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What is your regulatory reporting telling you about your upstream processes?

As with anything in life, you get out what you put in. Higher quality inputs lead to better outputs. The same principle also applies to firms鈥� regulatory reporting, upstream processes, and risk management.

Where trouble begins

In our experience working with clients on regulatory reviews, many reporting issues originate in upstream processes and risk management. These problems often begin at trade booking and ripple all the way down to what is reported to regulators.

Many firms operate across multiple booking and risk systems, including those for collateral cash management and valuations. This complexity often comes from business growth, where new or 鈥渂olt-on鈥� systems are added to existing architecture, avoiding the need for updates in the short term, but causing more trouble down the road. Information barrier controls 鈥� designed to separate private-side MNPI from public-side activity 鈥� further fragment systems and data flows.

Firms that handle this well usually have a consolidated data lake. However, not all firms have that capability, or they haven鈥檛 done it in a way that supports effective regulatory reporting. Furthermore, there are multiple end users of this collated data and the reporting data is a really good gauge of how data sits 鈥榰pstream鈥� and will be used by different parts of the firm. If the quality is bad coming into the reporting layer, it will likely be bad upstream.

Inconsistencies pass through the system

Regulators now look for signs of weak internal controls. Investigations often reveal inconsistencies in data lineage 鈥� from upstream bookings and risk systems to the final reported figures. Tolerance for these gaps is decreasing, especially when they impact the accuracy of reports.

It is critical for firms to have a clear view of their risk and positions across all systems, and regulators expect this visibility to be reflected in regulatory reports.

Investing in a review

With the wave of regulatory rewrites slowing in 2025, now is a good time for firms to invest in a review of operational processes. Taking a closer look at trade processing flows can reveal underlying issues that may be compromising report accuracy.

An investment in understanding your data lineage and looking at the design of your internal data models has a track record of delivering operational alpha and ROI. The development of an industry standard data model, the ‘Common Domain Model’ (CDM) presents an opportunity to upgrade your internal data models in a way that will offer efficiency gains in data transparency and interoperability with other industry participants. In addition to regulatory reporting, there are other regulatory benefits to ensuring smooth data flows, such as supporting the upcoming requirements of the EU and UK T+1 accelerated settlements cycle. 

 A number of recent fines have mentioned that fined firms are bringing in a third party to review processes 鈥� an approach that is viewed favorably by regulators. What we typically find is that firms with an accurate and reconcilable reporting data set often have smoother upstream operations. To promote excellent regulatory compliance in the long term, upstream processes deserve a careful look.