Pre-Trade Compliance Checks

With regulatory requirements rapidly becoming more complex in recent years, most financial institutions have introduced respective processes of compliance checks to reduce the client's trading risk and avoid compliance breaches. In trading operations, these checks gain accrued importance, as financial institutions need to execute trades as quickly as possible, as market prices fluctuate fast and impact the best execution of the client.

Nowadays, clients and investors expect timely answers without skipping complex regulatory checks.

With integrated and automated checks, clients can trade a broader investment universe, and, at the same time, the bank can reduce trade errors. As a result, expectations from both clients and regulators can be fulfilled and even exceeded to strengthen trust from the very beginning.

The Challenge

While some financial institutions do not have any information on regulations at hand, others struggle with the incredible complexity of applying country-specific trading restrictions. Typically, this process requires reading compliance policies or legal manuals of the client's domicile country or consulting in-house regulatory experts. Both approaches are inefficient, costly, and have the constant risk of outdated regulatory requirements.

Clients (for example, from an online trading context) expect answers to the following questions when dealing with pre-trade compliance checks:

• Can I execute a specific trade based on my residence country (cross-border perspective)?
• What are the regulatory restrictions or tax implications that I need to consider?

Today, the main challenge in answering those questions is the amount and complexity of data needed to run such regulatory checks from a cross-border suitability and tax perspective while ensuring a timely response.

This guide explains the one-time integration of cross-border regulatory requirements into your processes, embedded by design, to offer efficient pre-trade compliance checks based on the Apiax rules.

Pre-requirements

Before starting, ensure that you have:

• A SaaS subscription to the Apiax API (optional subscription to the platform);
• An active subscription for the relevant digital compliance rules (content);
• A user account with access rights;
• A ready-to-use API authentication and access;
• A capable end-user solution to integrate, such as an Order Management or Portfolio Management System.

For more information, see Apiax initial account setup.

Use cases and studies

Apiax offers a series of business cases and provides studies to gain further insights into the business benefits of switching to embedded compliance rather than following traditional compliance approaches.
Refer to the use cases webpage on apiax.com or contact Apiax for more information and an overview of how you can move your business forward with ready-to-use solutions for embedded compliance in other areas than pre-trade compliance check.

Introduction

This integration guide provides step-by-step instructions of a business case, taking you through the process of embedding compliance into your environment, team or process. Follow these steps with your specific case and situation in mind. Adopt and extend rules, attributes and API requests where necessary.

Apiax offers test and live API keys and rule governance and versioning functions for you to test and validate changes before applying them.

Example to get started

Financial Institution AG, a bank headquartered in Switzerland, provides financial services to clients. John, the client, a stock market investor currently located in Mexico, seeks to execute a trade on the bank's online platform. John relies on Financial Institution AG for an efficient assessment of the impact of cross-border regulations.

Objective: Financial Institution AG seeks to provide efficient cross-border checks on a pre-trade basis to reduce John's regulatory risk when trading on the bank's online platform.

The figure below depicts the typical action flow of a stock market investor using a financial institution’s online trading platform, which relies on Apiax Rules to check the pre-trade regulatory requirements for a specific Jurisdiction.