Resources Arvision Newsletter Global Regulatory Changes Reshaping Technology Needs

ArVision Quarterly Newsletter: How Global Regulatory Changes Are Reshaping Technology Needs

October 2, 2024

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ArVision Newsletter

Arcesium's quarterly newsletter delivers our perspectives on data, innovation, and industry trends in the investments space.

Financial regulators worldwide are enacting changes to enhance transparency, mitigate systemic risks, and maintain market integrity. Regulators across EMEA and APAC, as well as North America, have been intensifying oversight efforts to address the increasing sophistication, intricacy, and scale of assets under management in the global financial markets.

Several key initiatives, set to take effect in the coming year, are particularly relevant for financial leaders planning ahead to keep up with new compliance demands. The table below recaps several major upcoming rule changes.

Major upcoming rule changes

Regulation	Detail	Impact on Financial Firms
Monetary Authority of Singapore (MAS) Rewrite	Effective October 2024, the MAS is implementing changes to how over-the-counter (OTC) derivatives must be reported in Singapore.	Reporting requirements will include a broader range of derivatives, like FX forwards and interest rate swaps. Derivative transaction reports must be reported on a T+2 basis, and derivatives collateral positions must be disclosed.1
Markets in Financial Instruments Directive (MiFID) II	ESMA mandated firms must submit draft technical standards to the European Commission by Dec 29, 2024. This attempts to address some investment firms’ inadequate justification of the use of particular trade execution venues and a lack of adherence to trade execution policies.2	The exact impact on financial firms remains in question. However, asset managers may be required to provide evidence of transparent and fair trade execution policies.
Form PF (Private Fund) Revision	Effective March 12, 2025, the SEC will cut 16 questions, update 32, and add 17 to Form PF to expand private fund advisor oversight in the United States.	Institutional investment managers must report monthly average gross short positions on a settlement data basis and private fund advisors must report data on each fund they manage separately (disaggregated reporting). Performance returns must include inception-to-date and quarter-to-date IRR, and monthly volatility must be disclosed.
European Market Infrastructure Regulation (EMIR) III	EMIR III amendments will modernize the EU’s central clearing counterparty (CCP) framework and boost EU CCP liquidity. The changes are set to take effect in the first half of 2025.3	The clearing threshold calculation methodology will now exclude transactions cleared via an EU-approved CCP. An account requirement (AAR) mandates certain EU market participants clear a minimum number of in-scope derivative trades yearly through an EU CCP.
EU Alternative Investment Fund Managers Directive (AIFMD) II	Effective Q1-2 of 2026, AIFMD II aims to strengthen EU investor protection by enacting stricter transparency, reporting, and disclosure rules. It also seeks to improve market stability by tightening AIFM (alternative investment fund managers) oversight.	New concentration and leverage limits and loan risk retention requirements will be introduced. AIFMs and UCITS Management Companies must select at least two liquidity management tools, and back risk assessments with supporting analysis. AIFMs must disclose any fees applied to AIFs.4
Securities Financing Transactions Regulation (SFTR) Refit	The SFTR Refit aims5 to improve transparency in SFTs, such as repos and security lending. Changes could be implemented as early as 2025.	The Refit could mandate that central counterparty clearing house (CCP) margins and bilateral variation margins be combined into one unified table.6

How regulatory changes shape operational needs

Adhering to expanding regulations is a strategically and operationally complex and resource-intensive effort.

As the regulatory market evolves, however, emerging technology solutions can enable asset and investment managers to keep pace with the changes.

Ultimately, a comprehensive technology solution should help effectively collect, manage, analyze, reconcile, and report vast amounts of data in a timely and accurate manner. Tech features that streamline compliance tasks are critical for financial firms preparing to navigate upcoming changes.

Advanced data management

By using advanced data management software solutions, firms can scale their response to regulatory changes. These tools can handle a broader array of data, like granular transaction details, in near real time. Software that ingests data from disparate sources, ensures data integrity, and delivers a single source of truth can reduce risk, save costs, and improve data governance.

Automation

Leveraging automation tools can help streamline data collection, processing, and reporting to enhance efficiency without being bogged down by the growing complexity of regulations. Automation tools can also help firms more effectively meet reporting deadlines, like those outlined under MAS.

Artificial intelligence

Utilizing AI and machine learning tools can help firms identify patterns in data. Financial firms are starting to use AI to proactively address compliance issues and prevent costly errors. AI also has the potential to be used for analysis, providing insight into execution quality and adherence to internal policies.

Cloud computing and scalability

Cloud computing allows firms to scale their data store processing capabilities up or down without incurring the capital expenditures associated with maintaining on-site infrastructure. This ensures firms can address expanding regulatory demands as they scale their operations. But cloud solutions aren’t just valuable from a scaling perspective. They also facilitate collaboration across geographical regions — a feature beneficial for firms operating under multiple regulatory jurisdictions.

Near real-time reporting

By using systems that can capture data almost instantaneously, and then analyze and report to stakeholders, firms can keep up with growing demand to expedite reporting. The ability to rapidly report on data would allow firms to satisfy regulatory requirements while delivering a superior client experience.

Solutions with a practitioner focus

Implementing sophisticated practitioner-focused RegTech solutions enables firms to produce seamless data lineage by tracking data flows from their source to their final destination. By introducing these solutions, organizations can benefit from powerful auditing and validation capabilities with robust signoff structures and overrides at critical junctures.

To gain competitive advantage, simply learning the new rules is not enough. Firms will need to invest in technology that helps them observe the rules. And choosing the right solution requires deliberate vetting. Keep reading to explore RegTech decision-making frameworks.