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Harmonising regulatory reporting with your firm’s business operating model.

Harmonising regulatory reporting with your firm’s business operating model.

Q and A with Cathal Connolly, Head of Global Regulatory Reporting, AQMetrics

What can firms do to ensure regulatory reporting accurately reflects the firm’s business operating model?  We sat down with our head of global regulatory reporting, Cathal Connolly, to learn more.

How has regulatory reporting evolved over the last 5 years?

When regulatory reporting was launched, investment managers’ sole focus was on meeting their reporting obligations, without necessarily reflecting their own firm’s methodologies. At the same time, many regulatory reporting solutions in the market offered a ‘one size fits all’ approach, which contributed to overly-simplified reporting being widespread. In addition, manual manipulation of data and overrides were common in early filing periods.

This was acceptable on a short-term basis, but it is not sustainable from an audit and best practice perspective. There is a growing need for personalisation today which is driven primarily by the huge degree of variance in investment managers’ strategies. For example, managers will have differing views on what they classify as borrowing or what is deemed to be unencumbered cash. In addition, if a manager has a short position, it might be deemed as borrowing or there might be enough long cash to counteract it.

What type of considerations are firms making when putting outsourcing arrangements in place for regulatory reporting?

I would recommend that the firm’s business model be reflected in the regulatory filings and the reporting processes itself. Any outsourcing arrangement should be a partnership, where the outsourced party can bring both funds industry domain knowledge and industry best practices. The reporting platform should be flexible enough to accommodate manager or fund-specific methodologies. This removes the need for manual data amendments and saves the investment manager time, effort and potential errors in the regulatory filing process.

How can the use of workflow enhance the regulatory reporting process?

A regulatory reporting platform should offer workflow that is aligned with the investment manager’s business processes. Large investment managers will typically have separation of duties in the preparation, review and sign-off of the regulatory filings. Workflow should be intuitive, and enhance the review and sign off process. Audit trails are important for tracking critical path activities.

What is your best advice to firms on regulatory reporting?

Regulatory reporting does not have to be a manual, time-consuming process that distracts from a firm’s core activities. Outsourcing arrangements can work particularly well when the outsourcing partner takes the time to the understand the firm’s business model and is proactive in offering industry best practice advice. A regulatory reporting platform should eliminate the need for manual data amendments and have a streamlined workflow which then allows investment managers to retain control of their regulatory filings with minimal disruption to their business.


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Meet the Team- Wesley Cooper

At AQMetrics we have a highly skilled, experienced and diverse workforce with wide ranging backgrounds. Today, we introduce you to our data architect, Wesley Cooper.

 

 

 

Name:

Wesley Cooper, Data Architect

Describe your job in three words:

Scalability, Reliability and Insight

What is the most exciting thing you are working on?

The latest iteration of our Rules Engine will have many innovative features. Working to realise the full potential of this product by focusing on externalised business logic and future enhancements, such as machine learning and natural language processing, has been very rewarding.

How has your background helped with your role in AQMetrics?

With a background designing and creating quantitative data models with Paddy Power and large real-time data processing systems with Verizon, I draw heavily from my experience in the design of our software stack. Everything at AQMetrics is built with the future in mind which is why there is a huge focus on best practice, best technologies and doing things the right way.

Best thing about working in AQMetrics?

I really enjoy being part a highly committed and tight-knit team here at AQMetrics, however, it’s the support that you get from all functions across the company which makes it a special place to work.

Who would you most like to swap places with for the day and why?

A personal hero of mine is San Antonio Spurs Head Coach Gregg Popovich. Trading places with one of his assistants for the day would be an incredible way to learn leadership, team-building and mentorship from one of the greats

Last book you read?

The Mongol Empire: Gengis Khan, his heirs and the founding of modern China by John Man

Website you visit the most?

fivethirtyeight.com to fulfil my addiction to forecast analytics and BBC.com for worldwide news.

Tell us something we don’t know about you. 

I am a Nevada licensed Croupier having professionally dealt Blackjack, Roulette and Baccarat.


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Meet the Team – Phoebe Toal

At AQMetrics we have a highly skilled, experienced and diverse workforce with wide ranging backgrounds.

Each month, we introduce you to a member of our team. Today, it’s our Marketing Executive, Phoebe Toal.

 

Name:

Phoebe Toal, Marketing Executive

Describe your job in three words:

Challenging, Creative, Collaborative

What is the most exciting thing you are working on?

We are currently working on a MiFID II campaign and we’re gearing up for the Paris Fintech Forum at the end of January.

How has your background helped with your role in AQMetrics?

I studied Digital Marketing at DCU. The course taught me how to match analytic and creative skills for successful marketing.  My previous position was four years at another RegTech where I learnt about regulatory reporting and event marketing, giving me excellent experience for my current role.

Best thing about working in AQMetrics?

The whole team are interested and engaged in the company marketing activities, it is great to have access to so many domain experts. Management are extremely knowledgeable with a clear vision of what they want the company to achieve.

Who would you most like to swap places with for the day and why?

Tina Fey, would love to know more about her creative process.

Last book you read?

Milkman by Anna Burns. Winner of 2018’s Booker Prize.

Website you visit the most?

The Guardian for the news and The Hollywood Reporter for entertainment news.

Tell us something we don’t know about you. 

I’m a qualified Pilates Instructor.


Blog

Meet the Team – Steve Barnes

At AQMetrics we have a highly skilled, experienced and diverse workforce with wide ranging backgrounds.

Each month, we introduce you to a member of our team. Today it’s our Chief Technology Officer, Steve Barnes.

 

Name:

Steve Barnes, Chief Technology Officer

Describe your job in three words:

Interesting, exciting, challenging

What is the most exciting thing you are working on?

Most recently, moving AQMetrics cloud platform to a true self-service model for customers, because it empowers customers to be in control of their own data management, so they can own, manage and use the system as they see fit.

