This blog post originally appeared on EuromoneyFX.
As FX market participants continue to come to grips with this year’s wave of regulations, they are realizing that data management is a critical element of compliance. The need to analyze and process FX transactions in real time goes hand-in-hand with the reports that regulators are requiring. I believe that if you can solve the first issue – if you can create normalized, accessible data – you can work through the regulatory challenges. Moreover, if you can get to that point, you can also give yourself a competitive advantage.
Does that make it sound easy? It’s not. Data is coming from a variety of sources, but regulatory agencies don’t want you a report for each ECN or prime broker. They want you to report on all of the activity. What’s more, back-office systems have never been a priority in the FX world – liquidity and fast execution got all of the attention and the investment. Now the regulators are asking for up-to-date data that reflects the entire enterprise, and firms are faced with a hodgepodge of systems that simply aren’t up to the task.
Ultimately, the regulatory agencies are asking for more and more data. They want to be able to evaluate transactions to make sure they were done in a fair manner and they need to understand the risk. You have to be able to easily get at and report on that data. The first step is to normalize and centralize the data, after which you can easily run whichever reports are required.
This will also help firms respond to their clients, who want better access to their own data, such as a single statement and a web portal that provides consolidated data just like their trading portal does.
Besides improving their service to clients, these projects offer a chance to create a competitive advantage. That may seem strange on the face of it, but this is an unprecedented opportunity to increase efficiency and reduce costs. Do you have to download data from eight systems, drop it into Excel, twist it around and then press a few buttons to generate each report? This is not only inefficient and time-consuming – it’s expensive. Firms that can streamline and automate this process will reduce their per-transaction cost compared to those who continue to use manual workarounds.
Don’t forget that the FX market is already dealing with reduced margins due to the increase in the number of liquidity platforms. Clients can shop for the best price. If you have the lowest transaction costs, you have a distinct competitive advantage.
So yes, you will need to invest money in compliance projects. But if your processes become more efficient, it will cost you less per transaction – and you can offer the product at the same price but increase your margins. Firms that take this approach will be in a better position to capitalize on regulatory change.
While you’re here…