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  3. Joao Serodio, AxiomSL
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AxiomSL


Joao Serodio


16 October 2018

Joao Serodio, business analyst lead at AxiomSL, discusses SFTR and affirms collaboration is the best way forward for the industry to face it

Image: Shutterstock
What does your current role involve?

I recently joined AxiomSL with a remit to creating an engine that determines which regulatory regime is triggered based on incoming trade messages. In addition, we are creating a framework that will be used to help our existing clients and prospects to comply with the upcoming Íø±¬³Ô¹Ï Financing Transactions Regulation (SFTR) regime.

What should firms be doing to prepare for the implementation of SFTR?

Most impacted firms—or at least, most of the firms AxiomSL has been talking to—have redeployed their resources to comply with SFTR. The industry is experienced enough to understand the implications of non-compliance and the extent of implementing
reporting solutions.

Most firms within financial services have been impacted by several reporting regimes in recent years. Nevertheless, the issues and difficulties of SFTR are not always fully understood. If a firm does not have all the necessary data to report, there are two questions they need to ask: where do we find the right data and how do we extract it?

Whether they will be able to reconcile that data with the demands of SFTR would be the next question, therefore they need to start by accessing the right data before this can be addressed.

SFTR is not well understood by the industry. Most firms are already engaging in a plan to prepare, but the ones who aren’t should really start to get going as soon as possible.
What has AxiomSL been doing to get its clients prepared for SFTR? What is your software’s USP?

We have been working closely with our clients, having ongoing discussions around the likely impact of SFTR and how we can help them to comply with the regulation. Our objective is always to make sure that SFTR reporting is a business as usual process.

We have also been participating in a range of industry events, observing how the industry absorbs the SFTR regime and adapts to its requirements.

In terms of our USP, we trace clients’ data from the report all the way back to its source. SFTR means broad, universal regulatory reporting, going beyond other trade and transaction regimes.

As such, AxiomSL provides a ‘one platform’ model that enables firms to comply with SFTR alongside a host of other regulatory regimes using the same underlying infrastructure, thus allowing clients to significantly reduce the cost and complexity of their compliance procedures. AxiomSL offers substantial benefits for firms leveraging our platform because they can address those requirements across multiple jurisdictions.

Do you think the industry will need to join forces and create the best practice? Is collaboration the way forward?

The industry will have to join forces to some extent to collectively understand the impact of SFTR through common interpretation of the guidelines and standards.

Collaboration is often beneficial in financial services for other regulatory projects as well. For example, my last position was as a product manager for a Markets in Financial Instruments Regulation Approved Publication Arrangement (APA) and on the run-up to go live, it was impossible for each individual APA to acquire all the systematic internalisers’ information, which was vital data for the rules engine.

European Íø±¬³Ô¹Ï and Markets Authority was not able to provide the data, at least not at a granular enough level, therefore all the APAs joined together, created a working group, and jointly built a system in which the data could be gathered and shared. Collaboration was absolutely essential and solved an industry problem. I believe collaboration is always beneficial when an industry faces common issues.

Has artificial intelligence caused an upheaval on the financial services industry and its workforce? How could it help or hinder SFTR compliance in particular?

I think artificial intelligence (AI) has yet to cause any major upheavals in financial services, but we expect to see it at some point as the industry absorbs the already significant impact of fintech in general and regtech in particular.

Let’s take the example SFTR. If we discount the data issues, it is possible to fully automate its reporting requirements, that is, look at its databases, extract regime-specific reports and drop them off in their corresponding endpoints–you can run this with no human intervention after the initial setup.

That initial set up could have been deployed by applying AI guidelines vis-à-vis the type and scope of a firm, with all of these guidelines being based on a set of pre-conditions. Now, if for some reason those reports have failures, those failures would require intervention. An allocated resource would examine those failures, correct, and resubmit the reports; this currently relies on human intervention.

Having AI to review the rejections, regress the errors against the average action taken to solve those errors in the past, apply the derived action, and re-submit the reports is entirely plausible.

However, for every bad correction which allows the AI to learn and evolve, there would be scrutiny from the regulator, which firms are keen to avoid. So we go back to the concept of firms still needing a resourced monitoring team backed by a compliance team. In the short run, we do not see AI displacing existing functions.

How do you see technology developing in the asset servicing industry over the next five years?

The regulatory requirements imposed on the industry over the last decade, as well as the upcoming requirements and any further fine tuning, will drive firms to start consolidating and automating operational functionality and they are looking for technology to enable it.

Consequently, we may see consolidation in the technology space through merger and acquisitions, considerable investment from existing entities or newcomers that will look to disrupt the status quo.

The goal is to create a unique proposition for those firms’ requirements in the form of a universal solution, or to create new software that enables those requirements that drive innovation in the technology space, with AI as an example, which includes machine learning.

What other trends are you seeing on the horizon?

From a trading, transaction and optimisation perspective, the industry has been taking a holistic approach to regulatory compliance to a limited extent. We saw this with the European Market Infrastructure Regulation and are seeing it with SFTR as well.

As firms recognise the benefit of a holistic approach to regulatory compliance through these experiences, they are increasingly looking to implement robust and adaptable solutions to reduce costs and operational risks. This is where professionals, such as the team at AxiomSL, will work alongside clients to achieve optimisation.
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