Rimes Technologies is unwinding its RegFocus Market Surveillance solutions as part of a strategic shakeup, following its takeover by private equity firm EQT in February 2020.

Brad Hunt, the newly appointed CEO of Rimes, tells WatersTechnology that soon after taking on the role, he decided the market surveillance solutions were not central to the Rimes business and no longer aligned with the firm’s strategic direction.

“We’ve made a decision to exit the market surveillance side of the business. One of the early decisions I made was that it was not core to us—it is a little more focused on trading surveillance—so there has been a change there,” Hunt says.

Following an evaluation of the Rimes business lines and areas of potential revenue, the CEO and board of directors decided to pivot from offering the suite of regulatory services, used by the buy side to comply with rules such as the Market Abuse Regulation (MAR) and the Markets in Financial Instruments Directive II (Mifid II).

Hunt says Rimes’ senior management concluded that the company’s resources would be better invested in its flagship data management business, an area where it is a dominant player in providing benchmarking data to the buy-side. Rimes intends to grow its presence in outsourced data services, and the environmental, social and governance investment (ESG) space.

The CEO, who is only seven weeks into the role, says the company has communicated its plans to shut down the market surveillance solutions to its clients.

“These things are never easy. But we have communicated with all our clients, and we will continue to support the product until such time as our clients have either found alternatives or when contracts end, and that’s a considerable length of time. We are not abandoning anyone, but we felt it was in our best interest, given that it is not core to us [the Rimes business], that we let our clients know where we are investing our research and development dollars going forward,” Hunt says.

The switch to a new provider will be a multi-year process, says Hunt. Rimes has promised clients with existing contracts that they can continue to use the service until their contracts have finished. In other cases, they can transition to a new provider sooner.

Rimes is no longer displaying product information about RegFocus Market Surveillance on its main website.

The writing on the wall

Rimes initially launched RegFocus Market Surveillance in September 2016 in a bid to help compliance teams within buy-side firms identify market manipulation and meet regulatory regimes such as MAR, but there were immediate warning signs that the product line would struggle. Some were confused by the firm’s decision to break into the market.

One industry consultant with knowledge of Rimes’ business lines says the firm was an unsuitable contender in an already heavily competitive space dominated by a small number of heavyweight rivals. “They didn’t go into the most logical area of regtech, if you ask me. They went into surveillance, which is a really crowded realm. It didn’t make a huge amount of sense because it’s already crowded with large players like Nasdaq and Nice Actimize, so what were they going to add to that space?” the consultant says.

WatersTechnology has spoken to half-a-dozen sources with knowledge of Rimes and its regulatory reporting business lines, including several former employees. Some say even Rimes’ senior management, including then-CEO Christian Fauvelais, were skeptical about moving into market surveillance.

One former employee says Fauvelais was never fully convinced about having a regulatory compliance business from the start.

“Christian was never 100% bought into it, and there was definitely a need to prove why it should exist and why they should keep spending money on it. In the reg business—although it should have aligned to their core business—there wasn’t enough reg expertise throughout the business; they never really understood the potential,” the source says.

Both Fauvelais and Rimes declined to comment on the former CEO’s stance on the market surveillance products.

In the reg business—although it should have aligned to their core business—there wasn’t enough reg expertise throughout the business; they never really understood the potential.

Industry source

The former employee says rumors circulated internally for years that Rimes would eventually shut down the surveillance business because it failed to gain much support from management internally. A second former employee says the MAR regulatory product struggled to get any real recognition and investment across the company. A third former employee echoes these views, saying that EQT, the new private equity owners, prioritized its data management business and that all signs pointed to the MAR unit being scaled back or shelved.

“Rimes aligns perfectly with our thematic and growth-focused approach,” says Robert Maclean, a partner at EQT, in an email response to WatersTechnology. “Together with us, Rimes has increased investment into its core solutions to better serve its customers and accelerated the launch of new products such as Rimes’ Lean Data Management and ESG solutions.” 

Since the EQT acquisition in February 2020, multiple employees have left Rimes. Via a LinkedIn search, WatersTechnology counted at least 25 people who have left various roles across compliance, sales, product management, HR, finance, and client services.

At the same time, the company is also growing. Maclean says EQT intends to “invest in its people,” and that Rimes is on target to achieve 20% headcount growth by the end of 2021. 

Rimes’ regulatory businesses are divided into two parts: the MAR product, which is being wound down, and its RegFocus Benchmark Regulation product suite, a business line that is more complementary to its core benchmark data management unit. Over the past year, Rimes has also committed some investment into its BMR solutions to prop up the product offering—in November 2020, it acquired EBR Analytics, a London-based regtech provider of BMR-compliant services and technologies.

The first source says that acquisition was a logical decision for Rimes to make to strengthen the value proposition of its products and amass more in-house expertise on BMR requirements.

“Coming late to that party, the Rimes RegFocus BMR business was going to give them the right bang for their buck [as a product on its own], but because of the nature of EQT, as a private equity business, who would have had lots of conversations with other smaller regtech firms out there, I think they began to join the dots in their heads and therefore made the acquisition,” the first former employee says.

Rimes’ Hunt says that investing in the regulatory business is largely dependent on the direction of EU policy, which is currently “in a bit of a holding pattern”. He says the company’s BMR strategy will be contingent on how the regulation evolves.

The BMR rules were introduced amid concerns about the accuracy and integrity of indices used as benchmarks across the capital markets, following the Libor manipulation scandal. The BMR rule came into force in June 2016 and impacts administrators, contributors, and users of benchmark data.

The industry consultant says that while the administrators and contributors are focusing on BMR compliance, it has become less of a priority for users on the buy side, compared with Mifid II or other sweeping EU regulations.

“I don’t think BMR got as much investment as you would expect at the time, and you only tend to see people moving really quickly to invest when the regulators start fining people. It’s benchmark providers that are getting fined,” they add.

Over the last year, the regulatory reporting space has seen significant contraction. Several major firms have wound down or spun off their regulatory reporting businesses because of cost pressures to sustain reporting services. Some of the most notable examples over the past 18 months include Deutsche Borse’s decision to offload its Regulatory Reporting Hub, which MarketAxess then acquired, and CME’s move to unwind several of its Abide Financial and NEX reg units.