How has your background helped with your role in AQMetrics?

I’ve worked for software companies in the finance industry, mainly in technical roles, for nearly 20 years, starting in anti-money laundering & working in areas such as fraud, sanctions, screening. This has given me a unique insight into what banks, fund administrators and investment managers need to do from both a business and technical point of view to adhere to regulations.

Best thing about working in AQMetrics?

Helping build the diverse team. Also, I truly believe we are delivering solutions that are changing the way the industry thinks. We are a cloud-first company, and have the skills, expertise and experience to create software in a way to allow fast adoption of best in breed technology and practices and deliver these to our customers.

Who would you most like to swap places with for the day and why?

Chris Hadfield, the astronaut. His view of the world is pretty unique and I’d like to experience it for a day.

Last book you read?

The Man Who Touched His Own Heart by Rob Dunn. Books describing medical firsts intrigue me and the stories about the first attempts to perform heart surgery are amazing.

Website you visit the most?

Twitter and Wiggle.

Tell us something we don’t know about you. 

I served two years apprenticeship as a butcher when I was 16.


Blog

CEO Message: 2018 was a year of change, what lies ahead in 2019?

Geraldine Gibson-Dautun, CEO

There is no doubt that the world around us is changing rapidly and never more so than in 2018. This was a transformational year for AQMetrics.

We started into 2018 with the dawn of MiFID II. All of our preparatory work and that of our customers throughout 2016 and 2017 paid off. We successfully went live on the 3rd of January 2018 as an Approved Reporting Mechanism, a Data Reporting Service Provider authorised by the Central Bank Of Ireland under ESMA’s MiFID II. Almost one year on and we still wear our authorisation as a badge of honour. We are proud to be one of the only regulated RegTech firms in existence.

Acquisitions across the industry continued apace throughout 2018. As a direct result, we have seen an increased need for holistic and independent technology solutions in the market. A wave of acquisitive moves in 2018 has led our larger customers to extend their use of the AQMetrics platform, as they scale and deepen their risk and regulatory reporting capabilities.

As firms prepare for Brexit, the movement of investment managers into EEA member state jurisdictions has led to an increase in demand for multi-jurisdictional regulatory risk and reporting solutions. As a result, AQMetrics has broadened its customer base across Europe and has started to be seen as a leader in the regulatory risk and reporting space, particularly in central Europe.

In a world of uncertainty, there is one thing that I am sure of; I cannot predict the future. My team and I have a mission to be a global leader in the regulatory risk and compliance technology space. How we do that depends not only on what we have learned from our past experiences but also on our ability to prepare for future change, even when we cannot predict all outcomes. We look at dynamics and trends that help us navigate the best course for AQMetrics and our customers. Here is a summary of what we expect for 2019 and beyond.

Growth in the financial services sector. The financial services sector continues to grow despite macro challenges. With nine years of a bull run we think that in 2019 growth will continue in the sector, albeit we recognise that markets work in cycles and at some point the bear will raise its head.

Unfortunately, investment managers have suffered more than the broader market in 2018. But there is some light at the end of tunnel. With fixed income margins holding better than equities and the larger managers continuing to attract new business, we don’t think we will see the bear in 2019. We expect to see most growth in the passive space with global ETF assets having the potential to grow five fold to $25 trillion by 2025. With over 80% of EU and US active funds underperforming their benchmark in 2018, we anticipate that growth will remain more visible on the passive side as we go into 2019.

With an ever flattening US yield curve, a brief inversion of the yield curve in early December and the gap between the two and ten year notes at its narrowest since 2007, one could say that a recession is looming. Looking a little closer at this perception however,the inverted yield curve doesn’t by default cause a recession, it’s merely an indicator. When short term interest rates in the US are inflation-adjusted they are still below 0% and so we predict that the recession will not be hitting in 2019 and most likely growth will continue, albeit somewhat slower than previous years.

Brexit. Unfortunately we cannot ignore the impact of Brexit. The UK will most likely leave the EU in the next six months. The UK was a major force at the EU financial services regulatory table, and a leading proponent for much of our current market regulation. This will, of course, change from 2019 onwards.  Cross-country alliances in financial services will undoubtedly shift and financial services will become more dispersed. We see this already with some of our partners and customers setting up their front office in Paris and back office in Dublin. Undoubtedly the regulators across Europe will be focused on cohesive supervision of these major players.

European capital markets. With Brexit afoot, we believe that an enhanced European capital markets framework is opening a new chapter for Europe. Of course, the success of the European capital markets will depend upon consumer confidence and trust in the financial services sector. Clearly regulation plays a key role here.

Technological innovation. Innovation and the use of technology across the financial services sector is here to stay. We expect to see increased participation by regulators with FinTechs and software firms, as the ecosystem widely adopts the transformational power of technology. AI is moving from a buzzword to mainstream applications as we head into 2019. We also appreciate the need for information security at AQMetrics, which is why we are ISO 27001 certified. We anticipate that many more software and technology vendors will follow suit and place information security at the core of everything they do from 2019 on.

With all of these predictions, what does 2019 hold for AQMetrics? We will continue to offer automated data management and regulatory reporting solutions across AIFMD, Form 13F, Form PF, CPO PQR and MiFID II transaction reporting online 24/7 for self-service customers.

For 2019, we have our eyes firmly set on our customers’ digitisation needs in the performance and risk management space. Our data visualisation tools and configurable dashboards have been well received by our customers through 2017 and 2018, and we will continue to focus on this area. Our AI capabilities, coupled with data analytics and data insights, are providing much needed independent risk systems for our customers. This will continue to be an area of focus.  

2018 was a year of awards for AQMetrics. We were delighted to win the ‘Best RegTech Solution’ at the HFM Technology European Technology Awards 2018, the MEDICI Top 21 – RegTech Award and the ‘Best Technology Firm’ at the CTA Intelligence US Services Awards 2018. We have set the bar high for ourselves by being named on the RegTech 100 list for the second consecutive year and we go into a new year determined to do that again in 2019.

