Financial Industry At “Inflection Point”

Shanny Basar

Mark Beeston, managing partner at venture capital firm Illuminate Financial, said the financial services industry is at a turning point as large firms are more willing to use new technology.

Illuminate was launched in 2014 to invest in fintech companies in capital markets that create change through providing solutions for cost, control, capital efficiency or compliance with regulations.

Mark Beeston, Illuminate Financial

Beeston told Markets Media: “The industry is at an inflection point as large financial firms are more open to adopting cloud as a service and using micro-service type of components to address specific problems.”

Last week Deutsche Börse, the German exchange group, and Illuminate co-led a $5m (€4.1m) Series A funding round in RegTek.Solutions, a multi-jurisdiction regulatory reporting solutions provider based in New York.

The investment comes as market participants prepare to comply with new post-trade reporting requirements across asset classes and around the world. In the European Union, MiFID II brings in reporting requirements outside just equities in January. Additionally, asset managers will retain responsibility for trade and transaction reporting for the first time as they will no longer be able to delegate responsibility to their brokers.

Luca Zorzino, investment executive at Illuminate Financial, told Markets Media that the buyside opportunity in reporting is significant.

“As MiFID II nears, we are seeing asset managers take a more proactive approach to managing regulatory reporting themselves,” Zorzino added. “They are looking to specialist vendors to comply and those able to integrate tools quickly and efficiently, preferably via software as a service solutions, will be well placed.”

Lloyd Altman, partner at Risk Focus, told Markets Media that RegTek.Solutions has more than half of the G15 banks among its clients but is also starting to get interest from the buyside due to MiFID II. Risk Focus launched RegTek.Solutions this year as a subsidiary to provide global regulatory compliance and trade reporting software.

Altman continued that Risk Focus launched a partnership with Deutsche Börse Regulatory Reporting Hub in August. Deutsche Börse has consolidated reporting into a central hub to increase efficiency and provide required reports to all relevant authorities around the globe.

RegTek.Solutions’ software includes interpretation of instrument details of over-the-counter derivatives and a rules engine for applying the regulatory validations, eligibility checks and deferrals.

Georg Gross, head of regulatory services at Deutsche Börse, said in a statement at the time: “Given the extreme time pressure that firms are under to comply with MiFID II, we are proud to provide a version of Validate.Trade to all users of Deutsche Börse’s trade reporting services that allows them to start testing their OTC trade report submissions straightaway.”

For Deutsche Börse the new investment will be managed by DB1 Ventures, its corporate venture capital arm.

Ankur Kamalia, head of venture portfolio management and DB1 Ventures, said in a statement: “While we have already been working with the team for some time to enrich our Regulatory Reporting Hub, the investment will help us deepen our relationship with RegTek.Solutions and enable the firm to service clients required to validate, report and reconcile trade data.”

Brian Lynch, chief executive of RegTek.Solutions, told Markets Media that the new investment will be used to fund product development and to expand sales across Europe.

“Deutsche Börse is not just providing an investment but also a collaboration,’ added Lynch. “The buyside increasingly needs a different level of service and Deutsche Börse can provide managed services using our software.”

Lynch said that even after MiFID II goes live at the start of 2018, firms will be implementing changes for many years.

He continued that Illuminate Financial has also already made a substantial contribution to RegTek.Solutions. “They have a unique  approach as a venture capital firm as their portfolio companies solve problems in capital markets.” Lynch added.

Beeston added: “Illuminate can offer connection to a global network. We only invest in companies that we can help take to market either through our informal network or our formal partnerships.”

RegTek.Solutions is Illuminate’s seventh portfolio company according to its website. In the data space, Illuminate and IHS Markit launched a Fintech Data Program in March this year to provide early stage companies with free or low cost proprietary capital markets data from IHS Markit.

In March new rules on variation margin for uncleared derivatives also came into force and boosted another Illuminate portfolio company, Cloudmargin, a web-based collateral and margin management solution.

Beeston said: “We have a massive pipeline and 60% of firms that come through the door deal with some aspect of regulation. MiFID II is a catalyst but it is not the only driver, regulations like GDPR are also coming becoming increasingly important.”

The General Data Protection Regulation aims to strengthen and unify data protection for all individuals within the European Union.

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