The MiFID II deadline looms ever closer, but many asset managers are a long way from having compliant technology solutions ready by 3 January.
The revised Markets in Financial Instruments Directive (MiFID II) is one of the most onerous and far-reaching set of financial services regulations ever and will require significant technology spend to comply. But according to consultant Opimas, half of asset managers have not even started talking about implementing MiFID solutions yet.
These firms risk big fines for non-compliance if they are not ready. They could also lose ground to more prepared firms and miss opportunities to turn the huge changes in MiFID to their competitive advantage.
Many of the most onerous aspects of the revision – and also therefore the biggest opportunities – are around data collection. For example, firms will need to efficiently store, monitor and analyse enormous amounts of trade and transaction reporting data from a range of systems, venues and formats.
One important way they can use MiFID to compete is therefore through the use of big data tools and analytics. Many existing systems will be insufficient to handle the complexity of data analysis required in the new regulatory environment. But new systems with the latest analytical capabilities have the potential to control costs aggressively, provide flexibility and scalability, and improve business intelligence.
Anna Griem, research analyst at Opimas, says there are now trade and communication surveillance systems, for example, that can help step up the monitoring of a portfolio manager’s performance and better focus their sales and marketing. With the unbundling of research required by MiFID II, asset managers can also leverage communications crunching and trade monitoring tools to understand the value they are receiving from firms’ and analysts’ research better, she says.
David Csiki, president of technology provider Indata, says: ‘Big data analytics and reporting solutions rely on in-memory computing which is superior to traditional methods as it allows much more scalable and efficient data aggregation for MiFID II requirements, and more flexibility in analysis and reporting. Asset managers can leverage these technologies beyond compliance to aggregate, analyse and report on data for use in portfolio management, risk management and marketing, to name a few, potentially bringing competitive advantage.’
Benefits of big data
A report by Deloitte and Elvinger Hoss looks in detail at the way asset managers can leverage their MiFID II data centralisation, integration and analytics systems.
One application for analytics is in fund distribution oversight, including areas such as product governance and suitability, target market compliance and distribution network control. A centralised data analysis platform could capture relevant data on distributors, replacing the current manual questionnaires.
This could, for example, allow for the systematic application of risk ratings for a distributor network, and flexible historical analysis. By enabling a real-time view of the firm’s full distribution network, it could also allow timely identification of exceptions in target market and product suitability requirements.
Such a data platform would also offer immediate access to other relevant data across different areas. For example, suspicious transactions could be investigated by instantaneously accessing other information such as investor holdings, transaction activity patterns, risk ratings, and customer relationship management (CRM) data.
The report says that centralised data could also enable real-time, dynamic monitoring of investor behaviour, including transaction monitoring based on characteristics such as domicile or investor type, real-time notifications of suspicious or unusual behaviour, or the classification of investors based on criteria such as profitability, liquidity risk and longevity.
Time to catch up
In other industries, use of data analytics is an attribute of competitive, high performing organisations.
The asset management industry, although late in joining the analytics game, will be the same. Currently, it is ignoring vast amounts of information, due to a lack of capability and capacity to integrate and analyse data properly across different systems and organisations, concludes Deloitte and Elvinger Hoss.
Data is currently often locked up in silos and with market data providers, so a big data solution to MiFID II brings opportunities to integrate data into a common source, and use it to improve business intelligence as described above.
This is about to change as industry participants start to discover the opportunities and value in employing data analytics to address regulatory challenges.
This will not be easy, as managing data will be one of the biggest and most expensive challenges of MiFID II. But firms have an opportunity to effect a technological transformation and, as in other industries, those who embrace data analytics today will be the leaders of tomorrow.
The European Union (EU) MiFID II regulations, which come into effect in January 2018, will have a huge impact on the asset management industry. But many managers do not yet have the technological solutions to comply and thrive in the new regime and software providers expect a capacity crunch as investment houses rush to prepare. We look at some of the issues and opportunities.
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