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Addressing the Global Refit with deltaconX

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ESMA has opted for a big-bang approach to the EMIR Refit, as have the regulators behind similar mandates in the UK and across the Asia-Pacific region. The approach has left many firms scrambling to meet tight and onerous compliance deadlines.

“It has been a humbling period for many firms, dealing with the isolating challenges of adapting to the EMIR Refit” says Paul Rennison, Director, Corporate Strategy at deltaconX, and a panelist on A-Team’s upcoming Best Practices in Regulatory Reporting webinar on July 16.

As an example of increasing regulatory data complexity, the EMIR Refit increased the number of reportable fields from 129 to 203. In addition, 41 fields have a new reporting format, and 33 fields have changes in computational rules. And there are multiple refits happening globally, creating challenges for firms that deltaconX reckons it can help them with.

According to Rennison, deltaconX has its origins in a post-trade project that led its founders to conclude that the back office should be built around data rather than around process. The developers decided to build a regulatory reporting tool from the bottom up that was based on data and configuration rather than coding and adding regulation after regulation.

Fast forward to today, and the company boasts a diverse client base of primarily sell-side firms as well as buy-side institutions, energy companies, and large corporates with a core focus on OTC derivatives markets. The company has a strong presence in Europe and is expanding in Asia-Pacific with plans for the US and Canada next year.

“On the financial side, we’re very strong in the debt asset class DAC area,” says Rennison, “because that’s where we’re born out of – Switzerland. We develop and support the product from Vienna, Austria. The only deviation we’ve had from our core focus is on money management reporting (MMSR). Some of our German, Austrian and Danish banks want us to do this reporting into their central banks. So, we’ve extended the model to become a one stop shop for their reporting within that data set.”

The company has grown organically reaching what Rennison describes as a “tipping point” in 2023, with the addition of global energy giants BP and Shell along with regional banks Helaba, Raiffeisen and Nykredit and banking groups like SDC and BEC in the Nordic region. The company doubled in size last year.

The company also white-labels its services through two major solution providers, Simcorp and Finastra. “Reg reporting is a low margin business relative to risk management or treasury management systems,” says Rennison, “so this makes economic sense to them and its good business for us and some clients never see deltaconX, it’s a pure white label service.”

Blended Skillsets

Compliance and regulatory data systems are complex, and their work often considered unglamorous. Yet the expectation is that their systems will function flawlessly at all times. Failure in controls not only escalates costs and stretches resources but also attracts the attention of regulators, leading to significantly higher operational costs and potential fines.

Rennison describes the typical scenario, “When the controls fail and things begin to unravel, your costs spiral, your resources are already stretched, and you appear on the radar of the regulator, and next you’re in the spotlight of the regulator. And once you’re in that spotlight, your costs become multiple times the costs to operate in compliance. And that’s before the fines kick-in.”’

Understanding the urgency of their clients’ needs in markets operating on T+1 and T+0 schedules, deltaconX ensures direct access to knowledgeable professionals without offshoring triage or using scripts. This approach guarantees that clients reach the right person immediately, facilitating swift issue resolution.

For the core team, deltaconX recruits individuals from banks and other reporting firms, leveraging their deep regulatory reporting experience. The team, characterized by empathy and deep domain knowledge, handles the interpretation of regulatory changes and their integration into deltaconX’s data schema. They also possess strong technology skills, enabling a blend of technical and regulatory expertise that becomes crucial in high-pressure environments.

This blended role, which integrates deep technical, compliance and regulatory skills, is unusual in the regulatory reporting industry. Rennison underscores this as a key differentiator – “The difference is one of those things that’s almost intangible until you need it, and then it becomes very tangible, and very addictive. Our ability to resolve issues swiftly in a T+1 environment through a single point of contact crystalises our value and makes our service incredibly sticky.”

Foundational Technology

Built from the outset on a cloud-native architecture, the deltaconX platform offers scalability, cost control, and continuous updates, which are essential for managing complex regulatory requirements.

“It’s not a lift-and-shift ported into Kubernetes on a hope and a prayer” says Rennison, “This gives us the elasticity to scale and control cost and be in a continuous release cycle. We do six planned releases a year.”

This cloud-native approach allows deltaconX to stay ahead of regulatory changes, whether initiated by regulators or required by Trade Repositories (TRs) or other agencies, without being constrained by clients’ operational cycles.

Data Lineage and Audit

deltaconX has decided to partner with a specialist data provider to handle the new unique product identifier (UPI) requirements. Rennison described the process to RegTech Insight.

“Layered within this wave of refits is the OTC reference data chain including the unique product identifier (UPI). We partnered with RegTech DataHub for this. They take data from Anna DSB and capture and other sources of public domain data. They’ve built a highly performant and referenceable repository of that data.”

Rennison continues, “We send an excerpt of the data on every trade, and they qualify the ISIN and the UPI and enrich where necessary. It’s the first time we we’ve had to move outside of the core data schema and partnering with a specialist solution provider made sense.”

deltaconX goal is to achieve near-full validation on schema and Regulatory Technology Standards (RTS) for supervisory authorities, ensuring the accuracy of all data elements, including counterparty data. deltaconX captures data at the field level and tracks changes, maintaining a fully auditable lineage for each trade. This includes reconciliation and records of every file returned by the TR.

Every record returned, including reconciliations, is identified, allowing clients to compare their submissions with those of their counterparties, even when different TRs are involved. The data remains permanently on the system, fully auditable, which is another advantage of being cloud-native, eliminating the need for facilities like Iron Mountain.

Staying Focused

DeltaconX’s concentration on regulatory transaction reporting over the past decade, with no diversification into other products, ensures focused expertise and uninterrupted development investment. As an owner-managed company with no external investment or debt, deltaconX maintains significant freedom to navigate financial challenges and align closely with customer needs.

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