Regulation: The Driving Force Behind a Financial Overhaul

Factset's King argues that research management systems can provide audit trails for regulatory compliance.

greg-king-factset
FactSet's Greg King believes that RMSs can help capital markets firms reduce in-house latency and improve consistency by streamlining data into universal and lineated-process timelines.

When the global financial crisis hit in 2007, the financial industry came in for fierce criticism. And while trust in the industry remains low, new rules laid out by the UK’s Financial Conduct Authority have been implemented to ensure that history doesn’t repeat itself. By Greg King

By handing out nearly £2 billion in fines to non-compliers within the industry, the FCA has begun to enforce measures on the buy side that will discourage fund and investment managers from breaching the new rules, which include (but are not limited to), non-compliance with investment limits, failure to protect clients' money, exposure to excessive risk, and an inability to justify research processes.

These regulations though, have actually created the perfect opportunity to implement a new standard for best practices, that will not only help firms work toward changing the opinions of industry detractors, but also develop a competitive advantage over their fellow players.

Contracting Economy
Prior to the financial crisis, just a fifth of the world's investment institutions were using research management solutions (RMSs) to provide the thorough audit trails required to comply with today's regulatory framework. However, the unavoidable period of cost-cutting that followed, and a contracting economy meant that many others looking to do likewise, postponed data management projects until the situation stabilized.

With budgets on the increase again, the industry is undergoing a transformation. Financial and investment firms are re-examining the benefits of using RMSs, in efforts to streamline the research process, improve the sharing of data, and help firms meet the new strict financial regulations aimed at forcing the buy side to become more transparent.

Traditional data storage and filing solutions are often impractical when it comes to finding any information relevant to a trade, particularly when they are stored in multiple repositories. There is also the problem of validating the legitimacy of the data, particularly when a firm might be under investigation and the information becomes proof in an enquiry. Files saved on individual terminals and servers not connected to a central network cannot easily be linked to related data, subsequent events, current analysis, and the record of the author's other investment choices and analysis. By using RMSs, firms are able to reduce in-house time latency and improve consistency by streamlining data into universal and lineated-process timelines.

Traditional data storage and filing solutions are often impractical when it comes to finding any information relevant to a trade, particularly when they are stored in multiple repositories. There is also the problem of validating the legitimacy of the data, particularly when a firm might be under investigation and the information becomes proof in an enquiry.

Audit Trail
An audit trail is not just for hunting down new business opportunities, but also for rationalizing why a decision was made and to prove the choice was based on the best information available at the time. As institutions take a closer look at their teams' processes, it seems that dispersed data doesn't limit its problems to audit trails.

Finding inconsistencies in individuals' methods of working and isolated information in separate locations means that vital information ─ perhaps critical to an investigation ─ is completely inaccessible and often untraceable. The data is not widely available, and if a team member were to leave, then the company loses the information with them. This process is not only outdated, but detrimental to the company benefitting from the scale and wealth of expertise available within the organization.

Since 2008, firms with an RMS in place have gone from a little more than a fifth, to more than two thirds, according to research from Cutter Associates. RMSs have been integrated into IT systems, allowing analysts and portfolio managers to use the tool to facilitate a more widely informed judgment call based on market data, target, prices and newswire data ─ all of which they have access to now.

Limited Adoption
A weaker financial sector may have had limited adoption rates during the recession, but with margins improving and confidence returning, RMS implementations for data aggregation have risen rapidly. Investors now demand reliability and robust accountability from their employees to protect the company's reputation. Technological solutions can provide not just clients with the assurance they seek, but also extra insight and accessibility to information, which stands to set them apart from their competitors.

Regulation and compliance don't need to be the loaded words they have become because in the long run they have instigated change in business practice to the benefit of everyone involved ─ investor and broker alike.

Greg King is senior vice president, International Workstation Solutions, FactSet.

  • LinkedIn  
  • Save this article
  • Print this page