Transcript

Julia: Hello, my name is Julia Streets, and welcome to the podcast series, StreetsTalksTo. In each episode, I interview leaders from some of the most influential firms, bodies and initiatives in the financial services industry. We explore what’s at the very forefront of innovation and change. We really think about the challenges facing firms and the industry at large, and we uncover the opportunities that exist both today and as we look ahead.

Because right now, every client, every firm is looking to achieve two key things, growth and or transformation. And as a business, we help firms with three key offerings, campaigns, content and coaching, because we never forget the human in the mix. We hope you enjoy the series, which you can find on all good podcast channels. And every episode is listed on our website, streetsconsulting.com. You could find these episodes using the hashtag StreetsTalksTo. So thank you for listening and welcome to StreetsTalksTo Droit.

Droit is a technology firm at the forefront of computational law and regulation within finance, as well as other domains. Founded in 2012, it counts many of the world’s largest financial institutions as its clients. It has a patented platform called Adept, and that provides an implementation of regulatory rules reflecting industry consensus, and we’re definitely good to get into that. Because every single day, the Adept platform processes tens of millions of inquiries, deciding in real time which interactions are legally permissible, right the way across the globe.

The real value of the platform is it can be adapted for a wide range of asset classes. It’s used by institutions to evaluate with sub-millisecond latency, the full regulatory implications of any given interaction within their transactional infrastructure. Therefore, it is no wonder to me that Droit has won awards for its contribution to the industry in helping banks and financial institutions to navigate the never-ending complexity of regulatory rule compliance.

So having set the scene, I’m delighted to welcome two guests today. Our first is Brock Arnason. He is the founder and the Chief Executive of Droit, with decades of experience in regulation, compliance and technology. He truly understands this complexity from the client’s point of view, because prior to founding Droit, he was an Executive Director of Fixed Income E-Commerce at Morgan Stanley. He was the Global Head of Products for Matrix, the client portal, and the interest rates, currency and commodities singer dealing trading platform, and he led their SEF strategy and Dodd-Frank compliance programs across the institutional securities group. Brock, welcome to the show.

Brock: Thank you so much for having us.

Julia: It’s a pleasure. Now, you’re not alone because joining you today is Somerset Pheasant. Somerset has recently been appointed the Chief Strategy Officer for Droit, responsible for leading the development of the firm’s strategy, evaluating new opportunities, and accelerating the execution of its commercial growth objectives. Somerset oversees partnership engagement and is leading the focus on ensuring continued alignment with the needs of all their clients.

In his latest role, prior to joining Droit, Somerset spent nearly two decades at Goldman Sachs, where he held very senior roles including Global Head of Strategic Investing, Head of the European firm-wide strategy team, Co-Head of EMEA Principal Strategic Investments, and Head of EMEA Rates e-Business. So we’ve got great company today. Somerset, welcome to the show.

Somerset: Thanks, Julia. Delighted to be here.

Julia: I’m really looking forward to this conversation, because as I mentioned, Brock, let’s start with you, it’s been 14 years of growth for Droit. And it does sound like it’s been quite the ride, when you think about the regulatory landscape. So get us started. If you could give us a sense of what’s going on right now, what’s fueling your growth, and what do you think that particularly resonates with the industry?

Brock: I think that to best understand our growth and the current drivers for it, it would help to look back at the genesis of our company. Droit was founded in the wake of the 2008 financial crisis, and the rollout of Dodd-Frank regulations, then EMIR, MiFID, MiFIR, and really the entire G20 consensus set of regulatory changes that flowed from the response to that crisis.

In this new regime, financial institutions found themselves with complex regulatory obligations. Those obligations needed to be evaluated at an earlier stage in the trade lifecycle, and they needed to be able to take millions of decisions a day in a repeatable and defendable fashion at very low latency, and that’s where Droit came in.

We help financial institutions take transparent, repeatable, performant decisions to facilitate regulatory compliance, and to help them minimise the cost of adopting regulatory change. We’ve seen an almost nonstop pace of new and changing regulation since the introduction of Dodd-Frank.

And even if it seems in any particular jurisdiction that updates or new regulations may be slowing, this is never the case globally, and there has been an evolving avalanche of change in the more than a decade since our founding.

Clients find themselves needing to respond to a ratchet of compliance, where the expectations continue to rise for how they can comply and how they must comply. They also find themselves needing to deal with increased complexity of decision-making.

Over this journey, we have found that the desire for consensus-based decision making is, if anything, increasing. We have built consensus through engaging with sophisticated financial institutions, demonstrating a transparent decision model, getting their feedback early on these decisions before we roll them out and before regulations take effect.

