Control is the best defence
By Chris Roberts | 29 May 2024
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With a growing level of scrutiny coming from European Regulatory bodies about the quality of data reporting, firms would be wise to consider the extent to which their Control Framework is effective.
But what constitutes a “control framework”? What elements should a firm consider when designing and operating its processes and procedures? And why is it an investment priority? Firstly, having an effective control framework means a firm is putting the best form of defence in place. Defence against breaching regulation.
Defending itself from all manner of operational and reputational risk and helping to ensure the best levels of client service. The team that operates the control framework is often not the team that gets the “glory”, but plays an essential part in any firm's day-to-day operating model.
Being regarded as a source of safety and reliability for customers and their data must be the target. As Sir Alex Ferguson, the legendary manager of Manchester United, said “Attack wins you games, defence wins you titles.”
Risk, rules and resolution
An effective control framework ensures you have the appropriate means to manage risk and demonstrates you are meeting your obligations under applicable law. When it comes to the elements of regulatory reporting, the control framework should have relevant tests and procedures to ensure completeness, accuracy, and timeliness of a firm’s reporting. And it should do this for ALL transactions—not just some.
Control Frameworks are not just a series of database queries or Excel spreadsheets either. An effective Control Framework ensures that all transactions are verified for accuracy, that patterns in data are analysed, and where outliers or errors are detected they can be resolved as quickly as possible.
Ultimately, the ability to demonstrate the effective performance of the control framework through regular testing using live data is critical to maintaining a secure environment.
Flexibility means strength
The tools must be dynamic, this is not a one-time ‘build and forget’ solution. As your business develops and changes, as new regulations come into effect, the framework MUST be adapted. Indeed, business enhancements should be made in partnership with control managers, to ensure a seamless integration into the framework.
A strong control framework requires real-time updates and data, plus the output MUST be tailored to the audience. In other words, not all the “actors” with an interest in the information produced by the Control Framework have the same role and responsibility, and it’s vital that data is distilled to be meaningful to those different roles.
Intelligently tightening your defence
MarketAxess has created SensAI, an advanced solution using the latest AI and Machine Learning to help firms with near real-time analysis of their RTS 22 reporting. SensAI uses algorithms to detect errors or anomalies by identifying patterns and predicting errors in your reported data. It not only matches your data to the required regulation but also with other reporting data from across our entire platform. By doing this in near real-time, SensAI reviews ALL your RTS 22 reported transactions on a T+2 basis and becomes a core part of your enhanced Control Framework.
Ensuring your firm has an effective control framework and uses solutions like SensAI means you will have a robust and effective solution to control operational risk and prevent reputational damage.
57% of transactions assessed by SensAI had at least one previously undetected error. With European Regulators taking reporting data quality increasingly seriously, YOU need to ensure your firm is controlling that data to a much greater degree than ever before. After all, as the great Jack Welch once said, “Control your own destiny or someone else will.”
