Over the past few years, the banking sector has had to face an unprecedented rise in the volume of compliance regulation, largely as a result of regulatory desires to strengthen the banking sector in the wake of the global financial crisis. Previously, compliance mainly affected the back and middle offices, and a bank’s relationship with its clients was still considered (in private banking, particularly) a private, unregulated matter.
This has changed dramatically, particularly over the past decade since the crisis. New regulations are impacting fundamental aspects of the revenue generating process, including investment services and the client-facing, front-office offering (see MiFID II, the Mortgage Credit Directive and even PSD II with regard to cost transparency in the retail area).
These new types of regulations are dictating, in a prescriptive and precise way, how the offering process should happen, what information should be classed as mandatory, which checks must be applied to the whole value chain, and what the related costs of the services are.

Given the continuous evolution of these regulations, it is clear that this trend is not yet over. The evolution towards ethical and sustainable investments has been particularly important for investment service regulations (see the MIFID II amendment proposal for ESG considerations). The chart below provides a clear picture of market sentiment regarding the increase in spending on compliance (G-SIFI; global systemically important financial institutions)

As a result, there is now a considerably greater burden on the front office, and the costs, legal risk and time required for delivering front services to clients have increased quite significantly.

Market needs

At Avaloq, we’re acutely aware of the compliance challenges that banks are facing and the very real need to remain economically profitable in delivering services that each year are becoming more complex, risky and require more in-depth knowledge. So, we focus on trying to capture business rules in a way that integrates seamlessly into banks’ systems and dramatically reduces the burden on the final (front) user.
Our efforts include:

  • embedding compliance rules using a business rule engine for the main front-office offering tools;
  • developing an excellent user experience within our digital platform offering (i.e. the wealth management platform), that, coupled with the business rule engine, relieves front users of compliance matters, allowing them to focus on “real business”;
  • providing a sophisticated data platform to support management in detecting trends and opportunities by applying new technologies like machine learning, natural language interpretation, pattern detection, etc.

Avaloq is also focused on helping the entire bank organization to become and remain compliant with the regulatory environment. Our comprehensive BECM and BPaaS newsletters not only track changes in regulations and industry standards, they also propose practical solutions to them. This should lower the actual burden on compliance staff.

Avaloq vision

Avaloq is investing heavily in front solutions with the aim of providing users with the best possible support for compliance.
Alongside this, our data analytics will provide deep insight to help steer the business and, in the context of compliance, enable it to detect and control legal risks.
With the geographical expansion of our offering, the number of regulations to be followed is steadily increasing and therefore requires a dedicated team to detect regulatory changes, assess their impact and manage them. 
We will leverage our network to deliver early warnings to the Avaloq community and deliver high-quality solutions for the compliance changes identified. We will continue to have detailed discussions with banks to fine-tune the best solution options with the users in question.
Avaloq is already working on different regulatory support activities, which include:

  • EU CSDR (Central Securities Depositories Regulation): indirectly impacting banks that work with EU CSDs
  • EU PSD II (Payment Services Directive II): opening up the payment business in Europe by establishing common technical standards for the execution of account access services and payment services
  • (L)ibor substitution: the most-used interest rate average currently is likely to be dismissed by the end of 2021; this change will have a major impact on bank products, but also on Avaloq’s interest calculation engine
  • EU GDPR (General Data Protection Regulation): already in force for over a year, Avaloq is committed to delivering more user-friendly functionality
  • EU EMIR (European Market Infrastructure Regulation) refitted: implementation is focusing on simplifying derivatives trade repository reporting
  • EU SFTR (Securities Financing Transactions Regulation): securities financing transactions (securities lending/borrowing, repo) must be reported to a trade repository
  • EU TARGET2 (EU real-time gross settlement system): introduction of ISO 20022 messages in B2B payments (deadline 2021)
  • ESG (environmental, social, governance): support for ESG client preferences in the investment proposition (MIFID II amendment under discussion)
  • EU AML V (Anti-Money Laundering V) regulation: adhering to the latest FATF/GAFI recommendations, extending control on crypto assets and other new financial products
  • EU Benchmarks Regulation: imposing a standard for indices used as benchmarks in the financial industry    
  • EU MCD (Mortgage Credit Directive): requirements related to residential mortgage offering
  • Eurex Trading and clearing: new release support
  • UK switch to ISA (Individual Savings Account) and JISA (Junior ISA) subscription limits for the new tax year (ISA 2.0): revised tax treatment


Avaloq’s strong commitment to support banks in their adoption and integration of financial regulations requires a strict delivery plan. Depending on the item, different strategies may be applied, particularly for items that can heavily impact the value generation chain.
The (L)ibor substitution is a good example: Avaloq is already delivering the part of the technical solution that was specified by the regulators (the National Working Groups, NWGs), despite a target date of the end of 2021, and thus providing banks with a solid basis for adapting their products and services to the new standards. For subsequent software releases, Avaloq will further develop the (L)ibor substitution solution closely following the NWG decisions.
Some of the most relevant changes expected in 2020 include: 

  • EMIR solution (standard with Regis-TR as trade repository) is maintained and updated as soon as the specifications are published by Regis-TR, in line with the 2020 deadline.
  • SFTR reporting, which will likely start by April 2020
  • CSDR: although it is has a September 2020 deadline, the solution to ensure settlement discipline will already be delivered in Q1 2020.