Regulatory reporting

Regulators in Hong Kong are expected to start requiring banks to carry out granular data reporting (GDR) as part of their regulatory supervision within the next few years. GDR gives regulators greater insight into the financial health of individual banks and also the overall economy, enabling them to better identify potential risks.

In practice, this has three key benefits: Firstly, it helps to protect against another major financial crisis (or at least reduce the impact). Secondly, it provides greater visibility of the sectors within an industry, their performance and any associated risks. Thirdly, and most importantly, GDR gives the regulators more time to act and react to situations.

From the banking sector’s perspective, the introduction of GDR will have a range of impacts and benefits:

• Transformation and digitisation: moving away from manual processes to more digital environments, which in turn will reduce human intervention and errors
• Reconciliation: Removal of ambiguity and inconsistencies
• Data Lineage:  Ability to track and trace every transaction within the organisation
• Forecasting:  Ability to predict and identify potential areas of risks and threats well in advance

GDR can reveal potential risks emerging in different areas. For example, regulators are now looking at a reconciliation between GDR and the reports that have been submitted by the banks. This exercise has been able to reveal issues such as inconsistency in the interpretation of regulatory rules.

Regulators would like to receive more insights into such ambiguous situations, to enable them to tweak the rules to strengthen controls and to ensure that there is less scope for misinterpretation.

Using GDR gives them the detailed and high-quality data that they need to better understand how banks are operating, carry out market surveillance, and to change and adapt regulations as appropriate.

Financial institutions should start considering how well prepared they are for the introduction of GDR in the next few years. Many banks have strong legacy systems and have been adding new fintech solutions on top as technology evolves, while trying to keep up with evolving customer expectations, risks and threats, and adapting to regulatory requirements.

While all of these might seem challenging and daunting at the first glance, resolution to these challenges is achievable. Financial institutions should be considering now how to create a robust, scalable and adaptable technology-based GDR solution. This will not only provide greater transparency and efficiency within the bank, but will help them remain compliant with the evolving expectations on regulatory reporting.