance from the very top.

The most notable this year was Wells Fargo, a case study of unhealthy micro-climates within a single – albeit enormous – organization, showcasing the need for a firm-wide culture of compliance. Climates where expectations and rewards are not created with compliance and proper due diligence as top of mind.

Just a few months ago, details emerged around Deutsche Bank being fined $14 Billion just by US regulators – a fine that will cause shock effects across the financial industry.

While regulators around the globe grapple with ways to implement proper procedures, and checks on the banking system, culture & conduct issues are not so easy to manage without proper internal controls and alerting within a firm. We recently dug into this specific topic on the blog, looking more closely at the way culture & conduct are being regarded by regulators.

2017 Predictions

1. Blockchain Proves Its Value.

You’ve heard of it, everyone’s talking about the ways it can change finance as we know it but when will we really see ways for it to be implemented in real-life use cases? We believe 2017 will be the year that blockchain technology goes beyond proof of concept and we see true implementation cases. Blockchain will start to show its real power as critics question the real value of the technology within finance.

2. David & Goliath will Collaborate

We’ve long lived in the years of seeing larger financial institutions act on their own with smaller, innovative firms emerging to take tiny slices of big firm business. In 2017, we expect to see larger and smaller firms collaborating to take advantage of the reach of the big firms and the innovation within the more nimble smaller firms. With the upcoming MiFID II deadline, this type of collaboration will be necessary to address the regulatory changes for any firm doing business in Europe.

3. Regulatory Lessons Learned Abroad.

The theme of internationalization, especially within the financial regulation space, has emerged recently and we see this only expanding further in 2017. For many US firms, we see the ostrich effect taking effect next year as they bury their head, ignoring MiFID II requirements that many US firms still do not realize they have. In 2017 we predict a significant amount of last minute implementation projects around MiFID II, which will place great strain/stress on the business.

The good news is that US firms can learn some lessons from their neighbors across the pond as European firms took advantage of the MiFID II delay to get their ducks in a row. A lot of MiFID II jobs of late are early business stage type roles like organizational and IT change projects. With the deadline approaching, we will see a sudden ramp up, bringing massive competition for human capital in terms of knowledge and experience in the market.

4. Third-Party Risk Under More Scrutiny.

While third-party risks and technology risks have been a theme in 2016, we’ll see more regulators honing in on the risks of third-party providers and technology. This will be a global effort, with a significant amount of attention in the UK around inspecting firms. It’s yet to be seen what the hard and fast approach to this will be in the US, but there will need to be some set level of control, especially when it comes to global organizations.

5. Compliance Must Remain Central to A Firm.

With the impending new leadership in the US, many point to significantly less regulation but general consensus is that past regulatory changes have put policies in place to ensure risk & compliance are core to a firm’s culture.  Compliance and risks will continue to be a core area of focus at the board level of financial firms as investor protections and risk management. We see compliance already built into financial firms today – and we predict they will continue to comply with recommended risk management protocols irrespective of changes from the White House.

With DOL and MiFID II chomping at the heels of firms today, culture, controls and auditing will be key to ensuring regulators and firms recognize what’s going on within their own walls. It will be increasingly important for firms to ask themselves – how do we measure good cultural outcomes? what controls can we put in place?

 

 

 

 


Press

AQMetrics Named ‘Best compliance product for small and start up (Hedge Fund) firms’

DUBLIN (30 November , 2016) — AQMetrics Limited is a Global RegTech company with headquarters in Ireland. On the 29 November, 2016, AQMetrics was named ‘Best compliance product for small and start up (Hedge Fund) firms’ at the HFM European Hedge Fund Technology Awards.

hfm-tech-european-winner-logo

The 2016 European Hedge Fund Technology Awards recognized and rewarded IT and software providers serving the hedge fund sector that have demonstrated exceptional customer service and innovative product development during 2016.

According to CEO Geraldine Gibson, the award endorses the service model at AQMetrics, which is to use smart technology to build out effective and efficient risk and compliance tools for clients combined with a strong team of people. “We deliver first-class integrated risk and compliance technology solutions to big and small firms alike. Fundamentally that’s what clients are looking for from their risk and compliance solutions, an on demand utility that scales when a customer requires scale,” states Gibson.

