RegTech Intelligence 
A variety of technology providers, consultancies and data providers (more than 10 of them at the last count) have announced (or have been rumoured to have formed) partnerships of some form in order to create new utilities that can share data between banks. With the huge and increasing number of regulatory requirements for customer data, it seems like building such a utility that can ‘take the pain away’ is hopeful thinking. Is it?
Whether it is onboarding new accounts, tracking beneficial owners for AML purposes or conducting pre-trade due diligence, financial institutions are responsible for collecting and validating customer data. This is becoming increasingly costly and many are looking for easier options than unilaterally collecting the same basic information from clients that the rest of market is also doing.
With the interim LEI system now heating up in advance of 2014 deadlines, many are looking for new opportunities to supplement the somewhat sparse data included in the pre-LEIs. While the LEI is currently very suitable for meeting discrete regulatory requirements such as regulatory reporting, it does not incorporate useful additional data such as client classifications that would greatly simplify pre-trade requirements. A market-led solution that can fill these types of gaps effectively could be very successful.
The basic premise for a utility appears to be that, by developing standardised processes and data formats, KYC processes can be streamlined and better controlled. Regulatory demands have not only raised the bar on existing data requirements but have introduced hundreds of new ones, whilst raising the penalties for non-compliance, much to banks such as Standard Chartered, HSBC or ING’s cost.
In practice, there are a number of factors that can impede collaborative projects. So far many of these utilities mention client reference data, and specific regulations, but they don’t explain what exact use-cases they are attempting to solve. The exact areas of these regulations that are being targeted remain vague. Is the data for pre-trade KYC, counterparty exposure assessment, anti-money laundering, financial reporting, or is it a pure client documentation repository?
The geographical scope of such a utility is also an open question. The majority of the push seems to be from US firms. The fact that there is little noise coming from Europe, the Middle East or Asia is a worrying sign when setting up a utility for banks that are cross-border.
Additionally, there are a number of well-known legal issues associated with sharing client and proprietary data: banks are loathed to share the former for data protection reasons, and the latter for reasons of intellectual property and competitiveness. A recent competition law case, filed by the European Commission, relating to the credit derivatives market has also scared some banks into believing they cannot collaborate on regulatory issues.
Exactly what data they are looking to collect and distribute is also uncertain. In many instances, certain reference data points, such as client classification for EMIR (FC/NFC/NFC+) is not something that can be sourced by a 3rd party, due to the fact that it is not publically disclosed and bilateral in nature (this is despite the EMIR protocol, which still suffers low adoption rates). Not only that, but it is unclear how these utilities are then linking their client data to instrument level data.
Ultimately, there are different takes on what people think they need to offer and how it will be delivered. It’s going to take at least a year and a half, if not two, to narrow down the ones that are actually having the right conversations with the right people.