Joining the Dots: The Value of an Integrated Approach to Risk Monitoring and Regulatory Reporting


By Geraldine Gibson, Chief Executive Officer, AQMetrics.

Regulatory reporting and risk monitoring are now, quite rightly, both considered high priority for most firms in the financial industry. Yet despite the growing reliance on quality data, analytics and insights to remain compliant in both of these areas, the tendency is still for them to be run on separate systems and monitored individually. In fact, firms that are still collating their data in this manner – instead of taking a unified approach – are not only making it more timely and difficult to respond to regulatory queries, but are also missing out on rich data insights which could prove beneficial to their business as a whole.

Even in terms of data reporting, regulatory bodies are increasingly focused on identifying risk. If your firm is then queried by the regulator about certain outputs, isn’t it much simpler to have one single, unified data system to consult rather than trying to contact multiple vendors? A central, ‘golden data’ source means all your information is available in one place, making responding to regulatory queries a far simpler task. Also, if you’re reporting through one system and calculating risk with another, then you simply don’t have all the dots joined-up to form valuable, rich data insights. But by unifying these systems, you enable additional insights which can then be used to develop more advanced analytics and risk measures.

Accuracy is assured

In today’s investment and asset management industry, being able to generate this level of reliable, insightful data is a must. Not least considering the range of current and upcoming regulatory requirements for this sector, including:

  • MiFID II and MiFIR;
  • The Alternative Investment Fund Managers Directive (AIFMD);
  • The UCITS Directive (UCITS V);
  • The SEC modernisation of fund management regulation, expected to be implemented in 2018.

And on the risk monitoring side, the ability to readily view where your market, credit and even enterprise risks are can be just as vital.

A further point to consider is that if you are still using multiple systems to populate your data, effectively you’re doing the work twice. Or if sourcing the data is a challenge, again you would be better off having one, single system. This enables you to more easily identify and plug any gaps in your data, which in turn helps remove the problem of inaccurate data. But by reporting data to the regulator from one system, and monitoring risk from another, you’re storing a different snapshot of data and cannot be as confident about its accuracy.

Speed and resilience

In addition to a growing focus on risk, new regulatory requirements are also mandating higher volumes of transaction data and more frequent reporting from individual firms. Therefore, the increased latency created by risk systems outside a single source may result in a delay in your frim being able to report. But by using a single source, the speed and efficiency of retrieving your data is assured. Furthermore, running multiple systems can also decrease your company’s overall resilience to cybercrime threats. By operating a single data source, you increase your information security and reduce your risk of multiple points of failure or attack.

So just how difficult is it to create this unified, golden data source? Initially of course, there is the task of retrieving all historical data and having it mapped to the single system. Yet following this one-off data onboarding, that system becomes the new working data source. The process is the same as any migration to a new system. At AQMetrics, we look at the risk level of each individual instrument and then correlate these at an asset class level, before comparing and reconciling them up to a portfolio level. And finally, having the data in one place allows us to view the links between different factors, such as geographic exposures or sector exposures. These are far more difficult to spot when working with spreadsheets or even on disparate systems. A unified, golden data source enables you to ‘slice and dice’ the information in a way that just isn’t possible without it.