Being able to deliver the same software to both small and large firms, in tandem with a robust service model, is bearing fruit. According to Gibson, a big chunk of AQMetrics new customers – over 40 per cent – have come from small and startup hedge funds over the last 18 months.

“As larger firms continue to invest heavily in technology, smaller firms are increasingly finding it difficult to deal with the demands of financial regulators. This is because they have to manage their growth in line with a raft of new and emerging regulations. When we came in to the industry in 2012 we had the advantage of building the business using new technology,” says Gibson. This has made it easier for AQMetrics to adapt to the changing regulatory demands that hedge funds  face today.

Moreover, AQMetrics does not rely on an outsource model. By building proprietary technology in Ireland and hiring really smart people globally, it gives AQMetrics the opportunity to add value in terms of both risk management and compliance challenges.

“We don’t have layers of people. Our customers and the regulators are our product managers, which means that each client and regulator has a direct impact on the evolution of AQMetrics products. That helps to further differentiate us from our competitors,” suggests Gibson.

“We continue to focus on evolving our solution set for clients. That has meant continuing to develop risk analytics and regulatory reporting. In the past year, we’ve focused on our risk management capabilities. In addition, we are working on building out our MiFIDII  services,” says Steve Barnes, VP of Technology.

 


Blog, MiFID II:Articles

Internationalization of Regulation – Part II

newyork-photoRecent amendments to the Investment Company Act (ICA) of 1940 have compounded regulatory hurdles for Europe-based hedge funds that conduct business in the United States.  Although hedge funds are typically able to avoid registration with the ICA under 3©1 exemptions, where the fund has less than 100 accredited investors, or 3©7 exemptions, where there are less than 499 qualified investors, a transformative U.S. regulatory regime presents new obstacles.

Accredited investors meet the following thresholds:

  • Make $200,000 a year or $300,000 a year jointly with a spouse
  • Have a net worth of $1 million individually or jointly with spouse
  • The Securities & Exchange Commission is considering higher limits

Qualified investors are defined as:

  • Persons with $5 million in investable assets
  • Public and private pensions funds with $25 million in investable assets
  • Nominees investing solely on behalf of qualified purchasers.

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act epitomizes the new reporting and supervisory regime.  This piece of legislation has also closed key exemptions and now forces hedge funds with more than $150 million in regulatory assets under management (RAUM) in the United States to register as investment advisors, according to a 2016 report by accounting firm, Grant Thornton.

As an SEC registered investment advisor, hedge funds must also comply with the following requirements:

  • File disclosures on Form ADV
  • Designate a chief compliance officer
  • Maintain financial records to facilitate SEC examinations
  • Keep client assets with a qualified custodian

While European managers may think that adhering to the European Union’s Undertakings for Collective Investment in Transferable Securities (UCITS) law assures the compliance of their equity strategies with the ’40 Act, the U.S.’ tightening regulatory regime challenges that notion.  

Due to new reporting requirements announced by the Securities and Exchange Commission Chair Mary Jo White in 2014, foreign hedge funds must now deploy more compliance analytics, monitoring and disclosure resources to address a myriad of new risks perceived by U.S. regulators.  Instead of designating non-bank institutions as systemically important to the financial system, U.S. regulators are implementing more reporting mandates to make sure firms are properly managing risk, according to April 2016 guidance from the Financial Stability Oversight Council (FSOC).

In a 2015 SEC press release, Chair White articulated the goals of her reforms by saying that “investors will have better quality and greater access to information about their fund investments and investment advisers, and the SEC will have more and better information to monitor risks in the asset management industry.”

These ’40 Act amendments have also adopted several elements of European regulatory models and prioritized the following risk categories:

  • Portfolio composition and operational risks
  • Counterparty risk
  • Derivative exposure
  • Portfolio liquidity
  • Leverage exposure

As a result, UCITS-compliant fund managers may find that ’40 Act limits on position concentration and demands for enhanced portfolio diversification may invalidate certain equity strategies.  To circumvent these regulations fund managers may seek designation under the Securities Act of 1933, which regulates closed-end funds, or vehicles that typically issue a fixed of number of shares, and are implicitly more illiquid.  