Recently, we have engaged with many of our clients through a forum called Endoxa. Endoxa is a consortium, but it’s really a new way of engaging with regulatory consensus, where you define best practices from a group of practitioners in reference to a decision model that directly lines up with regulatory text and with legal best practice.

This is a new way for the industry to come together to define that benchmark for how you can comply, and to help mutualise the cost of adaptation and minimise the cost of adapting change.

Julia: As I mentioned in the opening remarks, you’ve recently joined. And listening to Brock’s opening remarks about the history, but also this dynamic of consensus against the relentless wave of regulation, I’m really curious as you look ahead at the next, perhaps year or two, is how those client challenges are changing, if at all, and what does that mean in terms of Droit and your pathway ahead?

Somerset: I think on the one hand, the challenges for the client are the same as they always have been, that is the need to manage regulatory change with confidence that is underpinned by accuracy and transparency. That said, I think the combination of new regulation and revisions to existing regulation that Brock mentioned has clearly increased the intensity of that work, in addition to which the timelines for some of these implementations are shorter than they had been before. So you have a condensation of the work and a proliferation of the work across different jurisdictions, which is coming through.

Beyond that, I think the regulatory focus on enforcement is continuing to ramp up, and that is starting to look beyond simple compliance, but is also looking at what constitutes best practice across the industry. What’s more, the scope of regulatory focus is broadening into new areas. For example, exchange traded derivatives, which is one area we are looking at very closely at the moment.

From a Droit perspective, this will plays to our traditional strengths, consensus-driven technology solutions that are available for all key jurisdictions, inclusive of any updates that come down the line, all based on one platform, and underpinned by our unique abilities to provide transparency and traceability through the regulations. For new areas of focus that I mentioned, we’re also looking to point our core capabilities, based around our adept engine, to these new areas and provide the same solutions, but in a slightly different use case.

Julia: I mentioned in the opening remarks about that in the years of Droit’s growth, very much this is about international coverage for clients, and that’s already begun to come through in the conversation, but also you do have clients all around the world as well. I’m really keen to hear your views about the dynamics of international coverage and how that reveals itself, and also thinking about whether you have a sense of where you are operating, where your focus is right now?

Somerset: I would break that down into where we operate in terms of where we serve our clients and which jurisdictions we cover, and where we have a physical presence. Droit is a global business, we provide solutions to a global client base who operate multi-jurisdictionally. Some are more narrowly focused, some are much more broad and cover all the major jurisdictions across the world.

That requires us to have a detailed knowledge of specific regulations in specific jurisdictions, and to be able to roll those up and provide solutions to clients who have operations across all of those. In terms of our physical presence, we have our headquarters in New York, we have a large presence in London, and we have sales and support teams in Sydney and in Singapore.

Julia: Clearly, you’re covering, as you say, all the major jurisdictions. I’m really curious to hear where do you see commonality and how do you explore the jurisdictional differences?

Somerset: I think we look at the solutions we’re providing as being based on a very common theme. We are taking the regulatory text, we are understanding the detail nuance within that. We are mapping that to our own proprietary data model, and then we are creating the decision engines and the eligibility models off the back of that.

That theme and that sort of principle remains consistent across any jurisdiction we’re operating in. Clearly, there are nuances in terms of what the intention, the regulation is, but fundamentally we’re applying that same model, that same creation process across jurisdictions globally, and then providing those to clients depending on what their needs are and where their activity is based.

Julia: As we think about international commonality, but there’s always regional context. And I know, Brock, you travel the world, we’re lucky to catch you, to be honest, because you’re always out in the field also meeting clients, but also just talk to us a bit about the relationship with the regulators, particularly in the context of drawing this notion of consensus across the industry.

Brock: As a technology firm, we are not directly regulated in the same way that many of our clients are. However, we appreciate the intent of regulators in the construction of their rules. When we engage with regulators, we do so either through industry fora, like the Endoxa Consortium, or groups such as ISDA or SIFMA that we were part of. Or when we meet with regulators bilaterally, we do so to demonstrate to them the capabilities that we offer clients and how we help facilitate compliant decision-making for those clients. Through that engagement, we get a centered picture of regulatory goals, and we build a better understanding of what the priorities of our clients are and how they interface with the global regulatory agenda.

Julia: I really appreciate the way you referred that as a centered picture, because I would be mad not to ask you this question because of your international point of view, but also your engagements with the industry. Everybody is trying to anchor their strategies at a time of just incredible change.