Wishing you a prosperous and happy new year.

Geraldine


Blog, Buzz

Meet the team – Bruna Natal Oshiro

At AQMetrics we have a highly skilled, experienced and diverse workforce with wide ranging backgrounds.

Each month, we introduce you to a member of our team. This month it’s Bruna Natal Oshiro from our engineering team.

 

Name:

Bruna Natal Oshiro, Senior Lead Java Developer

Describe your job in three words:

Exciting, challenging, rewarding.

What is the most exciting thing you are working on?

A new extension  to our real-time, data-driven rules engine.

How has your background helped with your role in AQMetrics?

I’ve been working in software development for over 10 years. I have experience with C, PHP, .NET C#,  front-end technologies but chose Java to deepen my expertise and career. I believe my experience across these technologies has provided me with a strong foundation, and helps with my everyday job at AQMetrics.

Best thing about working in AQMetrics?

AQMetrics has a very approachable management team, who provide us with everything we need to deliver excellence to our clients. We always have exciting projects to work on and great people to work with.

Who would you most like to swap places with for the day and why?

Vice President and Prime Minister of the United Arab Emirates, HH Sheikh Mohammed Bin Rashid Al Maktoum, he once wrote: “The word impossible is not in a leader’s dictionary. No matter how big the challenges are, strong faith, determination and resolve will overcome them”.

Last book you read?

Thinking, Fast and Slow by Daniel Kahneman.

Website you visit the most?

Brazilian economic indicators – https://economia.uol.com.br/cotacoes/

Tell us something we don’t know about you. 

I worked as a physics tutor when I was at school and during my college years. 

 


Blog

Five Innovative Strategies for Resilient MiFID II Reporting

Steve Barnes, CTO

In our previous blog, we took time to pause, reflect and consider some lessons learned from the compliance processes for MiFID II transaction reporting. In this blog, we take a step further and look at five ways innovation can create a resilient MiFID II transaction reporting framework.

In his speech of 3rd July 2018, Mark Steward, Director of Enforcement and Market Oversight at the Financial Conduct Authority, stated1 that the FCA now processes over half a billion transaction reports per month, coming from 23 submitting entities, representing 3,150 firms.  The FCA has invested heavily in its technical capacity to ingest, process and analyse the information reported. In its transaction reporting forum from July 2018, the FCA provided further analysis on the quality of those transaction reports, highlighting the major sources of rejection rates. Duplication, content validation and instrument validation errors feature highly in the top ten.

From this analysis, it is clear that a resilient framework is required to achieve robust reporting. Effective use of technological innovation can help achieve this by enabling firms to harness data to proactively monitor, identify, and correct situations that can lead to poor outcomes.

Here are five key areas where innovation can make a difference.

  1. Data is imperfect. In order to achieve the accuracy requirements, firms need a realistic, flexible process for managing data. This can be achieved by combining APIs or automated data feeds from trade repositories with user self-service, in-application data management and maintenance functions. A well-designed self-service intelligent reporting platform will usually have data preparation tools that store, manage, and provide access to source data, prepared data, and data models, with appropriate governance measures. This helps reduce the headache of managing all data ‘at source’.
  2. Don’t be an outlier with high rejection rates. Industry rejection rates have been cited at 5% of total reports submitted. Not only is it undesirable to be identified by the regulator has having poor accuracy, dealing with high volumes of rejections can also be operationally burdensome. Early validation is key to achieve accuracy. Validate the data at each point; on loading, on processing and on generation of XML to be submitted to the regulator. Inaccurate data should not pass through these three gates. At AQMetrics, we see a rejection rate at less than 0.5%. This is achievable for all firms and submitting entities.
  3. Leverage external data sources to your advantage. Industry available external data sources are maturing. The GLEIF2 infrastructure has achieved excellent levels of stability since launch date. DSB ANNA3 and FIRDS4 have continued to mature over the course of the year. The commitments from ANNA and GLEIF to link ISINs to LEIs in an effort to assist with accurate reporting, will further strengthen the quality of external data sources that can be leveraged to the firm’s advantage. An intelligent reporting platform will integrate these sources, and will leverage appropriately in the validation process.
  4. Timing is key. Validating the data early in the process, rather than downstream at reporting time, can eliminate bottlenecks at the t+1 deadline. The rise of the Intelligent User Interface (IUI), stemming from breakthroughs in machine learning, allows intelligent user prompting. Timely alerting of critical path issues via secure mobile applications can help prevent end-of-day delays.
  5. Achieve continuous reconciliation. In accordance with regulatory technical standards, the firm’s reconciliation responsibilities include checking the timeliness of the report, the accuracy, and the completeness of the individual data fields. Reconciliation should be on-demand, continuous and part of ‘business as usual’ daily processing.  Firms can achieve this with configurable data analytics dashboards, where multi-dimensional data insights can drive improved reconciliation processes.

Finally, resilience is achieved through a combination of these innovation strategies. With this kind of approach, the reporting framework becomes stronger and can be augmented further to provide data insights beyond the original purpose of the reports. Intelligent user interfaces, machine learning and data analytics are now becoming widespread. The careful application of these technologies will lead the industry into an era of rapid learning and improvement, and ultimately a stronger foundation for compliance.


Blog

How to prove your UCITS Fund is not Index Hugging

With more than 2,000 Irish investment funds facing into Central Bank of Ireland (CBI) investigations to ensure they are not misleading customers about charges and other issues it’s important to ask how these firms can best provide regulators with the proof that they need.

The CBI investigations into UCITS funds have been sparked by concerns raised by the Paris based European Securities Markets Authority (ESMA). Yet this is not a new area of concern for the CBI. The CBI’s 2016 report sought to ensure that customers were not misinformed about UCITS’ investment policies and charges. As a result UCITS funds are well briefed on the concerns of the CBI.