More commonly, however, hedge fund managers will seek the 3©1 or 3©7 exemptions, which enable their alternative investment vehicles to allocate capital with significant leverage and make exotic and high-risk wagers. But, given that pensions are a primary institutional investor segment for alternative asset managers, particularly for larger AUM funds, these vehicles also fall under strict Employee Retirement Income Security Act (ERISA) legislation, magnifying reporting demands for European funds with American assets.   

And further complicating matters is the recent Memorandum of Understanding, signed by the U.S. Commodities Futures Trading Commission (CFTC) and the U.K. Financial Conduct Authority (FCA) in October.  The MOU aims to enhance transparency and the exchange of information between certain alternative asset managers with cross-border operations.

While the MOU only covers 20 firms registered with the CFTC as swap dealers, the internationalization of fund compliance is a growing trend that is certain to scale in its restrictiveness and scope, according to a July 2016 Boston Consulting Group report. Advanced EU reform initiatives like UCITS and the Alternative Investment Fund Managers Directive (AIFMD) may position European managers at an advantage relative to their peers in the U.S., with regards to stress test and audit compliance, but inevitable regulatory disruption demands an even more proactive compliance strategy.

Look no further than the BCG study, where one-third of their respondents answered that they were seeking better consolidation in risk reporting.  Another 40 percent said that their information systems were deficient and required upgrades.

Regulatory transformation has been a trend in the European investment industry since before the financial crisis and, in many ways, is more advanced than its counterpart in the United States.  But, with an increasingly global crusade to improve pre-trade compliance, analytics and reporting, transparency, IT system integrity and investor protection, it is clear that regulatory technology, or regtech, will assume a role of central importance.

To capture AUM in a lucrative American market, European alternative asset managers must embrace a secure and leading edge cloud solution that automates the supervision, capture and reporting of all position and portfolio data.  In a challenging market that pushed high-profile fund managers like Bain Capital, Fortress and others to liquidate certain funds or permanently shutter their operations in 2015, the right regtech asset is the best hedge against risk from the markets and SEC examiners as well.


Blog, MiFID II:Articles

MiFIDII Culture and Conduct – Consistency and Control

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By Claire Savage, COO, AQMetrics

In light of the recent global financial crisis, and with MiFIDII fast approaching, the UK’s Financial Conduct Authority (FCA) along with other regulators in Europe, has been placing an increasing emphasis on culture and conduct. A number of FCA publications – including a dedicated Thematic Review – as well as recent speeches from the Bank of England[1], have referred specifically to why having the right culture and conduct is critically important to the industry as a whole.

It is clear that financial firms need to take this matter seriously. But how can culture be measured? How can firms build the necessary KPIs to monitor and improve it? And how can they leverage technology in this regard?

When measuring culture, there are three key elements that firms need to consider:

  • Remuneration policies
  • Treatment of clients
  • Approach to risk management

Remuneration

In their Thematic Review, the FCA discussed various issues around performance-related payments, bonuses and remuneration rewards. But another area that firms should consider is how to achieve greater transparency around the monitoring and reporting of commission structures throughout the supply chain.

One way to achieve this is through rules-based fee management where, in the event of a breach, alerts are triggered and reported at a supervisory level. For many firms, this will mean examining legacy and long standing relationships in their supply chain to ensure that rules are being conformed with. The net benefits will be positive however; the greater the level of granularity disclosed, the higher degree of comfort both investors and regulators will have.

Fair treatment of clients

Organisational culture is not just about internal-facing matters such as remuneration, of course. Firms also need to look outwards towards their clients and ensure they are treating them fairly.

From a buy-side perspective, investor protection is key. In particular, investment firms dealing with retail customers need to ensure that exact costs and charges on distributions are sent to the investors through the appropriate PRIIPs/KID documentation. Any rules-based fee management module implemented by firms should monitor for compliance with these best practices, so that they can prove to investors and regulators that a transparent, supervised, automated and audited approach exists.

Risk management

One of the most significant aspects of organisational culture is how the firm approaches risk management at every level: the operational layer; the supervisory layer; and most strategically, at the board level.

