Financial Services, Standards and the Importance of International Harmonisation

With EU Regulation 2016/679 also known as the General Data Protection Regulation (GDPR) due to become mandatory in May 2018, significant attention is being focused on the standardisation of data formats. This focus is not solely underpinned by EU2016/679. The 31 G-SIBs are all wrestling with the daunting task of managing over 60 regulators, many of which have their own specific data and reporting framework requirements.

Whilst it is well recognised that standards enhance efficiency and embed simplicity, it is also observed that the use of standards is largely confined to specific areas of activity, for example, trade execution, settlements, and data exchange. This may be more generally described as a collection of “interlinked point solutions” rather than a harmonised approach.

For example:

XBRL business reporting language
FIX Protocol securities transactions
IFX bill generation and payments
MDDL exchange of market data

 

Although co-operative arrangements are in place[1] there does not yet exist an overarching international body orchestrating the alignment of standards across the financial services vertical. This is becoming an increasingly important issue as it is only by the use of standards can any significant progress be made to harmonising cross-jurisdictional regulatory compliance.

Critical to the alignment of international standards will be:

  • mapping the existing standards landscape
  • identifying the standards gaps
  • developing a dictionary of terminology and vocabulary to ensure a coherent approach

Some work in this direction is beginning to take place. In May 2017 the European Committee for Standardisation (CEN) established the (imaginatively named) CEN/BT WG 220 ‘FinTech’ committee with the mandate to map the FS standards being used within Europe. This committee was originally scheduled to present its finds to the EC Task Force on Financial Technology by year-end 2017, but now appears more likely to report in mid-2018.

CEN’s objective is to accelerate the adoption of both existing and new standards across all domains. This has two aspects: one is moving towards automated regulatory compliance, the other is the promotion of innovation and the development of new products and services.

Additionally CEN is aligned with the International Standards Organisation (ISO). These two organisations co-operate closely to ensure international alignment on the development and adoption of standards. One example of this approach has been the establishment of ISO 20022 as the recognised standard for market infrastructures. This has resulted in the migration of numerous domestic systems to ISO 20022 including:

SIX Interbank Clearing Swiss RTGS platform
US Federal Reserve FedWire Funds Service
SEPA Retail payments in Euro
EuroClear EU Securities clearing/settlement
ASX Australian equities settlement
CLS F/X clearing/cash management
CHIPS US$ wire payments

 

Within ISO operates ISO TC/68, a technical subcommittee with the mandate to develop international standards covering banking, insurance, securities trading, brokerage and related financial services.

The current work of this sub-committee involves developing XML based standards to reduce risk, contain costs and compress delays in international securities trading.

There is little doubt that the widespread international adoption of standards in the financial services vertical will facilitate and enhance efficiency, reduce costs and drive innovation. However, there remains much to be done before the current collection of “interlinked point solutions” can be regarded as a harmonised cross jurisdictional approach. This is an important consideration given this vertical is experiencing dramatic technologically led change as digitalisation and re-engineered business models impact the delivery and consumption of both products and services.

The international harmonisation of financial services standards can only be achieved if the process is co-ordinated with developments and initiatives in the international regulatory environment. Once this is achieved the foundations for “automated regulatory compliance” can be laid – but as will be appreciated, this may take some time.

Of more immediate focus is mandatory compliance with EU 2016/679. This requires being able to establish both the source (provenance) of data that results in a decision impacting an EU citizen as well as changes (lineage) to that data as it migrates across systems and processes.

This is a non-trivial undertaking when dealing with fragmented, widely distributed legacy systems commonly found in the financial services industry. Compliance with the GDPR requires specialist tooling that enables every process path, however infrequently occurring, to be identified and documented. Only once this is achieved can regulatory compliance with EU 2016/679 be demonstrated.

The HELIXsystem Process Assembler (HSPA) provides such tooling. Once deployed the HSPA maintains a real time representation of the AS-USED state of any legacy system, regardless of fragmentation or the heterogenous underpinnings of the messaging infrastructure in use.

This representation is automatically rendered to any standard notation enabling individual process chains to be easily extracted and retraced. This provides immediate and unambiguous visibility of both data provenance and lineage, enabling demonstrable compliance with EU 2016/679.

 

 

 

[1] FIX and SWIFT being two examples

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