Smart technology can ease GDPR compliance, says Compendor founder

09 April 2018 Consultancy.uk

Two years ago Elmo Olieslagers left a large management consulting firm to launch Compendor; a startup that specialises in regulatory technology (RegTech) consultancy services and solutions. Consultancy.uk sat with Olieslagers to learn more about Compendor and where the firm currently stands, his entrepreneurial endeavours and his ambitions for the firm in the years to come.

The financial services industry continues to face a growing volume of regulatory change, as both international and domestic legislators craft rules to improve the functioning of the industry. One example, the General Data Protection Regulation (GDPR), which comes into force in May 2018, could see FTSE 100 companies stung by around £5 billion in fines per year. The regulation will protect EU residents from a range of potentially abusive, manipulative and unsafe uses of their data, which means that companies may be caught out unless they update their practices radically. 

Speaking to Consultancy.uk last year, Elmo Olieslagers, Managing Partner of Compendor, said that the emergence of new technologies in the regulatory space is offering financial services institutions growing possibilities to reduce costs and improve the quality of their regulatory response process. Now, as financial services providers brace themselves for the imminent GDPR, Olieslagers believes that smart technology has the potential to lighten the workload relating to GDPR compliance. 

Smart technology can ease GDPR compliance

Compendor

Compendor helps financial institutions understand the impact of regulations and stay in control of regulatory change programmes. The firm was established in response to a disconnect between technology and content, enabling clients to add direct value by integrating deep content to the technology they use.

The area Compendor focuses on primarily, RegTech, is touted to be the next major disruptor for the compliance field, particularly in highly regulated industries such as financial services and energy. Olieslagers said that the biggest impact that RegTech can make on the market is to streamline compliance efforts of an organisation. He commented that Compendor clients are coming under increasing pressure to decrease the costs of implementing regulatory changes and compliance monitoring, adding, “Winners in the financial services industry solve this dilemma by efficiently using technology combined with online support models integrated in their day-to-day operational activities. Regulatory technology has emerged to enable a more automated, cost-effective way of meeting compliance and regulatory reporting needs in time.”

In the case of Compendor, the consulting firm has a business rule driven, easy-to-use decision tree solution, allowing financial institutions to limit their efforts to those sections of the legislation that are relevant for specific business lines / legal entities and disregard the sections that do not apply. The flexibility of the solution is important, said Olieslagers, and aligns to the industry’s pragmatic approach. 

“The solution ensures a significant reduction in effort and costs related to interpretation activities across the various business lines and legal entities involved. For the true complexities (e.g. interdependencies with local regulation and internal policies) online support from our various experts can be provided. Optional, a tier 1 law firm partner can provide quality assurance on the legal foundation throughout the process,” said Compendor’s Managing Director, adding, “We have clients who use the solution ‘stand-alone’ by themselves to manage their implementation or clients who us for our additional consulting services.”

Olieslagers cited MiFIR, MiFID II, MAD II, MAR and PRIIPS as key examples of the main uses for such RegTech, but elaborated that there are various use cases in general that can be considered all to decrease costs / increase quality. 

Financial services players can benefit from RegTech solutions

When asked specifically about the increasing attention that the GDPR is receiving in worried boardrooms, Olieslagers stated that Compendor’s smart technology solutions could ease the preparation for post-GDPR launch life. The firm’s GDPR solution aims to enable organisations to determine which parts of the legislation is relevant and what priority should be given. He added, “Also the online help (back-ground info, best practices) helps organisations to better understand what the regulator wants and how other organisations deal with the requirements.”

Frankfurt and the future

Compendor is based in Germany’s financial heart, Frankfurt. The firm was built in the city for longevity, with Olieslagers suggesting the organisations founders are “afficionados” of Germany, but besides this, setting up shop was strategic too. The area is the financial hub of mainland Europe, making it an essential location in the future, as the EU financial ecosystem is likely to restructure following Brexit. 

Speaking on the attractiveness of Frankfurt, Olieslagers said, “For a consulting firm there is huge business potential given its vast client base. Brexit is making Frankfurt even more attractive. Following the UK’s June 2016 vote to leave the EU, leading banks from Japan, the US and elsewhere have announced plans to shift large numbers of staff from London to the city. For example, Goldman Sachs is expanding its presence and JPMorgan recently announced it would expand its presence with 200 workers. For a multi-language boutique firm like us, with pragmatic solutions on EU financial regulation, we have something unique to offer in Frankfurt.” 

Within two years of launching, the consultancy has seen meteoric growth, and has been named one of the globe’s top 100 RegTech companies. The firm began life with a launching client, for whom it ran a regulatory compliance programme for several regulations. Since then, “As a start-up we have been working on 3 important areas: 1) helping our clients 2) position our RegTech offering and 3) growing the team. Of course we run into the typical challenges you face on these three areas,” Olieslagers said, modestly. 

Compendor has managed to sign preferred supplier contracts with major banks, while the organisation’s team has grown in size to seven, and it has established a name as a leading provider of RegTech solutions. Building on this, Olieslagers said the firm’s key ambition was to keep up the good work in order to “sustain our position, and further strengthen our existing relationships first and foremost!”

