Episode 1 - The Future of Financial Regulation | FSA Talk

foreign good morning Grace I hope you enjoyed yesterday evening absolutely and Malta it's your first time you're correct first time at Malta and uh first I here at mfsa so absolutely amazing we're very pleased to have you um this is the first podcast of the financial supervisors Academy which we set up in 2020 in order to train our staff on different approaches in financial supervision and today we're going to be speaking about the future of financial regulation and supervision focusing primarily on Securities regulation and the role of asthma you've been with asthma for the last 10 years now Nikolai absolutely I started how has your experience been so far we could say that it was very closely linked to also the growth of asthma as my when I started we were around 80 people and I still came two years after the authorities was was set up as uh as a result of the de la Rosier report if you remember which created the three European supervisory authorities one for banking one for insurance esma for Securities and markets and then of course the SRB as part of European system for financial supervision and it has been an amazing trip and I hope to continue uh be part of that trip in short esma when I started I was part of the team setting up the second supervisory mandate for asthma which was trade repositories now we have more than a handful of supervisory mandates uh as means a reference on single rule book and writing regulation and of course as you know also has done a lot on supervisory convergence so the authorities has grown a lot now we have more than 320 people working at asthma so indeed also size wise you have seen it was more than four times bigger with of course a lot of Outreach and a lot of work done and I'm sure that we are going to be discussing today in the podcast many more of those of those interesting topics which hopefully are going to be also interesting for you and the audience and your your um heading one of the teams in asthma in the field of data correct that's correct so what what does your team do at the moment uh so we have uh also Following also the change of our management every five years there is a a new possibility to have new director of course the previous ones they they got both renewed but however in 2021 we we had a new Ed and then we have also prepared for the future we're going to be discussing today also uh part of Desmond strategy 2023 2028 but in particular my field is a uh I'm leading the team on monitoring and intelligence and we have several uh quite important tasks in the field of data particularly in enhancing the quality and the use of the data ensuring that both supervisors regulate regulators and such then the the industry as a whole could benefit for better quality of the data better us better making better use of it and of course using it to enhance our policy making to enhance our monitoring of markets to enhance our supervision and so on and so forth very good and we'll discuss later on more data-driven supervision and what this was doing at the moment with respect to data-driven Supervision in terms of for the benefit of our audience um how is asthma structured how so how's decision making uh how does it takes place in Osman which fora and and for which type of decisions so asthma has a structured SMS support you're part of the Board of Supervisors which is our let's say uh highest governance body we have uh where each of the 27 member states is represented and then we have observers from the other European supervisory authorities and of course from the EA countries and as you can imagine also from the European commission we have host management board where uh decisions about functioning and the organization of the authority are are being taken and the management board is a it's a reduced uh size of the Board of Supervisors and indeed it's in charge of uh particularly on the looking to the how the budget is approved organization Etc and then we have the structure of the standing committee standing committees are basically the part where the technical expert is but also strategical expertise from National Convention Authority is a is is coming it's where they uh the decisions the discussions are taken on the different topics we have a standing committee on investor protection we have standing committee on data we have standing committee on on supervision uh and so on and so forth so the different areas which are decided by the board to be also strategic areas we have a standing committee there which means a permanent structure under those standing committees we have uh working groups of task forces depending on the project all this structure is either led by asthma staff or by NCA staff we have quite a good mix on that one and of course there is an important work let's say technical work which happens at asthma by those 320 people that that I was mentioning to you in the field of uh uh steering the uh the discussions and creating the proposals Etc this is this has been an important step uh forward on the side of asthma compared to when it started originally it was uh only the predecessor of asthma the community of European Securities Regulators was a body which was providing more advice to the to the commission writing some guidance Etc to the market but never to the extent that we are doing it now now as me as my staff of course with the uh have been in mind all the governance structure that we have set but we're in charge of supervision we write technical standards which then become law after they approved by the European commission and the co-legis letters but still there is there is a lot happening there and and indeed it's that important interaction between National competent authorities participating in each of the structures or substructures and Desmond staff which is guiding the policy supervision and supervisory convergence in the European Union in the area of Securities and markets the there is the criticism of asthma when you mentioned technical standards guidelines opinions that sort of it's the the ruler of capital markets in Europe however it's detached from the national competent authorities and what's happening within the markets does asthma consult Whenever there is a a new set of laws guidelines and how does it take into account the feedback which is being given by the industry um Esme has been a very productive Authority and let's put it like this and we are producing on a yearly basis hundreds of Standards guidelines and other other tools which we we can produce in all the cases asthma is mandated to consult it is impossible that we can go we can prepare a proposal to the European