EASIER COMPLIANCE. Regulation-ready data and advanced technology are helping firms get out from under an increasingly heavy regulatory burden

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1 HOW FINANCIAL SERVICES FIRMS USE TECHNOLOGY TO TURN DATA INTO ACTIONABLE INSIGHT EASIER COMPLIANCE Regulation-ready data and advanced technology are helping firms get out from under an increasingly heavy regulatory burden Three key points 1 Compliance pays. 2 3 Defensiveness is done. Data risk is real. FOLLOWING TOUGHER RULES Before the financial crisis, regulatory compliance was a we ll get to it task. But a massive increase in regulatory demands made this stance both unworkable and unadvisable. Regulatory awareness must be pervasive, from the front office tracking LEIs to the middle office managing risk to the back office calculating capital adequacy. Data capitalization speaks directly to this need. By choosing regulation-ready data sources, tracking the complex web of communications and trade data more precisely and managing all of it with intelligent technology, firms can put themselves in a stronger, more flexible and, above all, more proactive position.

2 _02 GAINING COMPETITIVE ADVANTAGE Financial services firms on the buy side and the sell side have been inundated with new regulations since Keeping up with the demands has been extremely challenging, especially with smaller staffs and tighter budgets. The fast and unpredictable pace of change added to the complexity, forcing firms to devote significant resources to interpreting a rotating roster of requirements. Fortunately, all of this effort has not been solely for avoiding fines. In fact, organizations that are capitalizing on compliance data and the underlying technology understand that demonstrable regulatory expertise is fast becoming a competitive advantage. To take just one example, many large asset managers have funds that serve the insurance market. If an insurer is choosing between two equally situated asset managers with the same performance, but one offers a proven solution for complying with Solvency II requirements, the choice is an easy one to make. In this case, the idea of data capitalization becomes very real. Solvency II affects how much capital insurers need to withhold from the market. The more precisely firms can articulate solvency capital ratios, the more capital is available to generate revenue. Other examples are numerous, such as Basel III for banks. Those that can classify portfolios with greater precision will be able to invest more capital in the market. If you have good data, the fundamentals of regulatory compliance come much more easily. This allows firms to focus more of their resources on the really complex tasks, such as building a consistent metamodel for the entire enterprise. Devesh Shukla, Global Head of Bloomberg Reference Data Product Development REGULATION-READY DATA Achieving greater precision requires a concerted investment in more-reliable data and distribution technology. The upside is that these investments make it significantly easier for firms to master the essential compliance tasks of identification, classification and valuation. Firms that are confident in the quality of their data can, for example, build out data models to support BCBS 239 requirements for risk aggregation and reporting without concern that a well-constructed model will be compromised by bad numbers. The larger idea is that a stronger grasp of compliance data and the systems used to manage it helps firms handle the demands of existing regulations and comply with new regulations. When firms have top-quality data organized in a sensible way that supports specific business purposes, and back-end systems are running on a consistent metamodel, demonstrating data lineage becomes a relatively straightforward task.

3 _03 This is vital because of heightened regulatory emphasis on transparency. More and more, regulators want to see specific metrics reported, as well as how they were derived. For firms pursuing data capitalization, it is easy to show regulators that the number in question came from a specific risk application, which acquired asset data from the OMS, which acquired reference data and valuation data from the following sources, and so on. It does not matter what the regulation is or what numbers it is focusing on. Firms are prepared to answer every question equally well. In the same way, a robust data-management environment enables firms to take a big-picture view. Many regulatory reports require data aggregation across business units, often according to regions or counterparties. When firms source regulation-ready data, meaning data from providers that understand regulatory specifications, firms can more easily aggregate positions across classifications, as well as quickly identify instruments that may be affected by FATCA, MiFID 2, AIFMD and other requirements. Making sure that the data that supports your business also supports the regulations that the business is subject to is key. John Mason, Global Head of Regulatory Reporting Then: Defensive crouch Now: Proactive protection Take the offensive with regulation-ready data Acquiring regulation-ready data enables firms to get out of a defensive position and respond to current and emerging regulatory demands with greater ease and efficiency.