The CBI recently announced, of particular concern is “closet indexing” or “index hugging”. This is where the fund managers falsely claim they invest actively to get better returns than those offered by stock exchanges, but in fact they take a more passive approach and track a benchmark index which in turn results in returns matching those of the markets.

As there is more work for an active fund manager to actively place trades to generate higher returns, they can charge higher fees. A passive strategy which simply keeps pace with stock market returns requires fewer trades, and therefore means that the manager should charge less. The CBI is investigating if this is indeed being carried out in practice.

The burden of proof is on the fund manager. They must be able to show that they have been actively trading and can use best practice techniques such as automated trade monitoring and auditing software to prove that they are not merely tracking the index. Savvy fund managers will take this a step further and provide data visualisations to the CBI that show fund performance when compared to an index benchmarks and additional automated data insights that show the variances between the fund and benchmark. It is clear that technology is the solution to the now ongoing burden of proof that UCITS fund managers face.

With 2000-plus Irish domiciled UCITS funds to investigate the task facing the CBI is by no means insignificant. It is therefore likely if the regulator finds proof of “index hugging” it may use all its powers, which include ongoing supervision and sanctions such as fines. For this reason UCITS fund managers need technology to lessen their burden of proof and maintain a good relationship with their regulator.


Blog

MiFID II Reporting – a year of light and shade

Claire Savage, Chief Operating Officer, AQMetrics

Following years of planning and implementation for MiFIR,  it is time to pause and consider the lessons learned from the compliance process and the ongoing considerations in this evolving regulatory environment.

The reality of being in implementation mode for MiFID II for the last two years, preceded by almost ten years of regulatory reform, is that the reporting solutions put in place have been tactical, and found lacking in certain areas. While the target goal for transaction reporting by 3 January 2018 was met by most firms, the challenge of meeting accuracy, completeness and reconciliation obligations is slowly evolving.

The National Competent Authorities (NCA) too have experienced a period of adjustment and are entering a phase of optimisation. The Central Bank of Ireland’s recently published strategic plan 2019-2021 1refers to a three period of consolidation following the implementation of international and European regulatory reforms. This relative lull in the introduction of new regulations represents an opportunity for firms to shift their focus towards optimising solutions around MiFID II and MiFIR.

Transaction reporting in an opaque environment

MiFID firms have undertaken transaction reporting with a commonality of data challenges. The collection and verification of expanded data sets, including legal entity identifiers, personal entity identifiers, and underlying instrument classifications, is compounded with the ongoing development and enhancement of external data sources, including the ESMA Financial Instruments Reference Data System (FIRDS) and the ANNA Derivatives Service Bureau (DSB).  

Tactical solutions involving manual workarounds have been largely deployed to help counteract these challenges. However, the risk with such tactical solutions results is that transparency is compromised, change management is challenging, and it results in a fragile system, that is operationally burdensome on the compliance team.

Shining a light for the future

There is no doubt that the regulatory themed inspections will increase in 2019, with a focus on completeness, accuracy and reconciliation for transaction reporting.

For completeness, while firms cannot solely rely on FIRDS as the golden source of data,  the process for identifying reportable and non-reportable instruments can be achieved by combining FIRDS reference data with supervisory controls for listing, determination and exclusion.  

For accuracy, data management can be addressed in partnership with the ARM,  through the provision of rule-based data management that may be absent from the firms’ legacy systems. Data can be collected, validated and consolidated with third-party data in the transaction reporting solution.

For reconciliation, transparency is key. Reporting statistics and flexible search functionality can be combined with peer group analysis to provide additional data insights to the firm.

Now is the time for firms to ask the following questions both internally and to their ARM:

  • How resilient is the MiFID II transaction reporting solution?
  • How can I consolidate this reporting with other areas of regulation?
  • How can I improve the processes and the controls within my firm to manage these regulations so that I am managing them with a common supervisory control portal?

The changing light

In parallel, this phase of optimisation is likely to be interwoven with shifting priorities in the european regulatory authorities.

In its strategic plan, the Central Bank of Ireland stated that ‘for MiFID firms, the landscape is changing’ and that the focus for regulators would be on ‘third party outsourcing, critical business operations, financial and technology information and, of course, Brexit’.

The UK has published a draft regulation 2 to ensure the MiFID II and MiFIR regime works after Brexit. This will impact the transaction reporting requirements for both UK firms and European Economic Area firms with UK branches themselves and UK branches of European Economic Area firms. UK branches of EEA firms will potentially be subject to a double reporting requirement in some cases, and will need to adapt their reporting solution to facilitate transaction reporting to both the FCA and their home state NCA.

What is assured though, is that the EU will continue to take all steps necessary to protect its market. With MiFID III on the horizon,  there is no doubt that there are shades of grey ahead. Now is the time to pause, reflect and optimise. The tactical implementations may have served their purpose in 2018, but for 2019 onwards, a more strategic approach is required. 

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AQMetrics recognised in top 100 RegTech firms for second year running

DUBLIN and London, 29 November 2018AQMetrics, the award-winning provider of regulatory compliance and risk solutions, is honoured to be included in the RegTech 100, as one of the world’s most innovative RegTech companies.

The RegTech 100 list acknowledges companies for their innovative use of technology to solve a significant industry problem, or to generate cost savings or efficiency improvements across the compliance function. A panel of analysts and industry experts evaluated 824 companies to arrive at this year’s list, which at nearly double the number of companies in consideration last year, highlights the rapid growth and competitive nature of the RegTech industry.

“To once again be listed as one of the top 100 RegTech companies is a vindication of our vision to become the leading Global RegTech company,” said AQMetrics CEO Geraldine Gibson. “Our commitment is to continue scaling the AQMetrics online and mobile platform for global risk and regulatory reporting solutions. We believe that AQMetrics connected platform is the foundation for solving the regulatory burden faced by our wide range of customers from banks through to individual investment managers.”

