RegTech Intelligence 
Last month, JWG were pleased to participate in the Trusted Open Data Environments 2016 conference in Poznan, Poland, which was attended by data specialists from a variety of regulatory agencies, academics, practitioners and FinTech entrepreneurs.
It was a full day of hot topics, including international standardisation, Initial Coin Offerings and data reporting. So, what did we learn?
- Blockchains need to be free
There was much excitement in the room over Distributed Ledger Technology. The presentations focused on the multiplicity of different blockchains which are being used for a many different business and regulatory purposes.
Though Bitcoin is the most popular, it may not necessarily be the obvious choice in some situations, as others may be technologically more desirable in certain circumstances.
There are some drawbacks. One primary concern voiced was that blockchains could be hard for systems, especially legacy systems, to consume, therefore they require a holistic approach to integrating them into the system architecture.
Despite the almost universal praise of blockchain as “open data carved in stone” and support for a wider use of the technology, no call for the system to be standardised was heard. To the contrary, the group generally felt that a whole range of different blockchain solutions would be more beneficial as there would be more options to meet specific business and regulatory demands.
- Eat the cake, not the eggs; aka – focus on the outputs
Another interesting point that dominated various discussions concerned the root cause of the issues faced by generators of regulatory reporting and how those issues should be tackled. The problem – put in simplistic terms – is the discrepancy between what the regulator wishes to receive and what they ask financial institutions to provide.
An analogy to a bakery was used, stating that the regulator wants to know how many cakes and biscuits are being made, but instead is given information relating to the amount of flour and eggs being used. The complication, as any good chef knows, is that the ingredients could be used in many different combinations, and result in an assortment of baked goods. Whilst the regulation expresses interest in the output, the technological requirements relate to the individual data inputs, which could be worked in such a multiplicity of ways that their disclosure does not necessarily result in the overview of confectionary consumption which regulators seek.
This discrepancy of an ‘input versus output approach’ must be addressed if we are to resolve the ever-growing mountain of low-quality reports. This is no small ask of the legal community that deals in certainty and granular definition, rather than principles. On the continent, de registe law necessitates that each and every way to measure the egg is specified. The technologists in the room focused their attention on how they could overcome the semantic issues, regardless of what problems needed to be solved.
It was generally agreed – and emphasised most by the legal folks in the room – that a marriage of legal and technological requirements was needed to strike the right balance between the data input and the data output needs. Technology requirements must be reshaped so that they reflect the regulatory norms imposed, creating a solution to both legal and technological challenges.
- Dictionary … what dictionary?
One of the problems most highlighted in the financial sector by all speakers was the absence of a common language for reporting. Today, each regulatory initiative has its own requirements which interpret the political and organisational imperatives of the industry in slightly different ways with different terms and meanings. Different semantics create an unnecessary duplication and add to the confusion over data requirements. Not only will fields that look the same be reported differently for different purposes but, for the same regime, information from individual institutions will differ to such an extent as to render the reports irreconcilable with each another.
A much-applauded solution would be to publish a common dictionary of terms, such as the Single Data Dictionary proposed by the ECB, as a way of creating a reporting glossary which could support a higher-level reporting framework, rather than a single regime. It would require the integration of many dictionaries into one, compiling similar terms into a bespoke concept holding its own explanation within the data dictionary. The dictionary, rather than being an IT tool, would be a public artefact to reduce the complexity of the data manipulation required by the regulator, so that, for instance, definitions used internally in financial institutions could be reconciled to a common term known by the regulators of all jurisdictions in which they operate.
Of course, good RegTech can’t exist without the dictionary …
- Standardisation … a reality!
Another element that participants stressed as essential in resolving the ever-growing data reporting requirement was the need for standardisation. A presentation on the Financial Data Standardisation Project by the European Commission, which is a part of the wider EC Better Regulation Agenda (REFIT), highlighted this. The initiative intends to revisit the regimes already in existence, as well as those under way, to analyse the benefits and unintended consequences of the requirements they lay out.
Most importantly, it will examine the role reporting data standards should play to improve the methods in which the data is used to reduce compliance costs. Reconciliation of existing data standards will be most welcomed by the data crowd, especially as it was mentioned that the problem is not rooted in the lack of efforts to standardise, but has been caused by the sheer volume of standards (and standards groups), which has made it incredibly hard to bring all the right people to the table.
- The human factor – key to our success
The technological aspects of the finance industry are topical at the moment with various institutions, such as ESMA, calling to “embrace the positive side of technology”. Even though areas such as blockchain require further improvements before the possibility of their wide-scale implementation can become reality, we can already sense that they will be of tremendous importance.
But we cannot forget that human factors – such as internal culture and cooperation, which were voted by the conference attendees as requiring the most attention – will need to be improved in order to get to a working set of global standards.
A big thank you to the BR-AG crew for pulling together such a wide-ranging agenda. We look forward to being invited to future efforts.
For more information on JWG’s 2017 RegTech Capital Markets Conference, see here.