Global regulatory clashes pose new danger for compliance teams

The scale and pace of regulatory change is alarming. Right now we’ve got FRTB, GDPR, and, of course, MiFID II — all with deadlines looming. Compliance teams are overworked and under pressure. Time is running out for them to make sense of these packages and implement them in a way that will satisfy regulators.
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But, on top of all this stress, there’s another problem that doesn’t get talked about quite so much: regulatory clashes.
The problem with regulatory clashes
With so many things changing all at once it’s incredible hard for compliance officers to spot that some of the new rules pull in entirely different directions. GDPR and MiFID II are the prime example. The former demands that customer and client data is kept as safely and securely as possible. The latter demands that this data is made available at all times for regulators to inspect.
Many of the biggest financial institutions have different teams working on different regulations
For compliance teams, hidden clashes are the stuff of nightmares. What if you don’t spot the conflict until it’s too late? This danger is compounded by the fact that many of the biggest financial institutions have different teams working on different regulations. You have the MiFID team. And you have the GDPR team. But that means neither team can see a clash until all the work has been done and all the time invested. At that point, everyone will suddenly see the problem, and they’ll have to roll back. Waste of time. Waste of money.
The depth of this problem became clear to me in a recent interview I conducted on the topic with IR Magazine. When the journalist asked for feedback from law firms about conflicts, they declined to respond on the grounds that the regulations are covered by attorneys from different practice areas within their organisations. That proves exactly the point about the difficulty that companies have in seeing these clashes ahead of time.
There are clashes between EU and US regulations too
But the problem gets even worse. The financial world is an increasingly global one, with banks operating from multiple geographical centres around the world, serving different clients, all at once. This means that banks have to abide by different regulations created in multiple jurisdictions.

For that reason, working in compliance can feel like putting together a puzzle where the pieces just keep on coming, and coming, and coming. Many banks sensibly try, as best as they can, to find company-wide policies that ensure they are compliant with all these different regulations. It makes sense to try to find these uniform policies rather than conducting implementation differently in different jurisdictions.
But increasingly, regulatory clashes between EU and US rules make that more and more difficult. For example, right now MiFID II implementation is causing many US banks serious, deep problems surrounding how to deal with research payments. MiFID II says banks must charge for research separately from broking services — but the US regime bans this approach unless lenders register as investment advisors. This may make implementation not only difficult, but impossible. “Global asset managers have been slowly learning that a number of MiFID II research-unbundling rules conflict with US regulatory practice, including the ability to use RPAs,” says Michael Mayhew, CEO of Integrity Research Associates LLP.
GDPR maybe well be the next big regulatory clash
This is not a new problem either. At the end of last year, US banks raised concerns about the EU’s new rules that would force them to combine all their investment banking activities with their commercial and retail operations in a European holding company — something that’s not possible under US rules. And there are more potential problems coming over the horizon. GDPR maybe well be the next big regulatory clash. A research report from the Swift Institute recently highlighted that in the US, data usually belongs to the entity that possesses it, such as a bank, while in the EU it belongs to the individual as a human right. This does not bode well.
Regtech may be part of the solution
So, how do you tackle an issue like regulatory clashes? There are many people who think that it’s a problem that the regulators must solve themselves. They are the ones creating the rules that are pulling compliance departments in two separate directions, and stretching them so thin. But we also have to recognise that it’s difficult for the regulators too. There are so many rules, laws, and regulations now that it’s surely impossible to stop all these clashes in advance. There is just too much to sift through.

This is where the latest regtech can fit in. One of the most incredibly powerful, and useful things about the latest technology is that it can digest, analyse, store and compare masses of information in a few microseconds. This provides us with the foundations to create a programme that can ingest and compare legislation around the world fast, and highlight potential clashes and problems almost instantly for both financial institutions — and regulators.
In fact, we’ve already built a platform that can do just that at Waymark. It works by digesting the regulations; breaking them down into component parts; building up a conceptual and linguistic understanding of the regulation; and scoring it as similar to other regulations. This provides firms and the regulators with a powerful tool to quickly identify overlaps and conflicts between different regulations worldwide. We have already provided the platform with 43 EU regulations, including MiFID II, PRIIPS and UCITS V, and have plans to add US and potentially other non-EU regulations in the future.
This is coming at just the right time. Trump is widely expected to start the process of rolling back Dodd-Frank in the coming months and years. This will mean that the US will be ditching financial regulation just as more hits the books in the EU. This seems like an environment ripe for multiple and serious conflicts.
Regulators should look to regtech for assistance as soon as possible.
Mark Holmes is CEO of Waymark Tech, a regtech company which uses machine learning for the fast identification and analysis of regulatory requirements. Find out more at: http://waymark.tech