commission which is not being consulted of course you can imagine that it is because also this productivity of asthma because of the of the way in which we are structured not everyone can be of course made happy so uh of course there are going to be people who believe that the interests have not been uh correctly accounted but in addition to though all the uh let's say the consultations which actually as much has also dedicated space on our web page where people who could see easily which are the uh the relevant proposals be it a consultation on a technical standard being a consultation on a guidelines been a discussion paper call for evidence sometimes even our decisions our thoughts require much more input from the market we go there for call for evidence we we expect and we eagerly want input from the market you should always organize open hearings we also organize open hearings where uh everyone actually can face us directly we we have done a couple a couple of them with you and and indeed those those open hearings are also extremely good opportunity for the market to come to us so in a nutshell just to uh to conclude on that point we are aware that not always everyone is going to be happy but that's that's not the function of a supervisor the function of the supervisor is after Consulting the market after having the views of the 27 competent Authority because let's not forget whenever we draft technical standards guidelines always there is at least one member for each member State who is part of the being a working group technical standard uh standing committee sorry or and then at the end to ultimately the board of advisors who can have a say in objective something is is not uh uh in alignment with Market structure at home Etc but let's also not forget one important thing we are not writing close we are not creating guidance for each individual members that we are creating it for the union we are creating single harmonized uh weight for the purpose of the internal market for the purpose of the internal Market we are creating a single rulebook I.E a single set of rules which is applicable across the board then we have some other tools to ensure that this is being compliant so that will never come wherever in Europe a company wants to set up and to provide Financial Services the company is subject to the same rules and also the investors the participants into those uh into those companies into into the funds Etc are subject to the same rules and they are subject they have the same protections so it that's where we do need to to also be careful uh esma and the rest of the European authorities are mindful of the national differences but we're also mindful that we are creating something bigger which is the European Union and the and the internal market and the internal Market very good recently asthma celebrated its 10th anniversity as 10th anniversary and has also published its strategic um vision for the coming five years and what are the main pillars of the Strategic vision of asthma over the coming five years so as as we as we mentioned there has been of course the the regular cycle in which also the Senior Management of asthma has been uh of course assessed and then if you need to renew it but in this case there was no no more possibility for new so we have had we have a new chair who was our previous executive director and new executive director so the the asthma strategy uh for the next five years is we could call it a very nice uh symbiosis between old experience of the last 10 years where as we mentioned esma was set up as a European supervisory Authority it's the biggest of the three supervised authorities is the one the only one who has direct supervisory mandates on the market and the one which we can say indeed it's a leader in the field of data the future of asthma is very much leveraging on that one but also on the challenges that we know that we are going to be facing so from that perspective what is relevant uh uh for US Financial stability and efficient markets this is also part of our mission uh but this is an imp it's an important area where we want we want to focus our uh our efforts continue focusing there investor protection uh many new products are coming there is the crypto uh there are the all the sustainability products which are being provided very easily sometimes people with their mobile phone can enter into a transaction some people can be scammed Etc so there is an important element of investor protection strengthening supervision across the across the European Union as we mentioned having a harmonized um regulatory framework it's not sufficient we need to have consistent conversion supervision and also we need to ensure that the entities with data supervised by asthma are supervised in the best way possible so this is the third pillar the super enhanced supervision at European at National level and then in addition to those uh three main pillars which which are somehow more vertical they focus on certain areas of the market we have to which you would call transversal ones one focused on sustainability the climate we are seeing that it's not the same as it was 10 or 20 years ago people are very Mindful and there there is a lot of effort put also on the sustainability side a lot on the sustainability it's coming of what happens in the society as part of efforts to ensure sustainability of the growth sustainability of the economy Etc it's coming to the Capital Market so it's important to ensure that whatever happens there has a robust framework leveraging from also experience from the past and the last transversal uh element of the strategy is the technological innovation and data I would say probably the one which is closer to my daily work right I would not say closer to my heart because all of them are very close to my heart but indeed this is very close to my daily work and indeed their uh recognizing that all the opportunities that technological innovation is bringing to us but also knowing what are the challenges of technological innovation we mentioned in the crypto but we have a lot of opportunities on both on the DLT pilot we have a lot of opportunities with with ensuring the resilience of the companies through through Dora we have a lot of opportunities on writing regulation in a better way through machine readable and executable reporting we have important opportunities in using the data the daddy where I'm working uh using artificial intelligence and machine learning techniques to make better use of the data using uh Big Data cloud or Cloud solutions to ensure that we can process much more data uh all this is to say that these five areas on which s95 strategic