Compliance Costs Escalate: Report

Terry Flanagan

Compliance functions continue to face diverse pressure with shifting supervisory expectations, no let-up in the volume of regulatory change and the start of many of the big implementation programs for major complex legislation.

Working in an ever-changing regulatory environment has become the norm for financial services firms. According to the Thomson Reuters Cost of Compliance survey, the expectation is that there will be a further increase in the amount of information published by regulators, though the expectation has eased slightly since last year’s results.

In 2013, 81 percent of respondents expected an increase in the amount of information published while for 2014, expectations have eased off slightly with 75 percent expecting more to be published. The results are positive in that they show expectations are not quite as high as they were in 2013, but the reality is that any regulatory material which does appear in 2014 will simply add to the vast amounts of regulatory information with which compliance officers already struggle with.

“The ability to comply with confidence and transparency is integral to building trust in the financial services sector,” said Chris Perry, managing director of risk at Thomson Reuters. “Compliance leaders are being held to increased accountability amidst an ever-increasing volume of regulation, the expectation to move and comply fast, and the exposure to record fines for non-compliance, now regularly totaling in the billions.”

One of the more onerous regulations is the Commodity Futures Trading Commission’s Rule 1.73, which requires futures commission merchants (FCMs) to pre-screen orders to trade swaps prior to execution, ensuring certainty of clearing acceptance by their clearing member at the time of execution. The rule designed to reduce systemic risk and ensures that clearing firms are in compliance with regulations in the United States and Europe.

Newedge is building a system to handle risks arising from compliance with CFTC Rule 1.73. “We at Newedge are continuously evolving our services and systems to offer our clients a premier experience from pre- to post-trade,” said Brad Giemza, senior IT director at Newedge.

LimitEdge, a workflow tool, is an addition to Newedge’s platform which manages the set up and approval process for pre-trade controls as well as calibrates the controls to the respective credit limits of our clients. In addition, Newedge has made enhancements to the existing intra-day monitoring with a proxy VaR as an additional check and balance, said Giemza.

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