How a regulatory enterprise risk management system can help you

Mark Weir, Maple Fund Services: a robust regulatory enterprise risk management system is a must

Changes to regulatory reporting requirements and their impact on investment management companies have made the implementation of regulatory enterprise risk management (RegERM) systems crucial. Mark Weir, head of data management at Maples Fund Services, explores the issue.

A RegERM system should be established within a company to provide accurate and timely compliance and regulatory reporting, with the aim to mitigate against any lapses with the potential to compromise an organisation.

As technology advances it’s important regulations and reporting systems evolve too, and financial companies should make sure their risk management doesn’t leave them vulnerable or outdated.

The impact of the latest wave of regulations
New legislative initiatives implemented since the global financial crisis have placed investment management companies in the regulatory spotlight. Regulations such as the Alternative Investment Fund Manager Directive (AIFMD) and the European Market Infrastructure Regulation (EMIR) have made every aspect of the investment management process transparent in order to target systemic risk.

To effectively protect your business against risks, it is vital that you understand the impact of regulatory changes within your industry and how you will need to prepare for the impact of these new complex demands.

Pressure will also fall on businesses to meet often conflicting deadlines, which can affect its ability to cope with day-to-day operations. So, what can managers do to prepare themselves for the challenges posed by the regulations and set themselves up for future success?

Implement a RegERM system
Enhanced global regulatory standards create a need for the development, implementation and maintenance of a RegERM system which accommodates the challenge managers now face due to the need for extensive data management and reporting systems, as well as the need for external resources.

For this reason managers are advised to focus on avoiding the potentially vast cost of non-compliance, which can bring unwanted scrutiny and disastrous operational results due to a lapse in RegERM.

In contrast, a comprehensive RegERM strategy that has been properly implemented with the support of a structure appropriate to the size of a company, the business itself and its environment, will enable the accurate and timely compliance of regulatory reporting as well as benefiting existing operational processes.

A RegERM system must therefore be aligned with the organisation as a whole, in order for it to work in contingency with your company’s changing dynamics while returning the required deliverables.

RegERM system process
A RegERM system must achieve three goals:

• the alignment of all firm data and third party reporting;
• the development of a repeatable process to meet continuous reporting requirements;
• the development and implementation of a process to maintain a detailed audit trail that will ensure repeatability and respond to reporting related inquiries.

By implementing a platform that consolidates information from various internal and external sources into one system, regulatory reporting is instantly streamlined. In order to accommodate this, the following steps must be addressed:

1. Data identification – The data needed for a report is unlikely to exist in one place. The RegERM system must therefore first identify, integrate, reconcile and validate all necessary sources – which may vary dependent on the relevant regulation.

2. Data aggregation – This requires a secure, customisable data warehouse that allows the appropriate information to be managed side by side regardless of its source. It will then need to be synthesized, reconciled and validated to produce clean data which can be leveraged for any regulatory report.

3. Data transformation – The data then needs to be transformed into the correct protocol according to the various regulations (and subsequent calculations and mappings required) applicable and how they apply to particular asset managers. A robust RegERM automatically computes the majority of the calculations however; there is need for involvement from experienced advisors to work alongside the investment manager.

4. Centralised data warehouse and calculation engine – This step is essential to the alignment of third party reporting, as it ensures consistency and enables the population of reporting protocols.

5. Review and XML transformation – This involves technological validation and manual checks for unexplained inconsistencies as well as subsequent explanations. A RegERM system will ideally provide the managed with the following workflow capabilities:

• tracking of the process from start to finish;
• an interface for validation, review, approval and submission of the filing;
• storage of these filings for future auditing.

The RegERM system must critically perform a series of systematic checks of the filing.

6. Electronic transmission – Following the completion of the review, the system should have the capability to prepare electronic filing. The mechanism by which a report is submitted differs according to the regulator however, a strong RegERM system will ensure the filing is prepared and submitted as required.