Board members should always be open to challenges about their approach to risk management, encouraging a pre-emptive approach to resolving any issues or perceived areas of weakness within the firm. It is also good practice for them to regularly engage in proactive conversation with regulators.

Risk silos within the firm are best avoided. Firms cannot afford to have ‘micro-climates’ within the organisation where disparate approaches to risk management can occur. Where firms are investing in technology for risk and compliance management, this can be an ideal opportunity to ensure a standardised, cohesive framework is put in place, to provide greater insights into the business.

Taking a holistic approach

Many investment firms today maintain multiple systems for measuring different types of risk, such as market risk, liquidity risk, credit risk, portfolio risk, operational risk, and so on. These are typically a mix of third-party packages, in-house built systems and, in many cases, Excel spreadsheets.

This lack of consistency and control makes it challenging for such firms to instil good culture and to maintain the right levels of conduct within their organisations. In order to achieve better outcomes, firms need to take a more holistic approach to risk management and reporting. Fortunately, technology now exists that can provide the requisite monitoring, detection and deep data analytics of different types of risk across the firm, without the wholesale replacement of existing legacy systems.

Bringing it all together

So how can firms gather this ‘golden source’ of data? In reality, most firms are not going to have a single hub where all their data is flowing through. There would typically have multiple databases, multiple administrators, multiple data formats and so on.

The answer lies in cloud-based platforms that are able to rapidly extract, transform and load all of these disparate data sources into a common, normalised format, contextualise that data and then run the necessary calculations and analytics on it. This not only provides the firm with the required holistic view of its risk, but also can satisfy a wide range of regulatory reporting requirements.

One of the key advantages of a platform such as this is that it is not a ‘black box’ from a niche risk management supplier, providing output with no detail of how that output has been created. Because the platform accesses source data, the business workflow matches the firm’s business operating model, providing the information needed at each of the three levels within the organisation: operational; supervisory; and board.

This kind of platform not only makes things easier when a regulator comes to audit, but it also enables data to be understood at every level in the organisation.

The result? Better culture, better conduct, and better outcomes for the firm. And this shift towards self-regulation, whereby it becomes integral to a firm’s core values and culture to conduct operations in a controlled, ethical and transparent manner, can lead directly to a range of good outcomes, including increased confidence in the market, better customer experience and stronger customer loyalty.

[1] In May 2016, Andrew Bailey of the BoE stated “the culture of firms and the people that make them up – and of course therefore the culture of industries insofar as it can be generalised – is of the utmost importance to financial regulators. Culture matters a great deal.”

 


Blog

AQMetrics named on H2 Ventures and KPMG’s 2016 Fintech 100

emerging-stars

AQMetrics is thrilled to be recognised in H2 Ventures and KPMG’s 2016 Fintech 100 – the list of the world’s leading fintech innovators for 2016!

The Fintech 100 features the world’s leading 50 Established Innovators, and the 50 most intriguing ‘Emerging Stars’. The list is the result of a global search and includes 35 companies from the Americas, 28 companies from EMEA, 13 companies from the UK, 14 companies from Asia and 10 companies from Australia and New Zealand.

The full list has just been made public and is available at www.fintechinnovators.com.

 


Blog, MiFID II:Articles

Reflections from a RegTech Masterclass

By Geraldine Gibson

I recently had the privilege of speaking at a ‘RegTech Masterclass’, hosted by Burges Salmon in London, where top of the agenda was the subject of MiFID II. This is perhaps not surprising, given that MiFID II impacts so many areas across the financial markets industry, touching every part of the trading logistics chain: from front, through middle, to back office; including pre-trade, at-trade, post-trade, risk management, clearing and settlement. Which means that, if firms are to be fully compliant, system overhauls are likely to be inevitable in some areas.

Consistency of trade-related data

It became clear from the discussion that one area where firms are planning significant changes to their systems is around maintaining the consistency and granularity of trading data.

The reason for this is that under MiFID II, more data points need to be captured and tracked throughout the lifecycle of the trade. The trader ID code for example, which is generally tagged in the original FIX message in current environments, is often not tracked onwards through settlement and accounting systems.