A full list of the RegTech 100 is available at www.RegTech100.com.

About AQMetrics

AQMetrics is a leading RegTech company focused on delivering regulatory risk and compliance solutions for financial professionals. We recognized that the accepted methods of managing risk and compliance were slow, outmoded, and inefficient. We drew upon our team’s deep experience in innovation, technology, law, and financial services to build a platform that performed markedly better, helping our clients leverage technology to more efficiently meet regulatory obligations. The AQMetrics platform has been tested, proven and perfected.

More information is available at http://www.aqmetrics.com or follow us on Twitter @AQMetrics

Media contact
Phoebe Toal, AQMetrics, marketing@aqmetrics.com


Blog, Buzz

Meet the Team- Jody Collins

At AQMetrics we have a highly skilled, experienced and diverse workforce with wide ranging backgrounds.

Each month, we introduce you to a member of our team. This month it’s Jody Collins from our Customer Success team.

 

Name:

Jody Collins, Product Analyst, Customer Success Team.

Describe your job in three words:

Agile, Diverse, Collaborative

What is the most exciting thing you are working on?

I like bringing new AQMetrics products to customers and exceeding their expectations. Working with customers to draw out their requirements and feeding this into our product road map, is a key part of my role.

How has your background helped with your role in AQMetrics?

My background in computer science and my broad experience in business intelligence has positioned me well for this analyst role on the customer success team. I have a passion for seeing customers’ desired outcomes realised as part of the product road map process.

Best thing about working in AQMetrics?

Meeting and talking with customers on a daily basis and working within the close knit, supportive AQMetrics team.

Who would you most like to swap places with for the day and why?

Tim Ferris because he delves into areas that are completely new to him. On his podcast, he probes his interviewees so effectively, and has an exciting role as an angel investor in some really innovative startups.

Last book you read?

Michael Lewis Flash Boys, about high frequency trading.

Website you visit the most?

Made.com, for home decor inspiration.

Tell us something we don’t know about you. 

I have travelled to 30 countries, my favourite being the Philippines.  


Blog

How the new Securitisation Regulation 2017/2402/EU will impact AIFMs and UCITS in 2019.

Regulation (EU) 2017/2402 (Securitisation Regulation) introduces new internal monitoring and reporting challenges for institutional investors. EU AIFMs are already subject to internal monitoring and reporting in relation to securitisation positions under the EU Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD). As of January 1, 2019, due diligence, transparency, and risk retention requirements will also impact both UCITS and non-EU AIFs in securitisation positions. How will they be impacted is the question that we look to answer here.

It is worth noting that from 2019 on, if an institutional investor (such as an AIFM or UCITS manager) delegates responsibility for fulfilling due diligence, monitoring, and reporting requirements, then any sanctions may be imposed on the delegate rather than the institutional investor.

With the possibility of sanctions in mind, institutional investors and their delegates will need to use systems to verify that the originator of credit has also used an effective system to stress the underlying exposures and, in so doing, ensure that the credit is sound. Just as the money laundering directives brought rules-based systems to the fore for money laundering reporting officers (MLROs) and compliance officers, rules-based systems will also now be at the fore for both AIFMs and UCITS managers to robustly support securitisation due diligence checks.

A robust rules system will combine factor analysis with exposure calculations for risk assessment; have rules based on specific limits (such as the 5% rule which is applied to verify that the sponsor, originator and original lender retains at least 5% economic interest throughout the securitisation’s lifetime); and perform stress tests.

Data points required for rules analysis will no doubt extend further than the payment, credit and liquidity details captured today. Further data analytics will be required to capture cash flow trends, late repayment trends, default rates and frequency of loan modifications.

Once the data and data analytics are in place, institutional investors will further require management and regulatory reports on securitised positions and associated exposures. It is anticipated that from 2019 onwards, regulators will increase their interest in the verification workflows, audit trails and record retention of AIFMS and UCITS managers with regards to securitised positions. Automated corrective action workflows will somewhat support the institutional investors, however manual tasks will still be required to ensure that the UCITS manager acts in the best interest of the investors at all times and that the AIFM has truly validated that its corrective action is the best course of action available at a specific point in time. No doubt regulators will look for proof that these manual tasks were completed and that even data pertaining to manual tasks was comprehensively and consistently captured in a robust system.

To date, neither UCITS firms nor non-EU AIFMs may have given much thought to how best to comply with the securitisation regulation, but that must change by January 2019. Systems with rules engines, workflow, audit trails and reporting will become the new norm for UCITS and non-EU AIFMS going forward.


Blog, Press

Claire Savage talks to the Financial Technologist about Fintech and Diversity

Recently COO Claire Savage sat down with the Financial Technologist, as part of their champions of diversity series.

At AQMetrics, we strongly believe that diverse teams produce the best results. Our team is solving complex problems with software solutions for the global asset management industry. We recognise and draw upon neurodiversity within the team which comes from differences in gender, age, ethnicity and socio-economic backgrounds.

With diversity comes non-linear thinking, a valuable trait for any problem solving roles.

Read the interview here.

 


Blog

Data: Asset or Liability – regulatory compliance data innovation

By Wesley Cooper, Data Architect, AQMetrics

In this series of blog posts, we explore how the next generation of intelligent regulatory reporting solutions are delivering insights far beyond their original purpose.

This second feature in the series looks at the importance of managing data as an asset, and hidden risks that should be mitigated to prevent it becoming a liability.

The wave of complex regulatory compliance requirements, combined with advancements in ‘big data’, has created an explosion of data that financial services firms collect, store and report. In our previous blog, we looked at how to maximise the data asset. In this post, we look at how to ensure it does not become a liability.

Big data is slowly beginning to fulfill its immense promise but new regulatory constraints and ever shifting business needs have left some firms unsure of how to appropriately manage this data. While the default position in your firm may be to hoard all data for future use, it is increasingly becoming more important to ensure the quality of this data is assured, and the techniques for interrogating this data are sound.

