Regulatory reporting of the future Regulatory reporting of the future

Banks have attempted to improve the regulatory reporting process in the past few years but there are still significant challenges in preparing the required regulatory returns. Banks struggle to keep pace with rapidly expanding regulatory requirements. The key challenge for Chief Financial Officer (CFO)s and Chief Risk Officer (CRO)s is keeping up with the changing demands around regulatory reporting and compliance in a controlled and cost-effective manner. The pace of change, coupled withthe increase in complexity and granularity in regulatory reporting requirements mean that banks face further pressure on already stretched resources and budgets. This problem is amplified for banks spanning multiple regulatory jurisdictions and these organisations are actively looking for ways to streamline data models and standardise reporting.

In FY20, banks will focus on technology-driven improvements to their operating model so that regulatory reporting spend and effort is not only more efficient but also creates value through Marketing Intelligence (MI) insights and businessdecision support.

Options being considered, include:

• RegTech which aims to improve efficiency in compliance processes by reducing costs, and providing insights into emerging regulatory requirements. This includes adoption of new technologies such as distributed ledger technology, advanced analytics, Robotic Process Automation (RPA) and cognitive computing as well as implementing strategic end-to-end reporting solutions (i.e. a solution which supports the processes of extracting input data, performing regulatory mappings/calculations, generating regulatory returns and producing MI for analysis).
• Cloud computing which utilises a shared platform on the cloud that integrates a large pool of resources. Banks are looking to benefit from the economies of scale of these services that are not on-premises, such as reduction of cost, more agility and flexibility. Initially banks were skeptical about these solution due to challenges in terms of security and maintenance, but a number of these questions are now being resolved.

The shift towards scalable technologies has also resulted in initial conversations at banks with regard to outsourcing regulatory reporting and creating industry wide regulatory reporting utilities.

European Systemic Risk Board Regulators are also looking to technology to revolutionise their approach to supervision. Regulators across the globe have increasingly focused on how they can use technology to make the current process of regulatory reporting more accurate, efficient and consistent.

Different regulators are at different stages of this journey, for instance:

• In the UK, the Financial Conduct Authority (FCA) works with a number of Financial services organisations in Phase 2 of its Digital regulatory reporting pilot and looks at how to convert regulation into code, which can be executed across standardised bank data.
• The European Systemic Risk Board (ESRB) and the Euopean Central Bank (ECB) have launched three long-terms projects (BIRD, SDD and ERF) to create a standardised model to organise banks’ internal data warehouses with the purpose of setting a common language for the transference of data from the banks to national regulators. They have established an integrated cross-country reporting approach for the collection of data and standardise the statistical and analytical systems used by the national regulators.
• The Austrian regulator requires each bank to prepare data in a standard format in a series of ‘data cubes’. The way it works is through a buffer company, which is co-owned the largest Austrian banking groups. This allows costsharing of compliance as well as standardisation of data collection. The buffer company runs on a common software platform, which works as the central interface between the banks and the regulator. Granular bank data sets are interrogated by the regulator in whichever way they want. The banks retain control over their commercially sensitive data, maintaining only the so-called ‘passive data interface’ on the buffer company platform. 

Ultimately, progress is likely to be slow, given the complexity and size of the supervisory regimes these projects are looking to cover. However, the direction of travel is clear, and the technologies to support these changes are becoming increasingly available. The future of regulatory reporting will no longer be template based and will be heavily dependent on technology. Banks cannot afford to ignore these projects, and those that actively engage will undoubtedly have a competitive advantage in the long run.

Banks that implement solutions in such a way as to remain adaptable to fundamental shift in the regulators’ approaches (i.e. away from template based reporting and towards real-time data interrogation) will be the most successful. Key to these projects is not only the technology but also the data; creating a centralised and granular regulatory data model – where the data is well maintained, governed and documented should be considered the minimal viable product.

Source: Regulatory Reporting Survey 2019, KPMG UK