Under the new regime, this could cause a number of problems for firms when conducting any kind of post-trade monitoring, particularly in situations where trades have been allocated & settled and positions rolled. This is where RegTech steps in. Through RegTech the technical solutions to meet the complex granular regulatory requirements of MiFIDII are readily available over the cloud at the touch of a screen.

Algorithmic Trading and DMA

Another topic that came under discussion was the prospect of sell-side DMA (Direct Market Access) providers being increasingly disintermediated under MiFID II.

In recent years, the buy side has generally relied on execution algorithms and DMA provided by their brokers or their banks, typically exchange members. But under MiFID II, there is increasing scope for the buy-side to bypass their brokers, if they have their trading systems and exchange memberships set up appropriately.

It is not clear yet whether this will become a trend. But buy-side firms who do follow this approach will not only need to take ownership and responsibility for their trading infrastructures (rather than relying on those provided by their brokers), but from a MiFID II compliance perspective, they will also need to have the necessary systems and controls in place to prevent those systems from disrupting the market.

Simplifying regulatory complexity

One topic that was actively discussed was how firms could go about simplifying cross-jurisdictional regulatory complexity. On top of MiFID II, every national competent authority will have its own regulatory documentation that firms must comply with, so what can firms do to better understand that documentation, and ensure that their systems comply with the regulations not only of their own jurisdiction, but also of other countries and regions where they do business?

The answer is simple. Let the machines do it.

This is where AI (Artificial Intelligence) and natural language understanding come in. Machines can be programmed to perform language matching, using fuzzy logic to find where specific words and phrases prevail in a document. They can then bring back the results into a nice dashboard for the end-user, giving the ability to see across all jurisdictions (for the venue they’re trading on or the instrument they’re trading), which regulations or which parts of MiFID II they have to comply with, and how.

Risk control in the spotlight

The general consensus was that greater supervision is becoming the trend, and technology can help greatly with that. The regulators are keen to get rid of manual data intervention, and want to remove the heavy reliance on spreadsheets for reporting and compliance, where there is too much scope for manual error.

Greater automation will lead to greater auditability. Having the right regulatory technology in place will enable regulators or compliance staff to go to a specific point in time to see what a piece of data looked like when they need to, and given them far greater certainty that the data is correct.

The over-riding conclusion of the masterclass was that RegTech is only going to become more important. It is likely to be the enabler for instilling and maintaining a culture of good conduct and control across the organisation, which in turn translates not only into better regulatory compliance, but more importantly, into good governance.


Blog, MiFID II:Articles

The Internationalization of Regulation

International Regulations

Part One: What It Means for US-based Asset Managers

Business Today is Global – But Regulations Are Still Local

When it comes to doing business, country borders no longer serve as the restrictive boundaries they once did – financial regulations, however, tell an entirely different story… A story of differing rules and requirements for each country that is very slowly evolving to find ways to better address the internationalization of financial firms.

In this two-part series, we will take a closer look at what this ‘internationalization of regulations’ means for US and UK-based asset managers.

US-based with Global Aspirations

It’s no secret that many asset management firms that once focused solely on the US are now stretching their reach overseas as they seek to become global organizations.

In a recent speech at the Investor Regulation Conference in London, SEC Chief of Staff, Andrew Donahue stated, “the number of investment advisers registered with the Commission that have their principal office and place of business outside the U.S. has increased nearly 150% over the last 13 years, while the amount of corresponding regulatory assets under management of those foreign advisers has more than quadrupled during that time to $8.7 trillion .”

This type of international growth requires global cooperation amongst regulators across borders, to ensure proper compliance rules are in place for the benefit of investors and funds alike.

International Regulations – A Reality or A Dream?

A few key things remain consistent regardless of regional boundaries. Regulators across the globe are placing increased focus on the following types of risk:

  • systemic risk
  • liquidity risk
  • leverage risk
  • operational risk
  • cybersecurity
  • fraud

Donahue remarked on this in his speech, stating, “Although the progress in, and benefits from, international engagement are significant, more still needs to be done. Our increasingly complex and integrated markets demand no less. This need is particularly prevalent with respect to regulatory risks that transcend borders.”

While these concerns indeed transcend borders, there are different and often competing priorities depending on the region. One example of this is how European regulators are ahead of their US counterparts when it comes to a focus on creating regulations targeting alternative investment managers under AIFMD. In contrast, the US is ahead of Europe when it comes to the country’s focus on Money Market funds and Fixed Income swaps.