priorities for us for the for the next five years they're going to be shaping our our work Pusher they're going to be our guiding principles we are going to be of course supporting those as as we were mentioning before through our work on uh single rulebook I creating and enhancing the super and the the regulatory framework across the union the the more new products are coming the more Innovations are coming the more we need to adapt the regulatory framework tweet as you were saying we need to ensure that the regulation goes with the pace of society we can never be ahead of it but to the extent that our efforts can support also this this Evolution I think we're in the right in the right place for that the the industry is developing as you're saying is becoming more technological more digital um we can't continue supervising the same way we're supervising 20 years ago and soup Tech is developing can you give a concrete example of in the area of capital markets how soup Tech is developing and how it is impacting uh positively supervision and how can asthma um become sort of a a hub to provide these tools also to National competent authorities so in other words rather than having 27 different ncas investing in technology having a pool of funds which is used for a bigger project at European level which will support supervision at National level well uh Chris soup Tech has been also very close to our heart right we have been doing a lot on the data standing committee on the in the area of soup Tech and we have done several developments you're absolutely right we cannot supervise today and for sure tomorrow not the same way as we were supervising England five years ago very very clear example from from our from our life at Desmond where for instance as I told you I have been very closely working in the supervision of trade repositories and 10 years ago of course we didn't have the trade repositories but five years ago the intensity in which you would supervise them would be completely different from now why also because we didn't have all the relevant technological tools to do so so nowadays as as I was mentioning we at Desmond we have set up a Cloud solution uh Big Data platform which allows us to perform many more uh uh uh calculations many more supervisory processes on the data but this is only one element this is the implementation of it how the how the subtech has has evolved on our site and where is to go uh one of the important parts of the soup Tech is to say what it is it's supervisory technology using new technologies for the purposes of uh supporting supervisory mandates what have we done there of course there is an important way of part of interaction so we need to decide what do we want to do what what is going to be our approach very uh clear examples of that have been for instance the the moments where we have a great commonly for uh for a framework with the competent Authorities on the supervision of of data under uh certain reporting regions like the derivatives reporting under and the Remy of the European market infrastructure regulation there we have decided as we have certain tolerance to to some issues in the market but above certain threshold which we have fixed we are not any more tolerant so we all agree that we are going to act in that case then we decide how we are going to monitor we create indicators dashboards and as a result uh one cessma performs entry calculations we distribute results and everyone has to do the homework because we know this is a joint effort and has to be done so this is only one example but uh what how the future would look like indeed also with you we have done and several several attempts and I think all of them have been an important learning process for us and in this case this is also in line with with what is the future one of the important parts of the future engagement and interaction between as many cases would be to indicuse these Solutions these big big data platform to share information among ourselves to have joint analytical uh uh possibilities we know that we are not going to be the first one in that field European Central Bank has such capabilities for quite some time but there is also the important difference inside so from that perspective on the Capital Market side indeed SMA is going to uh and be a breakthrough Authority and of course also with the with the coordination with the with the ncaas definitely there is an important part there on sharing using centralized analytics and then Distributing the uh those those results cooperating uh with with authorities and ensuring that the authorities who are on the field who know the market participants are able to quickly engage so that's that's one of the uh one of the aspects on data Hub but then we have more uh you also because you mentioned the data you know the Test match also moving into uh quite vested into project code ASAP where there is going to be an important a piece of public information made available centrally and this is the benefit of ASAP for the industry for the general public so how will it support them in making their own decisions ASAP is going to be a central point for providing information to to investors informations about the prospectus of the company whichever whatever it's the companies registered in the union and issuing their financial statements sap is going to be providing information about the volumes of transactions in in derivatives in Securities financing sap is going to be a central place these for for investors retail investors in particular because you can imagine that the most sophisticated ones already have access to also more sophisticated tools which are needed for them to have access to such information this is essential for the capital markets Union this is information which is essential for the investors to feel also closer to the market so because will it encourage in any way cross-border Investments because one of the things that that Capital markets Union is all about is encouraging investors to make investments absolutely this is one of the objectives and we know that in that aspect we are still quite far away from the US U.S it's our reference in capital markets we know that there is a long way to go there we are leaders in some other fields I would say on the subtech data supervision Etc we are quite Advanced but on the side of the capital markets and the access by uh by investors or Capital markets we do need to uh to make to do more similarly with the ifmd and using it's I.E the alternative Investments funds the usage these are typical Vehicles also for retail investors to put their savings to put their money to grow for their retirement but then