A new approach to global regulatory data observation is fundamental to the fulfilment of Supervisory mandates in a digital age. The sector is digitizing fast but there is much more we can do to deliver digital controls for public and private sectors. JWG is working with industry leaders to launch the Digital Reporting Task Force – let us know if you would like to join in!
As readers of these pages will know, using RegTech and SupTech tooling to improve data transparency has been studied by regulators since 2015.
In pockets, the industry has been able to demonstrate the power of agreeing the code which explains why something was reported a certain way. This is, however the equivalent of using distributed ledger technology (DLT) to digitize a fax and then produce a memo to email to the regulator. There is much more we can do.
– They were sawing at the branches they were sitting on- and shouted their experiences to each other- about how one could saw faster and they rode
– into the depth with a crash, with those watching shaking their heads while sawing
– and they sawed on.
Bertolt Brecht, 1935 (translation by Francis Gross)
Tomorrow’s regulatory dashboard needs to provide a real time radar for the whole system across the entire globe to head off systemic risks with measurement tools fit for fast-paced, low-touch interaction with the system. This system needs to be designed with all types of regulatory reporting in mind and developed and maintained via public-private collaboration.
To measure better we need to make the system more measurable. Public and private sectors need to tackle core technology, language and data challenges:
- Regulatory glossary. A cross-regulation, cross jurisdictional glossary describing reporting requirements will define our fact base. For a single factual object (anchored in law) we need one representation that must be used by all processes that reference that object. No data set should refer to that object without bearing that single label
- Meaning. From the moment it leaves the human realm to become data, language is technology. In other words, data is language which is condensed for machine use. This means that we need to disambiguate the data requirement in order to maintain the connection to the original meaning
- Look-ups. Public-good, global data infrastructure holding factual information like identifiers and reference data need to be used in the real-world operational systems as well as in the analytical systems
- Standards. Standardization is required on many different levels. Standard business glossaries are required to link the regulatory definitions of the data needs to the rules sentences which describe the transformation of that data in a common way. The reporting rules which take operational data and produce regulatory reports must then be expressed in a standard way that is able to be translated into many technical languages (or types of code). Message standards (e.g.. ISO 20022) needs to be linked to the output of the reporting rules. Finally, all of these standards need to be linked to data model standards (e.g., DPM)
- Collaborative planning. Reporting from firms to regulators is a collaborative process which cannot be dictated by either public or private sector alone. Independent, safe space must be created between the many trade bodies, regulatory agencies, standards bodies, technology and data providers and financial institutions involved. Commitment from meaningful stakeholders, buy-in to leveraging the outputs, real deadlines, formal governance and an appropriate funding model are required to make it happen on time.
Digital standards defined
JWG consider Digital Regulatory Reporting to be the digitisation of reporting instructions, with reference to an agreed model to make the current manual reporting processes more accurate, efficient and able to produce better transparency for supervisors.
Asset class by asset class, markets are converting their paper-based glossaries and legal agreements into XML which can be linked to a digital map of actual business practices using DLT. Standards such as ISO 20022 can be mapped to common domain models.
This enables lawyers to draft contracts that are linked directly to the ‘common view’ of the industry while also automating compliance based on workflows which are tied back to the regulatory texts via open source code. Test harnesses leverage the code to validate data and, above all, supervisors can fulfil their mandate in a digital age.
Objectives 2025 and 2050
To stay in control the industry needs to think long term and get specific about the system it wants to have as operations move to the cloud, reference data is centralised, business is done on the blockchain and we have quantum-powered AI.
However, we need to know the outline of future system targets now in order to be able to design it, fund it and build it. To be clear, there is a very compelling business case to start this redesign now to provide safe routes for important regulatory data sets which are kicking off now (e.g., EMIR Refit, CSDR, MiFID III, CRR2, ESG).
This new found willingness to collaborate on digital standards is extremely welcome as the UK is embarking on fundamental review of the UK Wholesale Markets which is setting the course for post-Brexit market structure, transparency obligations and reporting.
Key 2022-25 migration questions
- How do we build now on a migration path to future obligations?
- How can we design and build the ecosystem while learning in parallel?
- How can we avoid making the problem worse short term?
- How can we enable this paradigm shift for the market infrastructure?
- How do we bring the public and private data cellars together internationally?
While there are many pockets of digital policy, none have taken a holistic view of the problem, defined the characteristics of the soliton and proposed a method of getting there.
JWG see the industry at a DRR tipping point this year and would like to help change that.
Join us on Thursday as we work with industry leaders to kick-off a Digital Reporting Task Force (DRTF) to identify the necessary conditions for sustainability of the technical infrastructure of finance in the digital age.
We are looking for bold, radical analysis, ideas and concepts, for migration paths that could take us there and for feasible initial steps. Abstraction combined with real-world experience will help and we are looking to move quickly in advance of our annual conference in November.
Beyond being a fascinating challenge, this should also offer some fun! Will you join us? Contact email@example.com if you would like to get involved.
- To join the JWG Global Derivatives Digital Regulatory Reporting Programme, email Corrina
- Access the JWG reporting LinkedIn here or DRR members access area here
- To create your own JWG RegTech Intelligence Hub, sign up here
- To register for JWG’s 16/17 November 2021 conference, see here
- To join JWG’s July special interest group meeting email Corrina