I’d love to get your perspectives, and perhaps, Brock, we could stay with you on this one, which is when you’re working with clients and they’re trying to anticipate what’s coming next, can you share some insights into how they are anchoring their strategic plans? And then also, how do they remain adept, no pun intended, as they are trying to navigate these just incredible times?

Brock: I think that our clients’ plans always reflect their desire to have a continued evolution towards better process and implementation, and indeed, responsiveness to regulatory concerns. I think that it may be instructive to pick a particularly salient example. We’re a US-based company, although we clearly have a very global presence and set of interests, and indeed, clientele.

There’s a new administration in the US, and under that administration, there are some clear directives. There’s more pragmatic industry engagement on the introduction of regulatory change, less what I would call rulemaking by enforcement. There will likely be fewer new rules and novel interpretations of rules, and those that are introduced will reflect the feedback from industry. And I think that you’ve seen this recently in guidance on timing. Recent delays to treasury and repo, clearing changes reflect that more collaborative and engaged model.

I think that defined and proven areas of enforcement will continue to have attention from regulators. I also think that the interests of global regulators are, in many ways, more aligned than it may first appear. We have seen a tremendous amount of focus and attention on being able to differentiate between policy and strict and letter of the law implementation, and the ability to drive an accounting of how decisions have been made, and the desire to move that process of evaluation and application of an understanding of the law earlier and earlier in the decision life cycle for a transaction.

You see this in an emphasis on preventative rather than detective controls, on having this type of flexible evaluation model that can actually provide scope for more complex models of doing business, that can actually allow you to transact more if you have a more conscious and considered way of thinking about what the regulatory implications are as you enter into transactions. Globally, many of these trends align between regulators. In any one particular locality, there will be periods of acceleration and periods of deceleration, but overall, the pace of change and the expectations are, if anything, increasing.

Julia: It’s really fascinating to hear you talk about that, and I love the whole thing about the flexible evaluation model and the different sort of paces, those alignments, as you’re suggesting, but different jurisdictions are working at almost different paces.

Somerset, I can’t help but think that they might therefore be evolving something of a contrast between a US regulatory point of view versus other jurisdictions regulatory evolution point of view, and whether that creates almost dual speed or multiple speeds as we go. That must create some disruption for clients, surely? And I’d love to get your thoughts about, therefore, the existing regulatory roll-outs, are they being implemented, are they being slowed down? Are they being accelerated? Your thoughts on those dynamics of different paces and different journeys of change?

Somerset: If we look at the US as a case in point, earlier this year, the rules around 13f-2, which goes to position reporting for clients, was due to go live, and then at the 11th hour, there was a delay by the US regulators to the implementation. Now, that delay came probably too late in the process to have been of any real use to clients in terms of repurposing their efforts. They’ve been working right up to the deadline, and then at the last minute, had a shift to the timelines. Uncertainty now still persists as to when that will now come back live, but they suspect it will at some point.

But if you think about the efforts banks and other firms have been putting towards getting ready for that, there’s a huge ramp up to it, and then suddenly you have a delay late on. Well, what do you do with those resources now you’ve got extra time? What do you do with a piece of work you had almost completed but not quite got live? How do you make sure that doesn’t get moth balled and then actually become more painful to re-instigate whenever the regulations come back around?

But at the same time, you have other priorities and other jurisdictions which continue to be on there. So can you try and get some benefit from realigning resources or are you just constantly working with this fear of working to deadline that then gets shifted later on? I think there are definitely some disruptions which come through for clients.

I think to the extent that a client is multi-jurisdictional, there’s always going to be priorities, as Brock has mentioned earlier on, that they’re going to have to be working on. But the disruption of having things delayed and uncertainties to when they’re going to come back around certainly I think adds some complexity to a client’s workbook.

That said, you also then have new regulations coming live in other jurisdictions which clients have got to continue to be ready for. We have transaction reporting due live soon in South Africa. That’s a pretty new concept for that country in particular. Obviously, it ties into expertise we have for transaction reporting more broadly, but that’s one that clients would have to get up to speed with, in parallel with dealing with other disruptions along their workbook as well.

Julia: I’d love to stay with you just with a question that I ask a lot of people actually these days, because everybody’s very heads down dealing with what’s under their noses, whilst also thinking about how do they anchor their strategies and look ahead. I’m always really curious to get a point of view on, and particularly I think about your client-side expertise, is what are we at risk of overlooking?

Somerset: Well, I think in the space in which we’re operating, the underpinnings of the thesis we have is around the concept of consensus and having simplification in how clients are complying with the rules. I think that making sure that there is a search for the best practices and the best ways of complying and dealing with change, I think remains there.