this money have to be is used in the uh for the capital markets right so there we also expect that with the recent review of those two uh legislative texts there is going to be another push to a further uh support and Foster the Capital Market Union absolutely very good we were mentioning data um recently asthma published its data strategy um what are the main pillars of the data strategy we have uh included the data strategy it's part of the asthma strategy right the data strategy is one of the vehicles to deliver on the asthma strategy uh it has several more tangible objectives much uh much much much closer to uh to the work that we're performing first one that and we already referred to it a couple of minutes ago is becoming a data hub I.E providing be a central place for solutions for the supervisors but the data Hub also which then affords to publish information in general for the public for the investors for the uh Market participants for them to be able to use it to integrate it in the processes they're very close link to that one is ensure that we have a thought leadership on the data policy side and data standards when we generate information when uh or request actually the market or generate information because we are not the ones for generating we generate the standards for the information uh these standards they are compatible they are harmonized across the board use of the Lei use of icing use of uh sorry I'm selling Lei legal entity identifier use of ice in the instrument the identifier for Securities the use of a unique product identifier the UPI all these elements have been critical up to now to ensure but it's not the only thing we need to ensure the talk leadership also goes on the on the side of the on the standards the way in which the information is being reported and published so that it can be easily consumed having such a such standardization also supports our data-driven policy much more uh data-driven supervision uh and data-driven policy I.E ensuring that the data it's Incorporated in our decision making on an ongoing basis it's not an adult effort any time that a testament we need to make a decision it is being supported with data anytime that we need to make a decision for the European Union not only internally it is supported by data whenever we need to write a policy there is data which is uh Incorporated to it there is data which is ensuring that whatever we are proposing would it be a clearing threshold would it be an exemption would it be a new new requirement this is supported by the data that's that's excellent and how are you seeing the sort of there's the strategy main strategy there's the data strategy if you had to look at the future Beyond these strategies um how are you seeing the capital markets of Europe developing and how are you saying supervision developing so if you had to make three predictions so uh let's uh let's indeed uh first underline the asthma strategy and the data strategy they work hand in hand they are the data strategies as we mentioned uh very very particular area asthma has also a strategy on the sustainability Etc so indeed this is part of all these joint effort to ensure that we are able to deliver that the strategy does not remain only as a vision for the future but it's actionable and uh from that perspective uh one of the uh important aspects that we are we are having a tesma as you also mentioned is the soup Tech definitely leveraging a lot on the leveraging a lot on the opportunities that the the soup Tech is giving sharing the information between authorities I think we didn't mention it before but this is rather critical element it's not only the analytics editor but also ensuring that Authority can easily share information among themselves they can act we don't have those barriers you remember you are reminding us before about the cross-border investment of course this is going to be something relevant but how also the future is going to look like and this this uh of course uh my thoughts are informed from what I'm seeing what we are discussing Etc but this is of course more my personal thought so just also to to have a bit effective yeah I'm asking I'm asking for your best value exactly exactly so on that and I know you don't have a crystal ball but uh from your experience and from what you're saying the future how it's going to be for me digital uh it's going to be very very close link to society Society developments and the way in which uh and the society evolves uh the future is going to be also uh um much more uh on sharing much more the interaction between uh the market participants the authorities the investors it's going to be much more enhanced we already seen that even social media have been part of some of those uh some of those elements but why it's going to be digital uh on the particularly on on the site of uh of what I'm seeing and the idea of of data there is an important effort to use new technologies we're mentioning artificial intelligence artificial intelligence helps us a lot and we have had another supervisory project on on using artificial intelligence artificial intelligence it's not an objective it's a tool but in incorporating in our daily work it's going to be something which would bring greater benefits and of course we are doing now those Pilots assessment but the intention is as soon as we have tested those of course to share that experience uh also with the competent authorities how it's that what is the digital part of the future in telling two we I mentioned in the in the beginning machine readable and executable reporting this is another important element for us why because it would mean that legal text can be inequivocably understood by anyone I.E legal text would not need any more an army of Consultants lawyers to interpret what the regulation was meaning no no machine readable excretible reporting would mean that the regulation is written with the legal text but which can which is transformed into a code or directly in a code so for example a prospectus how would be a prospectus be reviewed in in such an environment uh this is this is the uh a third important element the natural language processing already on that one we have done also a pilot project but there is more to be done there the text processing and the processing of of natural languages is an important step also there ensuring that uh the legal uh the legal the language which is used there which is sometimes it's legal sometimes it's it's a more uh of a plain text it's it's well understood but already the uh Chris I I would remind that we have and some it's called inline xbrl which is a format OS certain words are have to be used and follow