Data governance by design

There are certain principles of data governance that all firms must follow to fulfil their responsibilities as a data controller and a data processor. While the implementation of the General Data Protection Regulation (GDPR) was an additional regulatory burden for most firms in 2018, it has driven best practices for data protection. However, one key aspect of data governance, which can often be overlooked, is the requirement to continuously monitor the quality of data. Data is increasingly being gathered from alternative sources, and is being aggregated with data from multiple origination points. Quality assurance processes must be ingrained in the firm’s culture and managed as a continuous process, as the data moves from the front office to the back office. This is not a once-off task, it is a firm-wide responsibility to ensure data is accurate, cleansed, standardised and profiled correctly.

Another important factor for successful data governance is adopting a partnership approach to data quality assurance between the data owner and the data processor. A data processor, with cross-market insights, can apply outlier analysis and peer group analysis to identify data anomalies and quality issues that may be invisible to the data owner. A strong relationship between the data owner and a data processor will foster feedback loops to ensure continuous quality improvement.

Data denial – proving the in-house hypothesis

The abundance of available data, combined with the proliferation of complex big data tools, is dramatically changing the way firms manage data. Misuse of large data sets and big data intelligence tools can produce misleading results that impair, rather than enhance, decision making. This can be adversely amplified with confirmation bias – an internal “yes-man” per se. It is human nature to filter results or interpret data in a way that confirms existing preconceptions and ignore any contrary insights. Ignoring such insights and choosing the results that best align with corporate groupthink can create false feedback loops and ultimately prevent firms from unearthing the true insights hidden in the data.

By falling victim to these traits, can we reasonably expect to identify when a black swan event becomes a market event?

The Future

In the financial services industry at present, there is significant interest in the future use of machine learning and artificial intelligence for regulatory compliance. The use of these technologies is appropriate in certain circumstances, for example natural language processing lends itself to fuzzy logic and semantic algorithms. However, the misuse of these technologies can be a liability, for example the creation of large volumes of false positives in pattern matching. A key advantage to any machine learning system should be the ability to filter out any analytic models that are inappropriate for a given data set, until the right one (or at least the best fit) is qualified. This decision-making process can be based on any number of data attributes, such as its probability distribution for example, and can largely mitigate the risk of the aforementioned error propagation.

Implementation of these technologies will ultimately only be successful if the other fundamental elements of data governance and data model design are executed carefully. Data can be optimised as an asset when it is used to communicate insights clearly, at the point of highest impact, with a sound legal basis to do so. Anything less is a missed opportunity at best, and a costly, potential liability at worst. The work required to implement the right process may seem like a daunting task, but the rewards are plentiful.

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Buzz

Meet the Team – Andrew Fox

Meet the Team

At AQMetrics we have a highly skilled, experienced and diverse workforce with wide ranging backgrounds.

In a new series, we introduce you to our team. First up is Andrew Fox.

 

 

Name:

Andrew Fox, Senior Quantitative Developer

Describe your job in three words:

Focused, challenging, rewarding.

What is the most exciting thing you are working on?

Big data analytics and the multiverse that is financial risk.

How has your background helped with your role in AQMetrics?

My background was originally theoretical physics which then evolved into computer science, so my current role as quantitative developer couldn’t be more appropriate.

Best thing about working in AQMetrics?

The team makes it. Everyone is open-minded, down to earth, good humoured and most importantly willing to help anyone else at the drop of a hat. It’s a great environment for productivity, and a notable factor in why we produce great software

Who would you most like to swap places with for the day and why?

Maynard James Keenan. Musically – the man’s a genius, and he also produces delicious wine. What’s not to love.

What was the last book you read?

It was more of a short story – “The Last Question” by Isaac Asimov. It’s quite profound , and I’d thoroughly recommend it.

What websites do you visit the most?

Carzone probably – I have an urge to buy a classic vintage car at the moment.

Tell us something about yourself we don’t know.

I’m a classically trained tenor.


Blog

How to turn data into diamonds – regulatory compliance data innovation

By Steve Barnes, CTO

In this series of blog posts, we explore intelligent regulatory reporting solutions and how the next generation of  solutions are delivering insights far beyond their original purpose.

This first feature in the series looks at the importance of data innovation, and the hidden value that can be realised from data assets.

Changes to regulatory reporting regimes have focused attention on the process by which data is gathered. Distilling fund data into a format that can be used for regulatory reporting is a challenge for managers, particularly those whose funds are administered by more than one fund administrator. However, once this data is gathered into a golden source, not only can it be deployed for global regulatory filings, it can also be extended, reused and redeployed to provide additional insights, far beyond the original intent.

The ultimate asset – a Golden Source of Data
Since fund data is stored in multiple systems and these source systems rely on multiple formats, it is little wonder that managers yearn for a single, consolidated view, otherwise known as a ‘golden source’. This desire has been amplified by managers’ increased reporting requirements.

Firms are recognising that they are becoming data-driven organizations. Data is being treated as an asset, and optimised to the maximum, as any other company asset. The concept of data as an asset is not only being recognised by the firms themselves, it is also being acknowledged by the regulatory authorities. Recently when the Central Bank of Ireland deputy governor – Ed Sibley, made a keynote speech on this matter, he highlighted “firms that can harness data effectively can expect competitive advantages”. 1

However, attempts at harnessing data are often hampered by the restrictions and shortcomings of the source legacy systems. Firms need to see beyond the legacy system constraints. Automated rules for data consolidation, enrichment and normalisation can be executed to transform the data into forms ready for regulatory reporting, and also into a format ready for further exploration and insights. These rules, often executed in locations outside of the source systems, allow for third party data enrichment, data quality issues can finally be addressed and importantly, allow for a flexible translation for multiple downstream requirements.

