As Compliance Challenges Become More Daunting, Vendors Must Adapt

"We are basically in a grey area," says Sylvain Thieullent, CEO of Horizon Software. "It's a very tricky job. As technology providers we are not fully included in any of the discussions related to regulations; there is no legal binding." 

There is a slow—but real—transformation under way, however, as regulators have realized that third parties can play a significant role in market participants' compliance. After all, in many cases, they are the ones responsible for providing the appropriate tools and services to handle new mandates, whether with reporting platforms, risk solutions and/or reconciliations, says Colin Berthoud, founding partner of Tim Group.

"Where regulators feel that a vendor is going to be important to specific regulation, they're prepared to meet with them. It is helpful for the regulators to see what the vendors are offering," Berthoud says.

Thieullent concurs. "Lately, we have received emails from them asking us to be aware of the regulations coming up and make sure we provide the appropriate tools for our clients," Thieullent says. In addition, vendors must closely follow regulatory bodies such as the European Securities and Markets Authority (ESMA) and the Financial Conduct Authority (FCA) to check for upcoming drafts of rules.

It is a job that vendors have had to get used to doing, and have built compliance departments, which was unimaginable until recently. "Having a compliance department in a software vendor was nonsense, but now we need to be aware of what's going on," Thieullent says.

Keeping Up with the Technology

Just as asset managers need their platforms to be flexible to adapt to new regulations, flexibility has become more important than ever for vendors as well.

The challenges are complex and affect their relationship with their clients, says Puja Agrawal, general manager and global vice president of Nice Actimize. "If the deadline is tight, we need to have it covered way in advance of it, maybe a year before," she says. "As a vendor, you always need to be ahead of the regulations and even think about what's coming after that."

Different vendors have different ways of coping with changes to their technology. Horizon has a product roadmap that is linked to regulatory changes. "We crosscheck with our clients and we validate that our interpretation of this regulation is correct," Thieullent says.

For Nice Actimize, the process is costly but absolutely necessary. For instance, with the introduction of the Market Abuse Regulation (MAR) on July 3, the vendor had to make tremendous investments to scale the technology to make sure it could handle the excessive volumes of data and provide a cost-effective solution to customers.

"When you think about global trading, all these asset classes and instruments, that is not an easy task," Agrawal says. "You have to do it effectively, so you cover all the risk but at the same time, you have to be very conscious of false positives. Other investments include advanced analytics, machine learning, and anomaly detection, to reduce false positives."

On the other hand, Tim Group sees the changes in its technology as an everyday task that would be done anyway. "Sometimes, we release updates on our product daily," Berthoud says. "If a compliant feature is complex, yes it takes longer to build it, but again, there is a way to do it fast. We can release something immediately, which may not be simple to use, but we can worry about refining it as we go so that people can become compliant very quickly."

When it comes to constantly adopting products to new regulations, sources agree that the most important part is having collaborative clients who will help shape the direction of the product to meet their needs.