The Basel Committee on Banking Supervision’s regulations for effective risk data aggregation and risk reporting, known as BCBS 239 and other regulations such as Basel III are challenging banks to come up with tighter reporting systems.
“The main theme for our financial clients in 2014 was multiple and changing reporting requirements which were made more challenging by shorter deadlines,” Alex Tsigutkin, CEO of AxiomSL, told Markets Media. “To deal with the sheer volume of new regulations, risk aggregation and reporting will remain central issues for banks.”
Organizations will be dealing with a slew of regulatory mandates, such as Basel III reporting rules, BCBS 239 Principles, CCAR, liquidity, stress testing, net capital calculations for broker dealers and Fatca. BCBS is to come into force in January 2016
“The ultimate goal for financial institutions should be to have a strong IT infrastructure providing data lineage, automated reconciliation and other business functions so they can produce transparent and accurate, high-frequency regulatory reports that represent aggregate risks across the entire enterprise,” Tsigutkin said. “This will give them increased clarity about their financial position.”
It has become a daunting task for all levels of banking organizations to deal with CCAR, BCBS 239, Stress Testing and liquidity provisions. Granular and quality of data add to the challenges banks face to supply the regulators with a proper capital plan. Financial firms around the world were required to implement LCR (Liquidity Coverage Ratio) and NSFR (Net Stable Funding Ratio) while dealing with sharp reductions in remittance periods. In addition, XBRL was mandated for COREP/FINREP filings, requiring more granular, standardized data entry than previous formats.
“It is imperative that financial institutions of all sizes examine their current systems in order to improve system integration and data quality so they can gain a single, accurate and transparent view of their financial and risk positions,” said Tsigutkin.
CCAR and liquidity reporting are not processes that can be conducted manually by relying on applications such as Excel, he added. Instead, financial institutions “need to assess comprehensive automated solutions that can be leveraged to address current challenges with data lineage/integration, quality control, reporting and workflow management.”
In 2015, banks will be required to support the European Banking Authority’s liquidity monitoring metrics (ALMM) requirements, which will force banks to make new, more detailed liquidity disclosures. The U.S. Enhanced Prudential Standards have new requirements which mandate foreign banks with over $50 billion in assets to place virtually all of their U.S. subsidiaries underneath a top-tier U.S. IHC (intermediate holding company). “This entails complex corporate structuring, regulatory, capital, liquidity and corporate governance considerations,” said Tsigutkin.
Banks that prioritize addressing the data challenge will be equipped not only to meet regulatory demands, but also to build their competitive advantage for the future. “A data-driven solution will provide consistency and transparency throughout the entire analytics and submission process and will strengthen banks’ risk data aggregation capabilities and internal risk reporting practices,” said Tsigutkin.
Featured image via NAN/Dollar Photo Club
