In September 2021, the Prudential Regulation Authority (PRA) sent a letter to CEOs at all banks and building societies to inform them of the thematic findings on the reliability of regulatory reporting. The letter highlighted significant deficiencies in several firms? processes and provides feedback on common findings across key areas such as governance, ownership, controls, data and investment.  

So why did this pique my interest? A fundamental part of the findings is reference to the controls around the development of models, overreliance on spreadsheet-based tools, the use of outdated system infrastructure and the need for significant manual intervention. While the focus is specifically referring to regulatory reporting, and I do note a difference with financial reporting, it is something that I have seen and heard about across a number of back-office functions, not least in finance, risk and treasury.

Using the right tools

Given that regulatory reporting is related to the external understanding of the financial condition of a bank or building society, it is linked to the tools, processes, governance and controls that are used to make financial decisions within that organisation.

In my last blog post for UK Finance I discussed the transformation of the finance function and why finance leaders should be empowered. Regardless of whether an organisation is looking to understand the impact of the decisions on their capital and liquidity ratios to ensure that that they are keeping within the capital requirements, or if they are looking to understand the end-to-end cost of core processes from an operational continuity in resolution (OCIR) perspective, it is vitally important that organisations are using the right tools to automate processes, provide strong controls and confidence in the data.

This helps from a regulatory reporting perspective and a financial decision-making process. For example, if a firm has confidence in the end-to-end costs of their processes, they will then have a better understanding of product profitability and the impacts of pricing decisions on key metrics and KPIs.

A robust, efficient, and agile solution

If we look at this in a bit more depth and start thinking about products like mortgages such as the pricing of new books of business, as well as understanding the potential impacts of current market conditions on back books, it becomes clear why organisations require a robust, efficient, and agile solution. There are still a significant number of organisations who either rely on inflexible, inefficient legacy systems or spreadsheet-based tools to scenario plan for books of business. However, given the ever-increasing volume of data, complexity of models and required speed of decision making these solutions are simply no longer adequate.

When deciding on a book of business, whether it is tactical or strategic, a decision maker needs to understand the impacts of changes in price, volumes and expected credit losses from both a P&L and Balance Sheet view. Inherent within that is the ability to create and compare scenarios in an agile manner and then be able to report and analyse the outputs in a single integrated solution.

I will be discussing this topic in more detail with Givarn Ramsundar, Senior Manager - FS Financial Management at KPMG at the UK Finance webinar on Tuesday 5 April at 10:00 BST. Here's how to register your place.