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Failure to demonstrate appropriate governance, controls, and compliance in their regulatory reporting framework can expose banks to fines. These fines can have both a financial and reputational impact. This subject is in sharp focus following the Prudential Regulation Authority's (PRA) latest "Dear CEO" letter on 31 October 2019. In this blog, we explore three areas of focus for regulatory reporting and compliance.
Banks must submit complete, timely, and accurate regulatory returns. This forms the foundation of effective supervision. High-level metrics are no longer enough; regulators now require a bank's granular data and information. Investment and focus on the right data quality measures, processes, and technology for governance and reporting are essential. New tools for business intelligence and validation enable full data lineage between the source data and final outputs and back again.
To produce quality regulatory reporting, banks should consider reshaping their internal processes to reduce the time spent on low-value tasks and instead focus on the subject matter. This requires a well-defined workflow with a sustainable, agile approach to regulatory reporting. Doing this will enable greater independence and flexibility for subject matter experts who understand regulatory frameworks and can anticipate future changes.
Such a workflow should have clearly defined points of responsibility and control, to ensure that all the process steps and timelines are fulfilled. Every task, error and modification should be tracked, and every approval documented, so each reported figure is easily traced back. The process must be standardised and robust, but flexible enough to update with changes in legislation The task of ongoing regulatory maintenance is increasingly difficult to do in-house. However, outsourcing can bring benefits, one of which is always and automatically being up to date.
It is time to move on from legacy systems with hard-coded customisations that require updates each time there is a legislation change. There is a new model where regulatory updates are available and implemented in systems at the earliest opportunity. The updates first occur away from production systems so there is no disruption in day-to-day operations and reporting. Further updates, after testing and validation, are applied with the click of a button. The software-as-a-service (SaaS) model delivers such advantages, taking a portion of the compliance burden away while helping to reduce the total cost of ownership. There are major differences between vendors and products, so assess options carefully.
A well-planned workflow placed into an organisational and technological infrastructure enables data to safely, smoothly and transparently flow through the organisation and into regulatory reports. In today's world, it becomes time-consuming and costly to deploy solutions in-house, but the era of cloud-native SaaS solutions is on the rise. We see a definitive trend around banks focusing on governance and shifting investment into this area that helps them stay compliant and gain a competitive advantage.
María Cañamero, Director, Banking Regulation Technology Product Strategy, Moody?s Analytics
Since launching in 2018 we have coached over 100 senior conduct leaders from across our membership to help them exceed regulatory expectations, to embed the practical skills needed to effect the changes in conduct risk management and culture required by a regulated firm's board.
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