The Truth About Tracking and Reporting on Financial Transactions
It happened very quickly, the rules and conventions that had been in place for over three thousand years, suddenly didn’t work anymore!
Transaction Tracking – The idea of making a promise to pay someone based on the integrity of the banking system has been put under immense pressure, because we just don’t have the ability to understand and manage risk in the same way when the volume of daily integrated transactions is now in the billions, as we did when the volume was in the hundreds.
The basic mechanism of finance and banking is predicated on a simple idea. When someone borrows money, they will replay it over time with interest. And while some people may default on their repayments the majority will pay, and for those that default there is a process to recoup much of the value of the loan. Every loan therefore has a risk profile and a profit profile.
Loans are therefore an asset, one that is the basis by which institutions increase their value. Allowing them to make more loans based on the volume of loans they have already made. The more they lend, then the more they are worth and therefore the more they can lend. All within the constraints laid down by the overseeing regulatory bodies.
This model is predicated on there being a very strict understanding of the risk profile or each and every loan. But how do you present the risk profile of all loans, when the process of making these loans is not consistent?
Every trade of a stock, bond, foreign currency transfer (or currency exchange) is in effect a loan, as the movement of the ownership of an asset happens at a different time to the payment. Mortgages, credit card payments, interbank payments, withdrawals from a cashpoint machine, car loans, insurance transactions, the processing of a check, and a million other kinds of movement of goods and money are in-effect loans, passing through complex mechanisms to move goods and services in one direction and money in the other. Many of these trades include mechanisms to reduce risk by distributing a loan across a multitude of different entities, and melding millions of trades to ensure that all parties are able to balance risk with reward.
New regulations have been evolving over the decades to manage this change. These are complex regulations that demand incredible attention to detail. And month by month the ways in which regulatory authorities are using them is evolving, as the industry starts to understand the nature of moving to transactions that can happen at light speed, automated by specialist machine learning artificial intelligence systems.
The authorities (and politicians) are starting to understand the importance of the provenance of a loan or a trade. They are asking for deeper information about the research that was performed before a trade was negotiated, and this is placing a significant burden on financial institutions and banks who must capture and present this information in meaningful and consistent ways.
Today we see regulatory authorities across the world asking for reports on every trade that takes place (within their jurisdiction) to be submitted to multiple regulatory authorities within the same day (or period) that the trade took place. And each submitted trade must be acknowledged as accepted.
Any submitted trade that is either declined or not acknowledged as accepted must be managed as an exception.
The richness of the data being requested is continually increasing while the time between trade and submission is continually being reduced.
The cost of failure to effectively achieve compliance with the myriad of global regulations continues to grow. With public disclosure of any failure, (directly and indirectly) impacting brand value of corporations, as well as an extensive range of very large penalties now becoming a material risk to businesses.
The penalties for failure to comply also go beyond the purely financial, with the risk of revocation of trading licenses and even jail-time being potential risks for businesses and their officers.
Compliance is not optional, but it’s also not easy.
The systems used to manage a financial trade are complex. Today’s bank or other financial institutions will contain complex application stacks that span many thousands of discrete systems, all connected together to form their enterprise. A transaction will flow through this environment and must be traced and tracked to provide the required information to be reported to each regulatory authority.
Until now there has not been a business need to track each transaction through this entire system, and so the monitoring tools already in place, and not able to manage this requirement. Each organization is currently investigating how they will provide a framework to deliver the required processes.
But there is a platform available today that greatly accelerates a business’s ability to comply. This system makes use of an underlying element used by every businesses IT architecture, called colloquially “messaging middleware”. Messaging middleware is the technology that allows messages to flow between all the thousands of components that make up the ecosystem of a business enterprise. But instead of seeing it as just another piece of technology, if the contents of middleware messages are read and understood then a trace of each transaction can be stitched together dynamically. Allowing each transaction (trade) to be visualized as a single journey.
This requires three stages of technology:
And that’s where Nastel Technologies comes in.
Nastel delivers a complete platform for regulatory compliance reporting and project management designed to help financial institutions and banks to comply with modern and planned regulations including Dodd-Frank and MiFID II.
1. Each trade to be consistently captured and presented in the way that each authority requires.
2. Trades to be submitted to each authority and the status of acceptance is tracked and reported. Any trade that is submitted and a response is not received within the allotted timeframe is an alert, as is any trade that is rejected.
3. The Regulatory reporting teams, GRC teams and business leadership teams are presented with real-time and periodic reports of the state of all compliance.
4. The teams responsible for compliance are able to see near real-time dashboards presenting the trades in progress and already submitted, and data predicting likely issues and actions underway to remediate any in-progress issues.
Using Nastel technology to manage regulatory compliance, many of the world’s leading financial institutions and banks are already complying with the global regulatory framework.
We’re here to help and would cherish the opportunity of showing you what we can do to help your business.