Digital Regulatory Reporting – Explained

Digital Regulatory Reporting (DRR) is quickly gaining momentum in the industry which begs a few important questions.  What is DRR and why is it needed?  What problems is DRR solving, how and what are the goals?  What challenges do today’s landscape bring and why is now the best time to get involved?  Quorsus has been involved since nearly the beginning of the initiative allowing us to leverage our expertise and shape the future of regulatory reporting.  


What exactly is DRR?  In short, it is essentially the implementation of a better approach to regulatory reporting which introduces a global framework for collecting and reporting regulatory data.  It is the creation of machine executable rules and models which apply logic on data placed into those models.  A few of the key drivers behind this initiative and why it’s needed are to improve regulatory interpretation by facilitating open discussions amongst industry players, improve interpretation and execution of reporting.  DRR is a fantastic way to mutualise these interpretations across the financial services industry and more importantly ensure that they’re being adopted, thus ultimately leading to a set of industry best practices. 


What problems are DRR solving?  Ideally, DRR will facilitate a minimisation of reporting breaks resulting from uniformity in compliance and in how rules are implemented.  With mutualised interpretations, more consistent data should be produced and consumed by the global financial regulatory community, which should help these regulators achieve the primary aims of financial legislation like mitigating systemic risk in a more timely and efficient manner.  Exactly how this is being achieved is through an industry initiative, hosted by JWG, where a set of designated representatives from some of the major industry players are being trained as “digitisers”.  The digitisers work together to model rules, contribute to test packs and discuss complex mappings and issues.   The ultimate goal is to digitise, automate and standardise some of the costly processes that take place today in the regulatory reporting space- the utopia end state is that you put a trade in without formatting or transforming it, and you get a fully formed regulatory report out, which complies with the relevant regulatory technical standards as well as best practice. 


What challenges does today’s landscape bring?  Firstly, regulatory authorities need a mindset shift from focusing on the sanctity of legal or “Level 1” text in European parlance towards the practicalities of how it is implemented.  While the overall sentiment and goals of the regulators are clear, there is a disconnect to what is achievable in real life.  Through DRR, regulators can have a first-hand, real-time look into how rules are written and have conversations with market participants to understand pain points.  Second, a wider range of industry players across the entire market should look to get involved.  Whether buy side asset managers, commercial end users like the big commodities firms, exchanges, CCPs etc. The danger if they aren’t involved is that perspectives are missed, and the best practices are created by a relatively small number of large broker dealers with a necessarily limited scope.  As the test packs, data model and rule creation are continuously evolving with contributions by the existing set of digitisers, it would be great to have input from a broader set of industry players. 


Why is now the best time to get involved?  The effort to digitise the rules and create the mappings are still in the early stages.  This implies that by getting involved now, you have the potential to be part of industry shaping discussions, write logic and contribute to the test packs.  It’s particularly timely with the increased reg harmonisation driven by the EMIR Refit, the CFTC rewrite and the expected upcoming APAC rewrites all with a focus on the critical data elements (CDE).  Similarly, firms can benefit from the creation of test packs that will allow the market to mitigate risk in their own testing environments and around big regulatory releases.  Availability of reusable rules will lessen the impact of expected future rewrites and rule changes. 


At Quorsus we strive to be in the forefront of upcoming reg changes, new regs, industry best practices and new technologies aimed at solving reporting problems.  Being involved in the DRR process means we have a voice in how the rules are shaped, participate in discussions around complex rule modelling ultimately leading to a deeper understanding of how the rules are modelled and as a biproduct have great familiarity with the Rosetta platform.