There is a sea change occurring today as regulators are looking beyond their backyard to see what other countries are focusing on in an effort to align priorities to minimize systemic risk globally.

What Does This Mean for US-based Asset Managers?

As regulators take pages and chapters out of each other’s books and we see an emerging international regulatory framework, asset managers will need to be nimble and able to adapt to changes both within and outside of their own borders.

US-based asset managers that market or manage funds in Europe are not always aware that they need to comply with regional regulatory requirements, putting them squarely in the purview of regional officials.

Let’s say for example that a US-based firm manages funds in Sweden. They often do not realize that they need to comply with Swedish regulations and report on their AIFs to the Swedish regulator. That is until they receive a letter from the regulator asking them why the hundreds of data points required for Annex IV reporting have not been submitted.

This is not just headache to pull together the necessary data and documentation but there is a language hurdle at play as well. A compliance partner with regional expertise that can leverage technology to compile the data points and translate the proper documentation into the right language plays a key role in solving the concerns of both the regulator and the firm in question.

Though this is just one example, with MiFID II coming into play in 2018, US-based asset managers that conduct business in Europe will need to be nimble and able to adapt to this changing sea of regulations across every border in which they operate.

What’s Next?

As regulators around the globe focus on better compliance monitoring and investor protection, there is no doubt that the next step will involve regulators reviewing the systems that asset managers use to meet relevant regulatory requirements.

US-based firms need to be ready to prove that they have all relevant regulations covered within every country in which they operate. Donohue remarked in his speech on the importance of, “lay[ing] the foundation for a modernized regulatory regime.”

The modernization of regulatory regimes has been a trend in Europe dating back to 2008 even if it’s only become a more recent trend in the US. Between the modernization of regulatory regimes and a greater global focus on pre-trade compliance and oversight of technology, it is clear that the next wave of regulatory focus will be on the systems used to meet emerging regulations and reforms. US-based asset managers need a modern, cloud-based solution that acts as an expert in regional regulations – translating what cross-border regulations mean and how a firm can meet all relevant requirements.


Blog, MiFID II:Articles

Transforming Regulatory Compliance with Artificial Intelligence

By Geraldine Gibson, CEO, AQMetrics

Artificial Intelligence in RegTech

Artificial Intelligence (AI), long the subject of science fiction, is now becoming more and more widespread and is seen as an increasingly important computer science across multiple industries. In Financial Services in particular, Machine Learning and Natural Language Processing is increasingly used today to make sense of big, complex data in a wide range of areas.

One such area is regulatory compliance. The use of AI – particularly Natural Language Understanding (NLU), a subset of Natural Language Processing – can help firms to realise a number of benefits, including improving the speed and efficiency with which they achieve compliance, and making that compliance much more robust.

The Challenge of Interpreting Regulation

As we’ve seen over just the last couple of years with the introduction of MiFID I & II, UCITS, AIFMD and the like, there is a constant stream of documents being issued by regulators, which can each run to hundreds, or even thousands, of pages. Wading through those documents and trying to pick out the pieces that are important so that appropriate rules can be built, code can be written and reporting systems can be automated (for example), is an onerous task for human beings.

In order to achieve compliance, many regulated firms take the approach of partnering up with third party consulting firms, paying large sums to them to help interpret the regulations, employing people to write up what everything means from a rules perspective, then attempting to code those rules into their systems.

This process is both operationally inefficient and unnecessarily expensive, when compared with using Artificial Intelligence from the very beginning of the process.

Today, AI can be – and is being – used to interpret regulations, to comprehend what needs to be done from a technology perspective, and then to codify the necessary rules. Those rules can then be automated into the relevant reporting and risk systems to make sure that the firm is not only staying compliant but also better managing its risk.

Natural Language Understanding

The key element here is the use of NLU, which is the component of natural language processing that reads – and more importantly interprets – text. By automatically translating the written regulations as they come out into usable code, NLU offers the benefits of bringing down the cost, the effort and the timescale of interpreting and implementing new and updated regulations.