certain structure where indeed then if this text is uh received by uh by a tool which can read it it can easily extract those words but this is only one thing you know uh also in the field of the financial information for quite some time an important element has been what is the sentiment that it's coming now for us uh for those of us who have some experience on the financial markets we know that it's not what is it today but what are our expectations for the future and our expectation for the future even guide prices of companies it's not what the actual value is now most of the case is what the expectation for the future and in that case also uh the natural language processing should be helping in the on the digital side to to ensure that investors but also supervisors can easily spot things which are critical essential natural language processing it's also critical for us and we uh we indeed investing on that area a lot also because of the uh all the disclosures on sustainability as we mentioned sustainability it's entering quite importantly into the financial markets however there is and our uh also our chair has recently made several statements in that regard we do need to go to a state of further standardization of what is being published what is being disclosed how this has to be understood and so on and so forth so on that field definitely on the digital part we have a lot uh and a lot has to be done and I'm sure that the way in which also uh we're going to be doing regulation and Supervision in five or ten years it's going to be completely different than what you're doing it today then socially connected uh there we have been discussing about the crypto we are discussing about the door and the cloud actually on doorway one important element that we need to also mention is that has an important link with the way in which currently our financial system is organized there is an important Reliance on third-party service providers normally I.T systems but this is where the date is this is where the actual knowledge actual information stands we have an important Reliance in the EU on such providers therefore there is an important uh work to be done to ensure that we also have our independence and also the identities can ensure that the data and the way in which data is managed by their providers is in a good shape and that's why we're now supervising them correct asthma is is going to be as mine the other two SS would become the overseers and depending on the entities that they're going to be different overseas for the uh in the context of Dora for the critical uh providers exactly exactly so it's it's going it's not a full supervisory function for instance when you are supervisors you know you can basically mandate sometimes to The Entity you need to stop doing that if they don't want to uh you will go to to enforcement right but in the case of oversight it's going to be a good we understand a good first step to indeed ensure certain level of convergence there foreign one last question you mentioned a lot in terms of the future for supervisors and how supervision is going to develop in terms of investors what are you saying for the future in terms of how all these developments will benefit investors which is ultimately our mandate um okay let's take it by by pieces uh our mandate is to protect investors and to Foster the capital markets Union right so if we start from uh from that from that point in time we have we have to to underline several things first uh having a robust Capital marketing information it's positive investors it would mean that an investor in Malta is going to be subject to the same protections as an investor in Finland Ireland Bulgaria which is my home country Spain which is uh one of my adoption countries of France and this is this is critical uh how also the future is going to be benefited investors as we were mentioning having access pump to free of charge to information that will be published on dress up is also critical for them to be able to uh to make decisions not only that SMH also uh considering as part of our uh as as part of our data strategy whether other supervisory data can be published either in anonymized way or they can be used by Academia for for studies for research to ensure that indeed also there is this connection uh how also the the future that we are making the digital future is going to benefit the investor imagine you are a Maltese company and then there is in eight nine months time from now there is Demi refit the review of the derivatives reporting standards called Emirates go in live how this is going to benefit you well all that we have done for instance in the last years preparing important documentation would support you but if if we're in this future life where we have machine readable and executable reporting The Entity should need simply to embed this code in their systems and that's going to be one of the ultimate objectives once this is done the reporting is going to flow they are not going to be needing to go to uh as we mentioned consultant lawyer Etc this is going to be an important aspect we forgot one to mention one of them the dot pilot this is another way to approaching that I.E the way forward and that's where currently also on the supervisory side we're looking how this is evolving and assessing how how they should go investors can invest directly on the blockchain I.E they can have transactions which are recorded on the blockchain and that's it and they would not have to do more this could be another part of the future I.E whoever wants to whoever is mandated to supervise it asthma National combination authorities can have access direct access to the uh to the DLT ledger to the register of the of the The Ledger where the transactions have been recorded and see the transaction would that be a benefit for the for the investors of course so there are a lot of things that are about to happen and uh having the Paradigm in our mind of Supervisors in our mind of uh of authorities to uh protect the investors to have a harmonized supervision across the EU and to ensure the financial stability because this is another the third part of the piece this is all going to be beneficial for the investors using the new technologies for those purposes definitely is going to render the benefits again Let's uh you are asking about the benefits but I would like also to ring the bell on the potential challenges or risks the cryptos that is an important risk on that sphere that's why also asthma and the competent authorities are willing to uh to further push on on the Mika uh there is a an important work going on there and with the ultimate objective that