FMR Advisory Services
Our USP is the combination of a deep regulatory knowledge built up over the last 8 years, layered with over 25 years of OTC markets business management. This provides an interpretation capability that not only explains the regulatory impact but also allows actionable plans to be laid.
Typically over a day or two the board or similar senior management will review the longer term impacts of regulatory or other change such as:
- Increased capital cost / balance sheet impact (clearing, margin on non-cleared trades, operational risk model, credit)
- Market shift from principal to agency model
- Building the Best Execution Policy
- Best practice ethos. Fundamental change in sales/client and sales/trader relationship
- Building out a secondary trading market
- Planning for an educational programme across the markets
This allows the firm to decide how best to position the business and markets to survive and take advantage of any relative strengths under the new market models. This exercise is a vital first step in the wider initiative planning. If the overall plan does not consciously direct the business towards the anticipated market and business structure, the firm's regulatory development will deliver a set of unaligned controls and restrictions that do not allow the firm's business to operate efficiently within the market structure.
Having taken a strategic view on the future business model and related appropriate regulatory approach, the next step is to ensure that a gap analysis defines both the existing baseline and the set of required goals. Part of that gap analysis should also set out the outline set of work streams that will be necessary to meet the defined goals. The importance of this step cannot be over-emphasised. Without sufficient gap analysis the following work that will be undertaken faces a severe risk of either missing a vital element from the execution or setting off a work stream towards an incorrect destination.
Most institutions will currently find themselves in the middle of this phase, having taken an initial reactionary approach to impending regulation or remediation of an infraction. The planning team has set out implementation goals and over a phase of many months the systems and surrounding processes will be put in place to conform to the new requirements. It is vital that any decision rights, accountabilities and authorities are established at the start, rather than half way through a process when a challenge arises.
Given the typically long timeframe for this development cycle, it is important to establish plans with full knowledge of the regulatory requirements and to ensure a regular review with the a relevant industry (regulatory) expert. Details and timings can often change mid-cycle, so ensuring the plans remain aligned to both the strategy and subsequent regulatory changes will save time and money in the long run.
The surrounding development work is normally in IT speak; a 'non-trivial' development plan. Often the work has had to start before the final regulatory outcome is completely defined. For instance, preparation for the investor protection elements of MiFID will have required funding approval and planning to have taken place in 2016 and 2017 for any chance of having the IT infrastructure ready for launch ahead of January 2018 The development started before the final technical rules had been finalised by the authorities. Whilst the wider outcome is well understood, the finer details still today require final definitions in several key areas. Taking a step back to the first stage to undertake a strategic review is often a sensible idea, if only to ensure that the development plans will deliver on what has now become the expected outcome.
MiFID II planning is exactly at this stage. Whilst the RTS are generally nailed down, and with FX being declared illiquid as an asset class, pending more data gathering, the wider scope is less than certain. Yet if an institution waits for final definition of these rules they will have only a few months to budget, plan and implement the broad set of solutions that will be necessary for compliance.
Many of the details may not be finalised, however the thrust is often well understood and preliminary planning, if not actual development can take place. Two examples would be:
CLIENT NAME CAPTURE.
The name of the client must be captured at the time of trade as part of the trade ticket details alongside trader name, and input accordingly. Whilst the additional name field itself may be a simple thing, capturing the data in a process-oriented way that will guarantee 100% surety of compliance is certainly not.
CLIENT APPROPRIATE MARKETING - AND PROVING IT.
Any marketing will have to be directed to clients on a specific basis that ensures the material is appropriate to their risk appetite, maximum appropriate potential loss and investment understanding, to name but a few criteria. Having a client sign a piece of paper declaring an understanding will not begin to cover the business liability. Once a trade is executed, the institution must be able to recall all touchpoints from initial marketing to settlement, including phone conversations - and link any of those touch-points into the trade life-cycle... database nightmare....
Any delay risks significant penalties down the road - with the original rush to catch up that took place when the first MiFID was implemented highly unlikely to be acceptable to the authorities.
Making it Real
Appropriate planning is recognised as having a significant impact on the outcome of any development initiative. However there comes a point when the planning must become real.
Having planned carefully for the impending regulations - whether MiFID, an approach to meet the requirements of the FX Global Code or how to implement change in a local marketplace - the implementation stage is absolutely key.
Whether or not FMR Advisory has helped in the preparations to this stage, we are able to take an active role in the implementation of your plans. Embedding us in the business for a defined timeframe will ensure a solid start to your implementation, with management lead being delivered by a regulatory specialist.
The team can be built out either from internal resources, third party contractors, or our network of regulatory specialist contractors.