Putting this into practice, we have worked together with our clients to develop a Regulatory Risk Analysis module based around NLU. This module takes in multiple sources of data from various business units and interprets it into a common language. That common language is then used to analyse and aggregate the data, distributing it back into one single, holistic view of risk across the organisation, which can then be analysed using various factors.

This approach, where all the risk factors are stored, analysed and fully assessed using machines, substantially increases the probability of the firm being compliant because it does away with the risk of cognitive bias, i.e. the risk that a group of compliance or risk officers come up with subjective and inaccurate rules regarding what they think the system should be doing, and maybe miss something.

Of course, risks will always exist. However, what this AI approach does is ensure that every ‘i’ is dotted and every ‘t’ is crossed during the risk assessment process.

Greater Speed, More Accuracy, Lower TCO

Although there are various different approaches to ensuring regulatory compliance, the whole process can only be fully optimised if AI is included in the journey.

By adopting platforms with AI at the very beginning of the process, with NLU taking the emerging regulations in and transforming them into a technological solution, firms will not only gain the speed, the efficiency and the accuracy that is needed to meet emerging regulations, but they will also hit regulatory deadlines – which otherwise can be quite challenging – and do it all at a lower total cost of ownership and with less overall risk than is otherwise possible.

 

 


Blog

What is RegTech

‘What is RegTech?’

That is the question that many people ask when they hear that AQMetrics is a RegTech company. So we’ve decided to share what RegTech means at AQMetrics.

RegTech is technology that helps people comply with their regulatory obligations. AQMetrics RegTech is a utility that uses a range of legal, technical and business skills to create well designed software based on algorithms, data analytics and machine learning.

Why is AQMetrics a RegTech company rather than a boutique consultancy firm?

Given the deep financial services software background of the AQMetrics management team and with over 100 years between them in the regulatory risk and compliance trenches at Tier 1 banks, it is not surprising that people often ask why AQMetrics is not a consultancy firm.

For us it is all about creating exceptional customer experiences whilst sharing total costs. After a slew of global financial services regulations, it is no surprise that in recent years compliance costs have increased significantly for firms. As a result, firms are stretched to monitor compliance, to understand emerging regulations and to interpret more and more data. As all firms are faced with the same regulatory challenges AQMetrics decided that it was time to change the status-quo. As costly lawyers and specialist consultants traditionally charged by the hour to provide each firm with effectively the same solution, AQMetrics takes a different approach. Taking requirements from a multitude of customers AQMetrics provides one single best in class utility to all at a shared cost.

Why is Artificial Intelligence part of AQMetrics RegTech Strategy?

AQMetrics utility analyses large volumes of data through real-time surveillance and predictive modelling to detect suspicious activity and potential breaches of financial services laws. This coupled with machine learning means that AQMetrics compliance algorithms become more powerful over time so that our customers don’t have to rely on pre-programmed indicators of non-compliant behavior. AQMetrics algorithms use statistical analysis to self-adjust, picking out the truest predictors of risk. The truest predictors of risk are not always the most obvious ones.

Why a collaborative ecosystem is key to the success of RegTech?

AQMetrics automated workflow has built automated controls into operations across our customer base, so that processes or transactions that could result in a breach of certain regulations or policies are effectively controlled and reported. This is only possible through collaboration and integration with partners in the ecosystem. One example is AQMetrics pre-trade compliance rules engine that determines whether a trade can be entered for execution. For pre-trade compliance AQMetrics real-time access to Bloomberg data ensures that prices are always up to date in a portfolio on the AQMetrics platform. Marrying real-time market data with a library of rules means that if an order is deemed compliant, AQMetrics can automatically submits the trade for execution. If the transaction is rejected, then AQMetrics automatically terminates the order until an end user takes appropriate action. Another good example is AQMetrics EMIR reporting partnership with the DTCC. Through real-time APIs derivative contracts are seamlessly reported from AQMetrics to the DTCC for EMIR reporting.

RegTech can do so much more than save on costs

In conclusion, at AQMetrics we don’t view RegTech as simply a means to automating compliance processes currently completed by staff manually. AQMetrics sees RegTech as an enabler of a utility that provides a friction-less and enjoyable customer experience from beginning to end.