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Cut Compliance Costs, Fuel Innovation with Data Integration

The growth of financial regulations may be slowing, but compliance costs continue to explode. For example, a recent study by Duff & Phelps projects that compliance costs will more than double by 2022.

One key concern is the looming enforcement of Markets in Financial Instruments Directive, or MiFID II. Julian Korek, global head of compliance and regulatory consulting at Duff & Phelps, said: "Skyrocketing costs mean that firms have had to decide which regulations to prioritize, meaning that some will miss the already extended deadline."

The challenges of regulatory compliance do have a silver lining, however. It is leading firms to re-evaluate and update their reporting and data management systems. When done strategically, companies are finding ways to leverage these new data systems to build competitive advantage.

A case in point: A global investment bank was struggling to meet the real-time reporting requirements of post-2008 derivatives regulations, mostly because of the fragmentation and inflexibility of its data systems. Each derivative processing function was stored in a separate database, with more than 20 databases around the world, which made it complex, slow and expensive to integrate the information needed for reporting.

After a careful evaluation, the bank changed its strategy and adopted a new data management platform that accelerated the flow and integration of data. Now it can meet regulatory requirements with flexibility and speed. More importantly, the new system provides a real-time, comprehensive view of the firm’s positions, enabling management to make faster, smarter business decisions. Rather than pulling data from 20 different databases trying to see the big picture, analysts query one central data repository, gaining fresh insights. Today, the bank’s platform powers more than $70 trillion in trades, persists more than a billion documents, and supports more than 10,000 read and updates per second.

This kind of strategic approach gives financial companies a holistic, 360-degree view of their data, enabling them to not only meet compliance reporting requirements effectively and efficiently, but also gain deep insights that reduce costs, increase efficiency and lead to sustainable competitive advantage.

Legacy Reporting Systems: Slow and Inflexible

New and evolving regulations are increasing the cost of compliance significantly— and the cost of non-compliance is ratcheting ever-higher, putting firms at greater risk.

Consider the costs of MiFID II: According to a recent report by Optimas LLC, total implementation costs for MiFID II are likely to go beyond €2.5 billion ($2.6 billion), with the bill exceeding more than €700 million to maintain annual compliance over the next five years.

The frequency of reporting has also increased, with more and more ad hoc requests from regulators. A recent Thomson Reuters survey pointed out that the growing number of requests is driving up costs, citing them as “the overriding reason for an expected increase in liaison with regulators.” At the same time, the volume and variety of data has exploded.

To meet these needs, companies must aggregate data from multiple sources in real time – with greater transparency – which means they must access data on a granular level so information is traceable back to its source. For example, MiFID II – which goes into effect in January 2018 – requires firms to be able to reconstruct trades, including counterparty information, trade identifiers, e-mails, voice communications, chats, electronic messages and even social media.

Ken Krupa, MarkLogic Enterprise CTO, explains: “Traditional reporting systems simply aren’t up to the task. They don’t support real-time integration of data from silos and flexible reporting. They have been built to answer specific questions to meet the standard regulatory requirements of the past, so it takes significant resources to move and integrate data to answer new questions and meet fast-changing regulatory requirements”. Existing systems also often cloud the lineage of the data that can be important for certain reporting requirements.

Meanwhile, financial organizations need to respond in real time and operate smarter than ever. The limitations of old reporting systems—and resulting ‘work-arounds’—are increasingly diverting focus and resources away from innovation needed in a competitive landscape crowded with new, nimble players.

A Data Agnostic Solution

MarkLogic, a leader in integrated data management, and Intel, a leader in high-performance computing, networking and storage, have combined their expertise to create a platform that overcomes old limitations.

The MarkLogic/Intel regulatory reporting platform integrates large volumes of data in different formats from different sources, with no upfront modeling, into one central, searchable repository. With all data in a central store, executives can query across data previously isolated in line-of-business silos to gain fresh insights. The system easily ingests new data and correlates with existing data so you can query, combine, establish relationships between data sets with bitemporal stamping to find the answer and prove what you knew and when facilitating e-discovery.

And with Intel’s advanced encryption, the platform provides security for data in transit and at rest as well as granular access controls that protect companies from both internal and external threats.

To get to this 360-degree view of data, firms must get past one major obstacle. “Legacy data center infrastructure is the biggest inhibitor to innovation,” says Mike Blalock, General Manager, Financial Services Industry, at Intel. “Financial institutions must modernize their data centers in order to effectively derive insights from both structured and unstructured data, and stay ahead of compliance and regulatory requirements,” he says.

The MarkLogic multi-model database platform, running on Intel’s high-performance architecture, has benefits beyond fast and powerful regulatory compliance. The platform’s agility and flexibility allow companies to unlock the value of their data and gain fresh insights that can lead to innovation and new business opportunities.

By supporting transactions, searches and queries on a single, massively scalable data repository, this enterprise data platform can help financial services organizations achieve a 360-degree view of their business without sacrificing security or data governance. This creates a fast, flexible and resilient foundation for meeting the data demands of today’s enterprise applications and preparing for the demands of tomorrow.

“If you manage your data well, you can be ahead of the market,” says Christian Hunt, global head of compliance and operational risk control for asset management and Europe, the Middle East and Africa, at UBS. “You can use compliance as a business advantage.”