Building a framework for the new regulatory reality | Wolters Kluwer
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  • Building a framework for the new regulatory reality

    by William Newcomer, VP Strategy and Business Development, Wolters Kluwer, Finance, Risk and Reporting; and Sanjay Sharma, Founder and Chairman, Green Point Global

    Published July 09, 2018

    We’ll get the bad news out of the way first: for all the vows to cut red tape from some quarters, the regulatory uncertainty that has hovered over banks globally since the global financial crisis will not go away.

    Looking at the United States alone, new requirements such as FDIC Part 370 (record-keeping for timely deposit insurance determination), which applies to FDIC-insured institutions with 2 million or more deposit accounts and will be implemented in 2020, is yet another example of banks facing increased data and infrastructure demands. In Canada, meanwhile, financial institutions are being asked to transition to tougher capital requirements ahead of the timeline established globally.[1]

    While regulators are often conscious of the compliance difficulties banks face, the fact is there are multiple forces driving regulatory change, and consequently volatility. These range from political cycles, to the proliferation of different standards at the local and global levels, even knee-jerk reactions to fraud cases or Ponzi schemes. It’s also a fact that it will never be possible for banks to predict these changes in their entirety, or to develop a ‘one-size-fits-all’ system applicable across regulatory bodies, requirements or formats. 

    The search for meaning

    That said, we believe it is possible to identify a broad regulatory trend – and for banks to develop a more flexible, resilient approach to reporting to proactively address it. From global regulations such as BCBS 239 (principles for effective risk data aggregation and risk reporting), to the complex liquidity reporting requirements (FR2052a) emerging in the United States and Anacredit in Europe, it is clear regulators are focusing on obtaining more meaningful data than the static reports that dominated in past.

    This means it’s no longer enough to simply have the ‘right answer.’ Banks are being called upon to demonstrate the processes through which reporting outputs are derived; to automate regulatory reporting, disclosures and other important business functions; and to enhance the quality and granularity of data so regulators can achieve deeper levels of insight. At the same time, there are similar pressures from senior management for layers and quality of data that can inform business decisions, and ultimately impact the bottom line.

    These shifts show regulatory compliance can no longer be an isolated activity. It must be incorporated into ‘business as usual’ and integrated as a core component throughout the bank’s finance, risk and reporting functions. Infrastructure should mirror this integration, in the form of a unified and flexible data framework that consolidates regulatory data in one place and gives banks the agility to tackle future change, whatever form it may take.

    Emerging, and enabling technologies 

    The silos that exist at many institutions can make this transition difficult, but banks also have more tools at their disposal than ever. Regulatory reporting has been identified as one of the areas ripest for digital disruption, and regulatory technology (RegTech) — the application of cutting-edge hardware, software, design techniques and services to the idiosyncratic challenges related to financial reporting and compliance – is one of the top emerging trends in financial technology.

    Beyond serving data management needs, RegTech solutions can produce valuable information for management reporting and better strategic decision-making.  Finally, satisfying the demands of supervisory authorities and maximizing profitability and competitiveness in the marketplace involve similar types of analysis, modeling and forecasting.

    Many banks are beginning to move from report-centric solutions to coverage across products and risk domains (e.g., commercial loans, counterparty, liquidity, and derivatives), which can establish a foundation for cross-report integrity and the capability to meet future data demands quickly with a high level of data quality. The integration of regulatory calculations such as highly optimized capital or liquidity computations also generates massive benefits in terms of accuracy, creating an audit trail, minimizing adjustments and reporting time, and reducing total cost of ownership.

    Banks should keep in mind that even the most cutting-edge RegTech solution will not live up to its promise if executives have not committed themselves to a more holistic, cooperative way of operating, especially with respect to their data and the systems it runs on.  Simply put, it means tearing down the silos and management structures that create them.  Institutions which try to bypass this crucial step of the transformation, will end up with the same siloed processes in newer, cloud-based technology.  

    For a transformation to lead to desired results, it must be founded on a data process and structure that provides both consistency and flexibility.  This will not only achieve immediate improvements but will also ensure they have a potential to stretch well into the future,  as RegTech matures . 

    An integrated data management system that stores, processes and presents data from multiple sources in a common, consistent, transparent fashion, while permitting it to be deployed in the most efficient way within each department and for internal and external analytical and reporting demands, should be viewed as the ‘glue’ that binds the future-ready bank together -- and the bedrock of a sustainable reporting approach that is equally capable of serving strategic and regulatory needs.



    [1] https://www.cnbc.com/2018/01/09/reuters-america-update-2-canada-to-introduce-new-stricter-bank-capital-rules.html



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