4 _04 MOVING FROM DEFENSE TO OFFENSE A more complex regulatory environment, and the crisis that preceded it, has made transparency a high priority across the financial industry. Counterparties want confidence that business-critical data is backed by reliable, well-established processes, not ad hoc arrangements. If a firm can process data in a transparent way, it creates the confidence that counterparties and regulators both want to see. Several capabilities come into play here. Data must be auditable. Counterparties need to able to look at any point in its history and see what rules were applied to it, as well as the inputs and outputs. Again, this becomes a competitive advantage because firms that can prove they have implemented a standards-based, best-of-breed approach to compliance will be better able to close deals than firms that rely on stopgap solutions. The shift in strategy and practice is essentially one from defense to offense. In the past, firms scrambled for the resources to meet every new regulatory requirement, whether those resources were IT professionals, business analysts or investment capital. They were in a reactionary mode. Now, firms are making investments and building partnerships to create a robust and integrated data-management infrastructure that gives regulators and counterparties greater confidence. The end result is easier compliance coupled with higher growth. In a post-crisis world, firms really want to be sure that there is an industrial-strength process in place for acquiring, validating and distributing data. John Randles, CEO, Bloomberg PolarLake MANAGING DATA RISK The other side of data management is data risk. A stronger regulatory focus on information governance demands that firms invest in the ability to control, search and retrieve structured and unstructured data. Generally speaking, structured data refers to the formatted elements of deal flow. Unstructured data, also known as dark data, refers to the communications about a trade that take place in millions and sometimes billions of s, instant messages, documents and phone calls. In the past, trade surveillance was kept separate from communications surveillance. Trade reconstruction regulations have joined the two. Front-, middle- and back-office regulators require firms to develop an integrated view of a reconstructed trade. It does not matter if a firm can pull the execution details in the front office unless it can recreate what was communicated leading up to the trade and what happened during the post-trade settlement process. That means firms need to start building a proactive surveillance platform one that allows them to integrate these traditionally separate worlds, streamline global compliance investigations and meet Dodd-Frank requirements for trade reconstruction in a more efficient manner.

5 _05 Implementing this kind of platform can be challenging. But it creates yet another opportunity for firms to derive insight from large amounts of data proactively and get out in front of regulatory and reputational risk. Firms that can effectively surveil trade and communications data will be able to detect questionable activity sooner and address it before it becomes a problem. Unstructured data is growing 50% year on year. If firms don t make changes, they will not be able to get insight from this data or take a proactive stance on risk and regulations. Harald Collet, Global Head of Bloomberg Vault THE BOTTOM LINE 1. Compliance pays. Developing a proven, reliable way to manage compliance data across the front, middle and back office enables firms to assess risk more accurately and withhold less capital. 3. Data risk is real. Compliance data holds tremendous insight. It also hides potentially serious regulatory and reputational risks. Firms need a unified surveillance platform sooner than later. 2. Defensiveness is done. High-quality data and streamlined distribution help firms adapt to new regulations more quickly, adopt a more proactive stance and build a serious competitive advantage.

6 MORE POINTS OF VIEW The discussion doesn t end here. Experts at Bloomberg are engaging in conversations about these concepts in many ways with professionals from across the financial industry. Taking a more strategic approach to data and technology can help firms realize five important competitive advantages. DOWNLOAD THE REPORT Contributors Harald Collet, Global Head of Bloomberg Vault John Mason, Global Head of Regulatory Reporting John Randles, CEO, Bloomberg PolarLake Devesh Shukla, Global Head of Bloomberg Reference Data Product Development Financial firms are focusing on the operational purpose of data and collaborating closely with providers to gain new insight and realize the full value of current data assets. DOWNLOAD THE REPORT CONTACT US TODAY Bloomberg for Enterprise is ready to help firms streamline compliance. To find out more, contact us at eprise@bloomberg.net or visit bloomberg.com/enterprise bloomberg.com/trading-solutions BEIJING FRANKFURT LONDON NEW YORK SÃO PAULO SYDNEY DUBAI HONG KONG MUMBAI SAN FRANCISCO SINGAPORE TOKYO The BLOOMBERG PROFESSIONAL service, BLOOMBERG Data and BLOOMBERG Order Management Systems (the Services ) are owned and distributed locally by Bloomberg Finance L.P. ( BFLP ) and its subsidiaries in all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the BLP Countries ). BFLP is a wholly-owned subsidiary of Bloomberg L.P. ( BLP ). BLP provides BFLP with all global marketing and operational support and service for the Services and distributes the Services either directly or through a non-bflp subsidiary in the BLP Countries. The Services include electronic trading and order-routing services, which are available only to sophisticated institutional investors and only where the necessary legal clearances have been obtained. BFLP, BLP and their affiliates do not provide investment advice or guarantee the accuracy of prices or information in the Services. Nothing on the Services shall constitute an offering of financial instruments by BFLP, BLP or their affiliates. BLOOMBERG, BLOOMBERG PROFESSIONAL, BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG ANYWHERE, BLOOMBERG TRADEBOOK, BLOOMBERG TELEVISION, BLOOMBERG RADIO, BLOOMBERG PRESS and BLOOMBERG.COM are trademarks and service marks of BFLP or its subsidiaries Bloomberg Finance L.P. All rights reserved.