This post, part of our Common Domain Model (CDM) blog series, is about “Rune”. Rune is the language underpinning the CDM, which we recently contributed to FINOS, the Fintech Open Source Foundation.
Author: Leo Labeis, REGnosys
In my last post about CDM, I addressed the adoption topic head-on. This was a while back, and how things have moved since then!
For this new post, I wanted to start with a throwback to where it all started – the genesis story of REGnosys – in order to shed light on where we are now.
Before founding REGnosys in 2017, I made my career in Goldman Sachs’ Global Markets division, working my way up the ranks of the notoriously competitive bank. During my 15 years of professional life pre-REGnosys, I worked as a financial engineer or “Strat”, using financial maths to price complex trades, structure deals and build tools to manage risk.
At first, capital was abundant, regulation manageable, and the only limit to doing business was your own resources: your time, drive and imagination. As the 2008 crisis created much tighter constraints, my own role evolved from “Trading Strat” to, increasingly, “Regulatory Strat.”
For me personally, the situation came to a head in 2016, when I was put in charge of implementing a then-new European regulation called “MiFID II.” And this is where it hit me: efficient as the firm was in running such a complex programme, when looked at more broadly at the industry level, the approach to regulatory change was just a massive exercise in duplicating efforts – not ideal at a time when banks had to manage much tighter balance-sheets.
REGnosys was the response to the classic lightbulb moment and realisation that “there’s got to be a better way.”
Every year, the financial industry spends billions trying to comply with often complex data reporting requirements. For every jurisdiction, firms must typically sift through hundreds of pages of legal text, which they must then manually interpret and code in their IT systems to collect this data automatically.
As a result, while many financial institutions share the same reporting obligations, they usually implement their logic in slightly different ways because of siloed technology approaches. This exposes firms to the risk of non-compliance and fines. It also degrades the quality and comparability of the data that regulators collect.
The solution to this problem is obvious: if firms could develop common code for the reporting logic through industry consensus, they would build compliance implementations that are highly defensible with their regulators, all while reducing the strain on their own individual resources. And open source technology is the way to do this.
If the solution is obvious, implementing it presents significant technical and non-technical challenges.
Let’s tackle the technical challenges first. As a technology firm, this is precisely what REGnosys set out to solve. And this is where Rune comes in. In short, developing a single, standardised reporting logic relies on three technical ingredients:
The Rune language has been purpose-built to support all three ingredients.
As a data-modelling language, it allows users to build standardised definitions for all business data and their relationships. Thanks to richly expressive logic, the language can be used to define model-to-model mappings between a firm’s own data model and the standardised one. The Rune logic is machine-executable, so these mappings can be integrated into a firm’s IT systems to physically translate internal data. The same language components are used to build the functional reporting logic to derive the required regulatory attributes from the standardised data inputs, and this logic is also executable.
The cornerstone of that technical solution is that everything about Rune, including the language definition and the code generators, must be open source. This is to ensure that any investment by firms to standardise regulatory reporting remains sharable across the industry in perpetuity and free from any commercial encumbrance.
Such an “open source first” approach is something that was there in REGnosys’ founding documents, because we’ve always considered it a prerequisite for a broad-based shift in the industry’s approach. REGnosys delivers integration solutions for these open source components, so their adoption drives our commercial success. This is why getting Rune, which sits at the heart of our own technology solution, accepted into an open source foundation like FINOS is such an important milestone for our company.
Which brings me to the non-technical part of the challenge, also known as the “social challenge”: how do you bring the industry together to collaborate and codify a consensus interpretation of the rules, when building compliance collaboratively is unchartered territory for firms?
The reporting of over-the-counter (OTC) derivative transactions to trade repositories is currently going through a “rewrite” phase. G20 leaders first implemented this transparency obligation in the wake of the 2008 financial crisis. Now, as one regulator after another is implementing updates broadly aimed at improving global harmonisation, the industry has an opportunity to adopt a different approach.
What does our technical solution look like in the context of transaction reporting? Let’s look again at the three ingredients:
That third step is currently the object of an industry-led programme sponsored by ISDA called “Digital Regulatory Reporting” (DRR) that targets the ongoing transaction reporting rewrites. Standard-setting bodies are a natural home for that programme given their track record in developing regulatory best practice guides under robust collaboration structures with their membership’s critical mass. What Rune allows is to “codify” these best practices into logic.
The first milestone came in December 2022, when the US Commodities and Futures Trade Commission (CFTC) became the first G20 reporting rewrite to go live. BNP Paribas announced that it had successfully integrated ISDA’s DRR in time to comply with the updated CFTC requirements. The DRR programme has since been extended to cover transaction reporting rewrites from the EU, UK, Japan, Australia and Singapore that are all rolling out in 2024. Updates for Canada and Hong-Kong are expected to go live in 2025.
In parallel, industry adoption has been spreading. Following in BNP Paribas’ footsteps, other global financial institutions including J.P. Morgan, Goldman Sachs and Standard Chartered have been investing to implement DRR. In April this year, DTCC and REGnosys announced a collaboration to support ISDA’s DRR. We connected our technology platform to DTCC’s Global Trade Repository, the industry leader in trade reporting, to enable the reliable testing of trade reports generated using DRR.
Within the next couple of years, we expect DRR to feature a globally complete coverage of all transaction reporting requirements with connectivity to all available trade repositories.
The main lesson is that this kind of market shift to embrace open source relies on two pillars:
While Rune and the CDM have been available for several years, it took the irrepressible force of regulatory change with the global transaction reporting rewrites to deliver their first “killer app.” It allowed implementations to tap into firms’ mandatory change budgets instead of nice-to-have strategic technology investments.
Conversely, back when these projects started to emerge, there were some major regulatory changes on the horizon: MiFID II went live in 2018, and a couple of years later the Securities Financing Transaction Regulation (SFTR) rolled out in the EU. But the technology wasn’t mature enough at the time to support mission-critical implementations.
Personally, it’s hugely satisfying to see an idea that came to me almost 10 years ago finally come to fruition. The open source, collaborative approach was a radical departure from the industry’s existing ways of working, so it required some patient chipping away at the problem and preparation to align the above two pillars.
But this is just the beginning. Having proven the feasibility and value of building and sharing a single codebase for a specific set of rules using Rune, that principle can be readily extended to any and all of the industry’s reporting requirements – and there are many! Regulators themselves are getting in on the action. Some have already put programmes in place to improve and eventually standardise how they’re collecting data from firms, including the Bank of England’s Transforming Data Collection programme and the European Central Bank’s Integrated Reporting Framework.
This is the way forward for regulatory reporting, and REGnosys is proud to have contributed to its advancement and making that vision a reality with Rune now hosted at FINOS.