whenever someone decides to invest in crypto it's aware of all the risk that can come now currently can this be done of course we have also a lot of derivatives products which are directly linked to bitcoin for instance do we need to act well we we are we have seen with the data that the volumes have been increasing and that was also one of the reasons for Mika and to ensure that indeed any investment in the also in the crypto space has to be correctly correctly assist and the investors can be protected so uh to conclude on that one I do think that uh the the technological abroad and the way in which uh we are seeing the Supervision in the future is going to be 100 benefiting the the investors and it's going to make the Investments safer probably we're going to have new risks and new challenges but we would face those when they come welcome back Nikolai um if I had a short break uh summer is coming to Malta no somebody is already here my children are really going to the beach unfortunately I haven't visited the beach yet hopefully I'll do so this weekend the Paris the beach in Paris it's uh not yet ready but uh I'm sure that soon I'm going to be you're already going to swim in this year no absolutely well it doesn't look very nice though absolutely not uh now but you know that the plans for the Olympic Games is that it's going to be uh ready to for people to swim there currently actually some of the events I'm which I'm following uh like Triton Events do have take place in some of the canals of uh of Paris which are done before that cleaned a bit that's the intention also with the with the same river let's see how it's going to be but this is one of the big projects and the flag flagships for the Olympic Games next year excellent so it's going to be an exciting period in Paris absolutely we are looking forward how to escape from the city yes but hopefully don't organize any asthma meetings in Paris during that period absolutely no no you know it's going to be City it's already quite that stretch at normal day so absolutely next year is going to be going to be very intense there so definitely we're going to be taking this into account for the future meetings very good and to continue our discussion on the future of financial regulation and supervision we touched upon already on the issue of data um and data driven supervision um can you give us a highlight of uh the journey that Ezra has been through in order to create the existing framework for data quality of data but also to become a data hub uh indeed Chris as you mentioned it has been it has been a journey I mentioned in the beginning of our conversation um when I started it uh atesma I started in the team setting up the supervision of of trade repositories and even though originally my sphere of expertise was not circumscribed to data it immediately became uh clear that I do need to specialize there but this is this it was more on the supervisory side no that's my journey on the data side has been quite a comprehensive one because we realized that the supervision cannot work without the policy hand in hand so as part of our journey uh some time ago 2014 we put in place the First Data quality action plan it was called the Emir data equality action plan and why we needed it because it was also the first time where SMS and Authority was exposed to an unprecedented event which was data for the first time was the same type of data was successed by multiple authorities from market infrastructures and the authorities had a lot of struggle why they couldn't use the data why because the data was not in the same format the names of the elements were different Etc what did it mean that everyone was providing all the trade repositories were providing access to that Authority so there was no problem there but the authorities could not make use of it why because they couldn't uh understand it they couldn't couldn't read it they had to make important efforts to clean the data structured Etc so from that perspective asthma we quickly understood and that's why we we put in place the data quality action plan which had several of assets it had the policy facet standardization harmonization of reporting requirements it had the data access facet standardization of data access requirements as I mentioned the formats were not yet there even now we are in 2024 this is going to be the first time when the derivative reporting regime in Europe it's going to be a fully standardized and 20 it's going to be the same format and type of information is going to be reported all along the chain from the market participants from the entities that generate information to Market infrastructure the trade repositories and then being accessed by the by the authorities then there was a third third important element in that process which were the IIT process asthma uh was also pioneering there creating the our our hub for data exchange code Trace uh this was another important element in this puzzle I.E to ensure and create those synergies for the competent authorities and also for the trade repositories we created The Hub where authorities could directly connect and download the information interact with the trader posters but through a single interface they didn't need have six at the time seven connections with the different trade repositories and this greatly facilitated the work and finally yeah sorry just Just One Last point and then uh back to was the data quality aspect I.E put in place in C A system uh originally a tesma to monitor the quality of the information that the TRS provide and then engage with the competent authorities in targeted interactions with the market participants with the trade repositories as part of the review of the quality of the data to ensure that all the relevant parties were taking part of the process because at the end the trade repositories or identities over which asthma had Direct supervisory mandate were only in the end of the chain but at the front of the chain the ones who are generating information with the market participants so that's where NCS had to come into place and the data quality action plan in general was one amazing example of how the joint work joined well taught true work convergent work between estimate competent authorities could render great benefits and we have seen that as a result of that exercise Europe has been on the front front Forefront of the data supervision Forefront of data quality and Forefront of data use for supervisory data in the last five years a mirp review on 2019 was very enlightening in terms of what was happening with respect to data quality um what were the main points that came out from the merp review and how