Achieving Regulatory Alpha through Regulatory Enterprise Risk Management
There’s no question that regulatory reporting has generated significant new challenges for the investment management industry. From managing systemic risk to enhancing transparency and investor protection, firms are grappling with balancing the demands of an ever-changing regulatory landscape with limited budgets and operational resources. While there’s still much speculation about the impact regulation will have, it is certain that it will continue to be at the forefront for the foreseeable future. With this in mind, how can investment managers directly confront the challenges posed by regulation to prime themselves for continued future success?
For many, the cost of compliance has long been a primary focal point. Legacy data management and reporting systems are overburdened and internal resources may be overwhelmed. But when faced with the prospect of engaging third-party service providers to alleviate the burden, there is a tendency to prioritise low cost solutions over the benefits of a holistic solution. Ironically, this approach typically ends up being more expensive and far less efficient. Instead of focusing on the cost of compliance, managers are well served to start thinking about the cost of non-compliance which can invite regulatory scrutiny and potentially catastrophic operational results.
The solution may be the implementation of a robust Regulatory Enterprise Risk Management ("RegERM") system that can help mitigate serious risks. An effective RegERM system should provide accurate and timely compliance and regulatory reporting, synergies with existing operational processes and a layer of protection against lapses that can compromise a firm. Additionally, systems should be at the forefront of change and flexible and agile enough to accommodate evolving requirements.
On top of continuing to demonstrate compliance with global regulations, the RegERM system can and should be leveraged for other functions with the goal of generating regulatory alpha. Firms can opportunistically take advantage of using these new platforms to support their investment operations, sales, marketing and client communications. Beyond simply reacting to regulatory requirements, firms can take a holistic view to redesigning data architecture. Combining multiple reporting systems into one platform can allow for both consistent reporting as well as reduced marginal costs for more robust, customisable and powerful institutional reporting platforms.