Think of data transformation as as control mechanism to get your data into the required shape for multiple uses. A flexible rule system can easily accommodate this.

Value in data insights beyond regulatory reporting
An additional benefit of the ‘golden source’ approach is that data will not only be optimised for regulatory reporting – it can also be fed into cluster computation engines, such as Apache Spark, to reveal previously hidden business intelligence insights.

However, having insights into your data is only part of the solution. Effective communication of those insights is what makes information actionable. It is important to consider the correct visualisations and level of configurability required by customers to ensure that insights are received clearly, at the right time, to impact decisions in the best way possible.

The insights and competitive advantage that firms can realise from their golden source of data are vast and unlimited. Often firms will use regulatory reporting data to perform variance analysis against the submitted regulatory reports across filing periods and jurisdictions. Increasingly we are encouraging our customers to use this data in configurable dashboards to perform trend analysis against holdings and exposures, across sectors, geographies and asset classes and to calculate performance metrics against cumulative returns in order to track portfolio performance against appropriate benchmarks. Such measures, to mention a few, include Alpha, Beta, Sharpe and Sortino ratios, and drawdown related quantities, such as the maximum drawdown and recovery rates over given time periods.

Enhanced data-driven decision making with Machine Learning
What was key in Mr Sibley’s speech was that the use of artificial intelligence and machine learning can be very powerful. We ask the question, what is your data trying to tell you that you are not even looking for at present?

In the AQMetrics innovation lab, we are applying machine learning to drive new insights beyond the typical variance analysis that has become de facto.

Outlier analysis
Using historical data analysis insightful data items can be uncovered using machine learning algorithms. These algorithms learn what is usual for a set of regulatory reporting data and highlight where something falls out of normal bounds. Both univariate and multivariate outliers can highlight data errors, but also importantly, in the multivariate case, it can highlight clusters of outlying data, which could potentially be indicative of a more elusive market event; hence the need for contextualizing the outlying data for individual firms. Analysis can point out large movements in a manager’s funds or erroneous data in the reporting of these funds to the regulator and most importantly – before the information is reported to the regulator.

Peer Group Analysis
Peer group analysis offers new possibilities with the increased use of multi-tenanted cloud platforms. Opt-in, anonymised analysis can compare an individual manager’s funds with other funds which share a similar investment strategy. Rolling up data into a global view across a diverse set of funds can provide exciting ways for managers to evaluate their own funds. Trends and movements across securities, returns, exposure, geographical locations and sectors can highlight efficiencies and areas of improvement for funds to improve their own data and workflow processes. It is through the increased pressure of these processes upon a firm’s data that can turn data into diamonds.

1The need for resilience in the face of disruption: Regulatory expectations in the digital world – Deputy Governor Ed Sibley 03 October 2018 Speech

In the next blog we will look at data as both an asset and data as a liability. We will explore the processes, workflow and third party controls that every firm needs to protect their data assets throughout the regulatory compliance journey.

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Blog

AQMetrics Drives Future Growth With Three New Senior Hires

DUBLIN, LONDON and NEW YORK, 9 July 2018 — AQMetrics, a leading Software as a Service company, today announced it is growing its senior team with the addition of Barry McCarthy as CFO, Rishi Thapar as Risk Manager and Atishma Vashisth as Director of Business Development, UK.

The company has appointed Barry McCarthy as Chief Financial Officer with overall responsibility for shaping AQMetrics global financial strategy. A chartered accountant with extensive experience in financial services, regulatory reporting, M&A and key stakeholder communications, Barry joins AQMetrics from ITG, a publicly quoted global financial technology company, where he was EMEA Finance Director. Barry trained with EY where he predominantly worked on the audits of large multinational software companies.

Rishi Thapar is a renowned Risk Specialist. Rishi is joining AQMetrics as Risk Manager responsible for the extension of AQMetrics performance attribution and Risk as a Service offerings. Rishi was most recently Senior Risk Manager at Windmill Hill Asset Management Limited and established the risk management function in the company. Prior to that he was Director of Risk at UBS, Risk Manager at Armajaro Asset Management LLP and Senior Risk & Quantitative Analyst in International Asset Management Limited. He has written several publications including ‘Applying a Global Optimisation Algorithm to Fund of Hedge Funds Portfolio Optimisation‘ and ‘A risk measure for S-shaped assets in option valuation and in predicting performance of hedge funds’.

Atishma Vashisth has joined AQMetrics as Director of Business Development, UK. Atishma has both buy-side and sell-side sales experience and has covered global markets including Asia, Middle East and USA in her previous roles at IHS Markit and Factset Group where she was responsible for risk product sales. Her risk product knowledge spans across multi-asset portfolio, counterparty credit and market risk analytics. These latest hires reinforce the firm’s commitment to attracting industry-leading talent to supporting the growing global adoption of its award-winning cloud-based Software as a Service (SaaS) platform.

Geraldine Gibson, CEO of AQMetrics commented “We are entering an exciting phase of AQMetrics growth. I am delighted to welcome Barry, Rishi and Atishma, who between them have quantitative risk analysis, enterprise sales and financial services experience. This blend of skills are strategically important as we seek to respond to global demand for integrated risk and regulatory solutions.”

*** END ***

About AQMetrics
AQMetrics is an award winning Software as a Services company focused on delivering risk and regulatory reporting solutions to global investment firms. AQMetrics replaces slow, outmoded, inefficient and oftentimes manual methods of managing risk and regulatory reporting. Through its unique blend of deep experience in innovation, technology, law, and financial services AQMetrics has built a platform that performs markedly better, helping AQMetrics clients leverage technology to more efficiently meet risk management and regulatory reporting obligations. The AQMetrics platform has been tested, proven and perfected.
More information is available at aqmetrics.com or follow us on Twitter @AQMetrics


Blog

AQMetrics named one of the hottest Fintechs in Europe

AQMetrics is delighted to be included in FinTechCity’s FinTech50 list for the second year running. Recognised on the list of the hottest Financial Technology firms to watch for the coming year, The FinTech50 is selected by an international panel of FinTech experts and is seen as a guide to quality and innovation within a very crowded sector.

