“What we often see is that the smaller startup brokers are often using a white label and/or authorised representative model. That way the reporting obligation falls on the licence holder, which is generally more established and better prepared to deal with these obligations” – Quinn Perrott, General Manager, TRAction Fintech
Yesterday, FinanceFeeds reported that regulatory technology firm TRAction Fintech, led by former AxiTrader General Manager Quinn Perrott, has launched its operations in the UK in order to expand across Britain and Europe, building on its growth in the FX, CFD and OTC derivatives reporting sector in Australia.
Regulatory technology is very important new dynamic in the electronic trading industry these days, and is rapidly expanding as MiFID II draws near and EMIR requires ever increasing levels of infrastructural changes that need making by retail brokerages.
Today, FinanceFeeds spoke in detail to Quinn Perrott to gauge how TRAction Fintech draws on the experience of Australia’s highly advanced regulatory environment to expand globally, and what brokerages can expect from the advancing nature of regulatory technology in the immediate future.
We think RegTEch is the new FinTech. This is a huge important factor these days. What are the key factors that currently matter for brokeages, and how did your leadership role at AxiTrader make valuable steps toward making a differentiated regulatory technology service for retail brokers?
The OTC derivative reporting legislation that came out of the Pittsburg G20 meetings wasn’t designed with the FX or CFD industry in mind, Also most of the trade repositories don’t have a clue how big this industry is or how it works, with my experience of having run an FX broker for 5 years and Sophie’s extensive legal and compliance experience in the industry it was a perfect fit.
Australia was one of the initial leaders in technological regulatory procedures, such as the real time surveillance system that ASIC designed by First Derivatives. TRAction FinTech is the first regulatory technology consultancy to operate from Australia. How does this give TRAction a technological and structural advantage over regulatory technology consultancies in London, Cyprus or North America?
Sydney is a very innovative city, especially lately and especially in Fintech. We’ve found it easy to find good staff and keep them motivated. Because Australia is a comparatively small market it’s been quite easy to engage with the whole industry, the 2 trade repositories and the regulator.
We believe this close consultation with the industry helped to shape the way we do business, basically we learned in the early days we would have to provide our clients with full advice and support around all aspects of trade reporting, we really learned to hold their hands every step of the way. We think this full service approach will help set us apart in Europe.
The value proposition for brokers to enlist regulatory technology consultancies in order to stop them getting fined for oversights is vast these days. Are the regulators themselves technologically advanced enough to keep up with the reporting procedures and the electronic reporting methods that are now required by EMIR, MiFID and other global directives that have been designed around the OTC derivatives sector?
I think the regulators are catching up fast. At first it appeared the regulators were getting way more data than they expected and struggled to understand it and what to do with it. There are how ever 2 fairly recent developments that indicate the regulators have got to grips with the information and are taking it seriously.
1 The recent string of fines issued, both to regulated trade repositories and Reporting Entities (Brokers etc.)
2. If you look at the ‘Tweaks’ made to the reportable data through EMIR level 2 validations and the proposed level 3 validation (scheduled for March 17) you can see how ESMA is aiming to fill the gaps in their data.
One of the interesting upcoming changes is under level 3 the ‘country of domicile’ will have to be reported. So soon the regulators will find out where the majority of retails clients are coming from.
What is the procedure for reporting to DTCC and similar repositories, and how instrumental is regulatory technology consultancy within this scope?
It’s a bit archaic. Trade repositories aren’t really designed for the high frequency low volume trading of retail FX and CFDs. For example, reports on equity derivatives have around 300 fields to submit per trade! Quite a few of our clients in Australia had been reporting directly to the trade repository for a few months and found it too time consuming and too risky. I would say there are only a handful of brokers who successfully manage their trade reporting without outside specialist help.
Does TRAction FInTech plan to compete in other populous retail FX regions such as Cyprus, where legal firms such as MAP S Platis have established fintech divisions which have the combination of lawyers and technologists?
Yes. As Cyprus is covered by EMIR and will also be subject to MiFIR (in 2018) we will definitely be reporting for Cypriot brokers. We also plan to open a rep office in Limassol in the near future.
Are retail brokers on limited budgets whose directors come from a sales background rather than executive positions at institutional firms or technology providers able to cope with the new reporting requirements, and how does TRAction Fintech ensure that they report carefully
Good question. What we often see is that the smaller startup brokers are often using a white label and/or authorised representative model. That way the reporting obligation falls on the licence holder, which is generally more established and better prepared to deal with these obligations.
To sum up, what is the next stage for regulatory technology consultancies once MiFID II is in place and the familiarity among brokers and regulators has been fostered?
I think industry and regulators will focus more on data quality, reconciliation, centralised execution venues and reconciliation between different trade repositories and different regulators. basically everything will move more towards a standardised and globally centralised reporting regime but we have a long way to go until that’s complete.#fintech, #Quinn Perrott, #regtech, #TRAction