I think simplifying the process and trying to benefit from the advances in capabilities and the advances in broader market solutions is a key part for clients to keep in mind, rather than dealing in siloed ways with what should be a central regulation and therefore a common output.

Julia: Brock, you’re sitting here at the beginning of the year, no doubt about to get on an airplane and travel the world and go and see lots people. I know you’re on lots of stages this year. What I’m particularly keen to think about is what’s your focus for 2025, any key priorities that you’re about to roll out?

Brock: I would say that the key focus areas for Droit in 2025 really relate to, as I mentioned before, working with members of the Endoxa Consortium to define consensus best practices for position reporting obligations, helping to deliver that model to clients across the sell side and buy side, to help them meet those obligations. To help clients understand best practices in exchange traded derivative reporting, connecting this to regulatory focus areas, and giving the necessary transparency and quality assurance for these products that I think that they definitely need.

Focusing on transaction reporting to enable clients to meet increased expectations for the quality of reporting and low rejection rates, proper construction given different points in the trade lifecycle, understanding the nature of their reports and how they can ensure that the regulators get the transparency that they need into market transactions at a quality level that they are coming to expect.

And finally, on the pre-trade decision making side, helping to support this movement to true preventative controls for booking controls, giving salespeople and financial institutions the tools they need to understand what they can transact with their clients, and ensuring that those point of trade controls are auditable and support organisational and regulatory change.

Julia: It’s wonderful hearing your thoughts on all of this because we’re getting a very strong sense of the business point of view. I mentioned at the beginning about the alignment with what clients are really tackling right now, but also thinking about the life cycle of their organisations, and being to create value and insight, consensus, and also impactful change and meaningful outcomes from the work that you’re doing with them. Somerset, as you’re out there talking to clients, I suppose my next question naturally turned to what are their priorities in 2025?

Somerset: I think that the priorities are going to continue to be try and adopt or get to the standards of best practice across the industry, to be able to comply and evidence compliance with these rules across the number of areas that Brock’s just touched on. I think that overall, that’s going to require a level of proactiveness from clients to be thinking far enough down the line to ensure that their plans can cater for, what in some cases are, complex undertakings, whether it be around data models, whether we be around integrating into complex systems on the front office side, or whether it be providing the assurance side of reporting to make sure they have the right accuracy and the right details going to the regulators on the output side. I think just making sure they have plans far enough ahead, and that they’re factoring in the different aspects that go into these solutions is a key part of what they should be looking at over the course of this year and into the years beyond.

Julia: I must say, in a really short period of time, we’ve covered an extraordinary amount in the world of technology and regulation. Thinking about where the businesses come from, what’s fueled your growth, your international point of view, but also a real sense of what’s happening. You talked about South Africa, we’ve talked about the US, we’ve talked about also your presence globally.

We’ve thought about the role of the platform, but also how you engage with the industry to create these consensus discussions and frameworks that also it feels to me the regulators are really taking seriously and engaging with, and probably, I would imagine, getting some comfort from in that knowing these organisations are coming together to create the best practice that you were just describing there, Somerset.

But also, that so often when we talk about regulation, it tends to be a very firefighting, reactive type of conversation. And what I’m getting a real sense from the two of you, is this is about proactivity and actually being able to engage with some certainty, which will give you certainty in times of uncertainty. It’s been a phenomenal discussion.

Let me just very quickly explain to everybody how they can find you. It’s Droit, which is D-R-O-I-T.tech. Now DROIT, of course, is French for right, so this is also a very fitting name for the company. Some people call it Droit. I’ve heard some people call it Droit, but it’s Droit. And so it’s droit.tech. And I just want to take a moment, Brock, thank you for taking the time to be with us today.

Brock: Thank you so much for having us.

Julia: Somerset, thank you. Your perspectives from the client point of view is always immensely helpful.

Somerset: Thanks, Julia. It’s been a pleasure to be here.

Julia: And to all our listeners, this has been StreetsTalksTo Droit, and thank you for listening. And until next time, thank you and goodbye.

This episode of StreetsTalksTo was produced by Podshop on behalf of Streets Consulting Limited. At Streets Consulting, we are a strategic business development, marketing and communications consultancy focused on helping financial services and technology clients around the world.

Every client is focused on growth and transformation. And as FinTech PR specialists, we are there to help them every step of the way. We do this through our three C’s, campaigns, content and coaching, because we never forget the human in the mix. You can find this episode on streetsconsulting.com and using the hashtag StreetsTalksTo, and we can also be found on LinkedIn and on YouTube. Thanks for listening.