did esma tackle those issues indeed the the peer review in 2019 was hit the let's say not unexpected findings let let's let's put it like this it was clear that the way in which the the supervision of of data across Europe was happening was was not uh uh uh when you say supervision of data we're referring to supervision of data quality it's supervision of data quality the interaction between the competent Authority so the the financial supervisor and the reporting entity and the the quality of the information which the reporting entity is submitting to trade repositories indeed and not only that but there was not only this this part of the interaction but there was the whole missing element of first monitoring the quality of data in-house be authorities had had at the time very uh uh uh low level of uh um maturity on their data processes the data was only uh collected from time to time and uh and checked very in the very adult manner there was no systematic uh way of dealing with that one in addition to that one you can consider of course the as you were mentioning the interaction Etc the supervision of data it's not only about the quality of it it's the quality is only one aspect of it what where we indeed also uh saw there that there was an important failure is that basically then this data was not used in any of the processes across the across the authority and this was another gathering the data but we were not used and this and this per se it's something which is not uh not positive because as a as the chief of the Maltese Authority I'm sure that you're here every day and it is complaining about the reporting burden so definitely this was also unfair we had created costs for the market participants so we needed to use that we had to use it and that's that was another of the important outcomes of the peer review uh further uh uh making further use of the data so between the two things that uh uh as you mentioned uh uh came uh the chemistry result of the peer review what did we do afterwards we so that there is an important opportunity to step up there and this was part this is this happened in Emir but we have had similar experiences in other people areas yes so I mean we are using it simple as an example but once this happened in Emir what did we do we we saw that the existing the data collection plan did a lot good on the data policy side and uh uh on the IIT side but um most probably on the data supervision there was still room for improvement and this was evidenced by the peer review so afterwards we enhanced it and included the quantity development in the uh in the data quality action plan and in the data quality uh work in general where we created a data quality indicators which are calculated across Europe in the same way we have shared with all the national competent authorities the code the cell it's called sell the code which basically it's an explanation how you need to to code uh the requirements in your system so independent on the way in which you store the data but the way in which you have to code the analytics generate the same code and be able to Benchmark yourself this is extremely helpful and most of the authorities we know actively uh do that we receive a lot of feedback also from them because this is iterative process right the underground indicators who agreed with them but again we we need to always the feedback from the from the authorities and uh we as regulatory Community have agreed on what is our tolerance level and this was another important element which previously we didn't have so we have uh seen that we have agreed that at this stage uh the position which we are our tolerance level is five percent for certain issues so 10 for some others if there is a uh one of the indicators go beyond those definitely we need to act and we need to act as a community I.E the issue it's never almost never linked to a single jurisdiction they are always uh several jurisdiction but what we have also seen and this was also evidenced in the in the peer review was that there was there were a lot of targeted actions missing there was a lot of the interactions that we were doing as part of the previous data data activities were more linked to interacting once per year with a given entity the new framework also put a lot of emphasis on targeted interactions and outcome focused I.E achieved an outcome with in the most efficient way targeting the most important counterparties in a jurisdiction previous exercises some would have not not necessarily the most important Marketplace covered so this also evidence that we as authorities agreed on common rules among ourselves this was the journey up to now what is the journey looking how towards the future but before that before looking at the journey for the future um we had a lot of discussions on data-driven supervision and how we can use data for supervision and how um the national competent authorities are supervising data and data quality um during the asthma DSC meetings um from these meetings my impression was that different ncas were um all um sort of undertaking a journey towards using better data but um it was rather fragmented in the sense everyone was at different levels is there something which perhaps we can do in the future within asthma in order to bring um all ncas at at a convergent level of supervision in this field and also to perhaps try to achieve convergence in the field of enforcement as well because again even an enforcement we're seeing different approaches in different member states and we had some very interesting examples being explained um and presented during the asthma DSC meetings um however again with with different approaches by different member states now initiating the debate was sort of the first step towards trying to achieve convergence sort of by achieving Mutual learning Mutual understanding and however what can be done in the future in order to achieve a higher level of convergence in this area given its importance for the future of financial supervision no no absolutely you're absolutely right there are there are several elements and I think we have been touching them uh along this uh this conversation of course convergence on the on the enforcement side is is critical too I think uh everyone would agree there and uh as a matter of fact we have seen uh not many enforcement actions direct reinforcement actions uh in the course of of the last 10 years actually if if we look at those from we have had several uh let's say very adult ones in in single in a single jurisdiction then the UK usually in the past before brexit they also hit some of them but in general authorities have been using software reinforcement