"Don’t get left with egg on your face" All The king's horses and all the king's men
It’s broken, let’s fix it
Currently, trade reconstruction is a lot like Humpty Dumpty when he fell off the wall. Despite best intentions, even all the King’s horses and all the King’s men couldn’t put him back together again.
MiFID II has mandated that all relevant communications have to be captured and stored for up to seven years. Despite all the warnings, many organisations appear to have not paid attention to what this actually means and believe they have the communications capture directive covered.
Think again, because unless you are very sure, you too could be about to fall off a wall with an almighty crash.
Needle in a haystack
Building data warehouses to ensure adequate capture of transaction and communications related data is all well and good, but when faced with the demand to demonstrate compliance to market conduct provisions, just how will you piece it all back together again within the specified time frame?
Some triage systems use probability to try and find that needle in those haystacks - by all accounts fairly hit and miss. Especially when the enquiry hasn’t been executed as a trade and there is no starting point for a probability based search.
While in advance, it is easy to be sanguine about the possibility of a reconstruction event, if it occurs you will find sifting through the vast amounts of unstructured, untagged data to identify all the relevant communications is truly the stuff of nightmares. In voice trades with long negotiations, there may be thousands of hours of tapes to listen to.
Under the new rules, Regulators will require transaction rebuild or triage almost instantaneously. If a business is not prepared, then the outcome may be enormous audit fees, significant disruption to BAU and a series of exceptions based on the capacity to substantiate market behaviour, rather than the actual market conduct itself. Even worse are punitive measures - that seem to only get more significant – and reputation risk.
The answer – real time structuring
If the problem is that data is stored but not structured, then the solution is to structure the data.
By linking, tagging, or structuring all communications data in real time, financial services businesses in regulated environments will substantially mitigate their compliance risks.
Data structuring should occur as the data is collected and warehoused. The links or associations should be created in a systematic and organised way, using tools and applications that add value to workflow, rather than creating further overheads.
In order to be effective, significant automation and machine learning is required – but the key is to get all the links, in real-time!
It’s not too late, invest now
MiFID II has bolstered the Regulators far reaching powers. They can now demand to examine any transaction or group of transactions, even though there may not be anything suspicious or untoward.
It would appear to be only a matter of time before Regulators ask to see all relevant communications relating to an enquiry or trade and will issue fines for not being able to deliver all the information in a timely manner.
Your reputation is precious, so when, not if, Regulators come knocking you really don’t want be grappling with the same reconstruction challenges the King’s men faced when trying to piece together the scrambled egg that was once poor old Humpty.
It’s not too late. Start now.
The Revista CCM is the only platform that links communication metadata to enquiries and transactions, and enables this to happen in real time at any stage in the transaction lifecycle.