AQMetrics’ CEO Geraldine Gibson commented, “There were 1,800 firms considered by the judging panel for this list, so we’re absolutely delighted that AQMetrics has been featured for two years in a row. This is a recognition of the innovative work we’re doing in the areas of risk and regulatory reporting”.

The full list is available at https://thefintech50.com/the-fintech50-2018-list


Market Data, News

AQMetrics Extends Platform to Provide “Golden Source” of Market Data for Enhanced Risk Analytics

Partnering with multiple providers to create market data lake across different asset classes

DUBLIN and NEW YORK, June 6, 2018

AQMetrics, the award-winning provider of regulatory compliance and risk reporting solutions and authorised Central Bank of Ireland Approved Reporting Mechanism (ARM), today announced the extension of its platform to include a “golden source” of market data for in-depth pre-trade and post-trade risk analytics and regulatory reporting. By partnering with a number of global market data providers, AQMetrics’ customers now benefit from an extensive market data lake.

During the past year, to support a growing demand for its risk and regulatory reporting solutions, AQMetrics has been heavily investing in its Apache Spark based platform, architected to manage the largest exchange, trade and market data sets at great velocity. The firm has now also partnered with a number of market data providers across multiple markets and jurisdictions, to bring together the comprehensive data repository on which it now bases its risk analytics.

Geraldine Gibson, CEO at AQMetrics commented, “AQMetrics is well placed to leverage our approved reporting platform and transaction processing technology to meet the increased regulatory focus on detection and control in a pre- and post-trade environment. An example of the increased regulatory focus in this area is the recent FCA Report on Algorithmic Trading“. She added, “Combining our platform with a golden source of market data from a wide range of vendors, we are able to deliver a even more comprehensive analytics and reporting solution.”

The market data repository will also enable AQMetrics to run more advanced analytics for its clients, providing a deeper and wider view of the market and potential detection of anomalies in high frequency and algorithmic trading activity.

AQMetrics is very pleased to have been awarded several industry accolades over the past year including the most recent as Best Technology Firm from CTA Intelligence US Services Awards 2018, awarded to service providers to the US managed futures industry that have demonstrated exceptional customer service, innovative product development and growth over the past 12 months.

About AQMetrics

AQMetrics is an award winning RegTech company focused on delivering risk and regulatory reporting services to global investment firms. AQMetrics replaces slow, outmoded, inefficient and oftentimes manual methods of managing risk and regulatory reporting. Through its unique blend of deep experience in innovation, technology, law, and financial services AQMetrics has built a platform that performs markedly better, helping AQMetrics clients leverage technology to more efficiently meet risk management and regulatory reporting obligations. The AQMetrics platform has been tested, proven and perfected.

AQMetrics was recently awarded ‘Best New Technology Introduced over the last 12 months – Risk Compliance and Reporting’ at the 2017 Waters Technology Awards, ‘Best compliance product for small and start up firms’ at the 2017 HFM US Technology Award and was noted as a ‘Most Successful FinTech’ at the 2017 Euro Finance Tech Awards.

More information is available at http://aqmetrics.com or follow us on Twitter @aqmetrics.


Blog, Market Data, Technology

Effective Data Management in a Fragmented Market

By Breige Tinnelly, AQMetrics

Our recent conversations with compliance and risk managers at investment management firms have highlighted a common pain point, which is how to put in place the right kind of technology platform to cater for both existing and future regulations. While their focus has naturally been on the most pressing compliance concerns ushered in under MiFID II, AIFMD and SEC Modernization (to name but a few) the reality is that a piecemeal approach to compliance is unsuitable for the fragmented regulatory changes that the industry now faces. And fragmentation exists on a number of levels, not only in the various rule changes at both the national and European levels, but also in the diverse approach market participants are taking when it comes to interpreting and implementing the various regulations.

One of the main problems we’re hearing is that investment firms need to focus on managing their day-to-day market risk and credit risk, but are now also being pushed by their investors to demonstrate they are effectively managing their operational risk as well. This is of course in addition to the increased regulatory requirements for transparency and increased oversight, with a number of significant changes scheduled for the first few months of 2018 alone. And we know from our close engagement with the market that the regulatory reporting demands of MiFID II alone already has many firms swamped.

Nimbler responses

The solution? Instead of adopting a quick change that is only effective in the short-to-medium term, investment managers need to be able to take a step back and adopt a long-term, holistic approach to the complex challenge of fragmented regulations and the need for greater risk control. That is where ‘as a Service’ technology, such as AQMetrics, comes into its own, by enabling firms to use the same ‘golden source’ of data, but for a variety of different purposes.

Beyond the piecemeal approach – a single ‘as a Service’ technology platform

At AQMetrics, our Data Management as a Service technology is created with one strategic goal in mind – to provide a single golden source of data that can be used for both our Risk as a Service and Regulatory Reporting as a Service technology. By handling a wide range of complex data across the board from a centralised hub – regardless of the size or type of firm – and adopting a standardised data management model, AQMetrics empowers organisations to respond to gain risk insights and regulatory change with greater agility, across multiple business functions. AQMetrics Risk as a Service technology, includes risk analytics such as VaR, the Greeks and Stress Testing, coupled with dashboards, alerts, workflow and audit functionality. We’ve also got Regulatory Reporting as a Service technology on our software platform and as an Approved Reporting Mechanism (ARM) under the Central Bank of Ireland, AQMetrics is a regulated entity, entrusted by some of the largest investment managers in the market to process all of their trade data for regulatory reporting.

We believe this holistic approach to ‘as a Service’ technology is the only effective way to truly tackle fragmented regulations and market changes head-on, regardless of what is coming down the road.