tools uh then then Actron finds and penalties to uh to entities and indeed I I would agree with you and this is also part of the also of the asthma strategy to ensure further enhancement and further convergence on the enforcement side to ensure that we as a community of authorities can have achieved uh the outcomes also in a convergent in a convergent way but coming back to to the first part of your question which was about the the soup Tech uh there is uh uh and we are recognizing an important element of uh uh and this is going to be part of our continuous Journey towards a better quality of the data in using the new technologies using uh asthma is has already published it we we plan in the course of the coming months to open the use of our platform to other authorities but not only that we are not going to be only opening the platform but also our objectives are to start sharing code start link analytics approach creating discussions with the authorities on the also the experiences as you mentioned we have had several discussions and we continue having those discussions now at the DSC where uh authorities are bringing use cases where they're using also new technologies this is informative for everyone as you say everyone is doing something we are in different stages of our journey but also the experiences are extremely enriching so from from that perspective indeed asthma is placed as as the is the best place for for those experiences to be shared for those new approaches to be discussed and then come up with a joint one come up with something which is a common Approach at the EU level how to use technology to better support our supervisory decisions to better support our supervisory work and to ensure that the data that we use tomorrow is better than the data that we have been using today to ensure that our systems are also better prepared and can incorporate the data in this process automatically and by that what what we also are going to achieve having a better using the subtech having better supervision of the data it's going to by definition create safer environment safer Marketplace it's going to have have positive effects on financial stability it's going to reduce cost for Market participants because now another important element that we have had and sorry to bring it here to the uh to the discussion has been uh The Continuous request for more data you know that you remember that we have been in this wave of continuous new requirements adding and piling on the uh uh on the on the data side and what has happened there well at some point in time also the European commission said okay let's put the break on it let's see where we stand and they have also the strategy the supervisory data strategy which the European commission published it which goes into that direction we need to simplify uh the reporting requirements and ensure as much as possible reusing and sharing data if a data is reported on the given regime then we should use it we should not ask the same information two three five times five times exactly exactly so that's why to be more professional we have to be more proportionate and that's why also the suplex is going to play important role by being able to use the new technologies and to integrate data there this is going to have tremendous effects on our efficiency in performing our supervisor thank you absolutely in what way will um asthma facilitate the use of these Technologies at National level um again the different ncas are at different stages of their journey in what way can we try to pull more the resources to get better outcomes with respect to the use of of this technology a hundred percent setting up a new projects new data on a 90 project at Central place at asthma level of course it's going to be the clearest way to to reap the benefits of that I bring in the experience this industry um we are supervising very large institutions they are investing a lot yes in technology and the use of data I mean in order to be able to supervise them we need to equally be have a sort of we need to pull in the resources a large pot of money to be able to progress it absolutely that's that's right that's right Chris and that's where we are so we always go as regulatory communities we always go with some baby steps at the start so we are now in this phase where I think we baby steps have uh uh have gone through we have more secure steps now there are several uh projects currently undergoing of uh pulling resources from the authorities ensuring a very collaborative way of working among authorities because again what one can do it's incompatible with what 27 or 28 can do it's incomparable and that's where as my having this Central Point uh leading on those new Innovative date and ID projects is going to play a critical and then we also expect expect and as we have been doing up to now to get further idea by the ncaas but also challenges because also on that one an important part is to understand what are the challenges now and we have heard already in the past challenges uh as you mentioned industry invests a lot of money we don't have those resources so that's why we need to use very smart you know very smart smart way our uh our resources the the resources of all the regulatory community and to put them in the best interest of all of us absolutely excellent um you were mentioning before the future of the journey so where is asthma going and I interrupted you um what what are what are your views in terms of the future uh of the uh the evolution of of data is minder in the ncaas uh we see definitely much more technological a lot of uh uh uh very data driven the the way in which uh know that we're doing supervision nowadays is going to evolve even more uh one of the objectives is to have common dashboards uh among uh us and the competent authorities have Master data I everyone can understand exactly in the same way this is is going to render another important benefits and then collaborating cooperating on joint platforms working more together up to now we have been working a lot together but more on the on the policy side joining forces discussing agreeing on documents and the future is to work much more together on common platforms and making them work in our benefit Nikolai thank you very much it's been a pleasure um to have you here at mfsa for this financial supervisory Academy podcast and I look forward to continue working and collaborating with you in the future at the level of asthma thank you very much thank you thank you very much Chris have a good day foreign

Channel: MFSA

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Length: 61min 29sec (3689 seconds)

Published: Mon Aug 07 2023