Trader Compliance - At What Cost?

The demands of Dodd-Frank and EMIR compliance regulations have prompted many trading companies to invest heavily in new technology, as well as staffing for compliance roles. The implementation of MiFID II is only adding to that burden and expense.

Tight compliance deadlines mean many of these investments are made under duress, as trading companies rush to implement systems. Many of these new systems are incapable of effectively automating the delivery of records required to meet compliance demands. With today’s demands, solutions need to be able to simultaneously monitor voice activity across trading platforms, PBX systems, private wire, IP links and PSTN connections. In addition, they need to deliver real-time analytics. Whether organizations are single-site or larger, more complex multinationals, the solutions they invest in need to scale with the business and be cost effective both at implementation and as they evolve.

Cost and Consequence

The costs and consequences of noncompliance have soared. In addition, the investments by organizations trying to achieve compliance are growing in line with the rapid rate of regulatory change. The cost of noncompliance has become a focal point as regulators move to ensure compliance of companies, irrespective of size. The fines and sanctions imposed as a result of noncompliance are pain points endured by all stakeholders throughout the business.

Regulators continue to investigate financial institutions, and several high-profile organizations have been dealt large fines, sometimes in the hundreds of millions of dollars, for failing to provide compliance reports. Many large financial institutions are spending large parts of their budgets on implementing compliant reporting systems, but they must still ensure they have adequate funding for future, still-unknown compliance fines.

Instead of the initial knee jerk reaction to compliance demands, trader organizations are now becoming more cautious and many are re-evaluating their investments, seeking a more sustainable and flexible approach to underpin business agility for the future. They are evaluating solutions that help them prevent rather than cure compliance issues.

Research indicates that an organization with 500,000 trades per month would expect to spend almost $30 million to build an internal reporting system, with ongoing costs of $18 million per year to maintain it. That estimate is likely to incorporate operations, testing, technical, business analysts, compliance officers and support. These costs can be drastically reduced by implementing third-party automated solutions that proactively support compliance demands.

Impact of Noncompliance

Noncompliance can impact financial organizations in a number of ways:

Monetary

  • Heavy fines.
  • Increased capital requirements.
  • Impact on share price.
  • Withdrawal of ability to do business.

People

  • Compliance skills requirements.
  • Personal liability.
  • Monetary clawbacks.
  • Loss of skills from the business.

Business

  • Inability to recruit.
  • Damaged business reputation.
  • Remedial action costs.
  • Greater degrees of regulatory scrutiny.
  • Competitive disadvantage.

Noncompliance now means ever-increasing fines and other remedial actions and sanctions imposed on both financial organizations and the people they employ. The impact of getting compliance wrong has never been higher — a good reason to look at embedding effective solutions that focus on prevention rather than cure.

How Third-Party Solutions Can Help

It can be difficult for financial firms to stay on top of these regulations by themselves. Partnering with a third-party provider can help them stay ahead of the curve without tying up their time and resources trying to maintain up to date systems themselves.

For example, CTI’s solutions are helping  trading organizations stay on top of regulatory programs by providing transparency and delivering a standardized reporting mechanism, thus strengthening the compliance process and operational architecture.

These dynamic tools can help reconstruct trades and provide proof or evidence in the event of claims of noncompliance.

Learn more about trader compliance.