Related: GDPR compliance to cost FTSE100 firms £15 million, banks face largest bill.

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An 8-step framework for banks to prepare for FRTB changes

02 April 2019 Consultancy.uk

With FRTB expected to come into force in 2022, it is critical that banks implementing necessary changes remain on track for their compliance timelines. Whether a company is aiming for the mandatory Standardised Approach (SA) or the voluntary Internal Models Approach (IMA), the programs often represent a significant investment, requiring process, systems and cultural change. 

Drawing from its experience in helping banks meet the milestone set in their compliance timelines, Capco – a management and technology consultancy for the financial services industry – has developed an eight-point prioritisation framework for FRTB preparation and implementation. Natasha Leigh Giles, a Managing Principal at the consultancy, outlines the main dimensions of the framework: 

Prioritisation framework for FRTB

1. Front office operating model

For those who have already implemented the Volcker rule, the desks are well defined with monitoring and governance frameworks. However, for companies that have not been required to adhere to the U.S. regulation, there may be additional work involved in implementing desk-level controls as required under FRTB. The trading desk structure is especially important for banks planning to implement IMA, as this regime is applied at the desk level and requires that the full flow of the selected desk is able to pass the IMA requirements (including the modelability test for the risk factors). Key business decisions may be required if a desk trades complex products that are more aligned for SA treatment. 

2. Product scope

In order to reach the IMA status, products are required to be supported with additional data sets including historical market and reference data as well as risk factor pricing evidence. The opportunity for 2019 lies in refining the assessment on the feasibility of each product type to ensure a clear scope is agreed for the IMA environment. If the challenges are too complex or costly to overcome, such as access to historical market data, availability of price verification for the risk factors or significant enhancements to support computational capacities, then these products should be scoped out of the IMA program as soon as possible in order to save time and effort on continuing analysis. 

3. Client & trading activities

There is no need to wait until the FRTB implementation timeframe to undertake a holistic review of client and trading profitability – including the capital impacts. For example, running training and awareness campaigns within the front office can help the traders to understand the impacts of their activities and encourage changes in the way that they trade. By considering this holistically as a business and operational change, it can help keep the focus and resources on the primary (profitable) business in preparation for the compliance deadline. 

4. Internal controls

Methodology, reporting, auditability, and process governance for internal controls also need to be monitored in detail. We recommend having clearly defined processes accompanied by effective training across front-to-back office. For some banks, it will be beneficial to audit existing capital adequacy processes to ensure that findings are highlighted in advance of the implementation timeline and the appropriate focus is achieved within senior management.

5. Data & metrics

Financial institutions need to consider their overarching governance and ongoing management for the data (including ownership, quality control, golden source storage solutions, etc.) and the ongoing control framework for ensuring the data remains accurate and relevant for capital adequacy modeling. If there has not been a data lineage exercise already applied, this is a great opportunity to deliver business benefit, even in 2019. By creating agreed definitions, preferred sources, ownership and workflows for managing data quality, the benefits of more accurate data can already be applied to existing capital calculation models. 

Framework for FRTB

6. Model management & validation framework

In preparation for the FRTB regime, an opportunity for 2019 is to understand if there are gaps or control concerns to manage immediately. Model enhancements across SA and IMA will need to be productionized for output accuracy and refinement, however, these need to be maintained alongside existing Basel 2.5 BAU models and other concurrent changes e.g. LIBOR Transition. Business process optimization, testing environments and automation tools, documentation and model validation can all be reviewed for immediate benefits and prepare the process for a smooth implementation of the future FRTB models. 

7. Technology platform & testing environments

With regards to technology planning, the opportunity in 2019 is focusing on gaining agreement of the front-to-back FRTB future state architecture including the use of vendors as applicable. By ensuring a disciplined focus upon design and solution definition across all requirements, it provides a clear baseline for implementation planning and scheduling. Establishing a technology architecture which allows for FRTB data feeds, model enhancements, control definitions and accurate capital calculation outputs will provide the program with essential data and metrics needed for decision making. 

8. Leverging synergies

Once a baseline plan has been established, it is possible to identify synergies across other programs – such as the SA-CCR (Standardized Approach for Counterparty Credit Risk) or the IMM (Internal Models Methodology) – that could deliver overlapping benefits at reduced effort. Understanding requirements, defining the future state architecture, and implementing the change in a complex environment requires a mix of strategic principles and program management. Therefore, we consider it an opportunity for 2019 to take a centralized approach for data lineage and requirements gathering as this would be beneficial for optimizing capital costs across both the market and credit risk environment.

Conclusion

By considering each topic strategically in 2019, benefits such as data quality enhancements, strengthened internal controls and flexible test environments will not only bring immediate business value, but also set a solid foundation for a comprehensive FRTB implementation in the years to come. 

For more information on Capco’s model and the its approach in helping banks plan for FRTB, download the full whitepaper on the firm’s website.