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Regulatory reporting for the banking industry

The evolution of bank regulatory reports

Faced with increasing pressure from regulators to provide high-quality data, many banks are already on their journey to more advanced regulatory reporting. Learn more about what’s driving this increased regulatory focus, the importance of a transformative approach to data management, and four key components of an optimized reporting environment.

A mounting challenge for banks

Preparing high-quality regulatory reports for banks that meet the needs and expectations of regulators have been a long-standing challenge. From the regulators’ perspectives, the data necessary to meet regulatory requirements are foundational to monitoring firms’ safety and soundness and are critical to developing and implementing sensible public policy, including providing input to ongoing supervisory monitoring.

Without consistent, fit-for-purpose data, these objectives likely cannot be met. Yet data integrity problems continue to exist at many banking organizations. The larger, more diverse, and more complex an organization, the greater the challenge to meet accuracy, timeliness, and completeness standards over sustained periods. These challenges often emanate from changes to a business’ operating model, service delivery jurisdictions, interpretive changes due to turnover, and systems changes.

Overall, root causes that contribute to not meeting data requirements and regulatory expectations commonly reflect issues in the following areas:

  • A governance structure that enforces accountability, measures data quality, mitigates reporting and operational risks and allocates resources to address data and financial reporting challenges
  • Firm-wide data programs that include policies for creating and mitigating standard data and account definitions, including integrated accounting, risk, and data repositories
  • Firm-wide data integrity and quality assurance programs
  • End-to-end change programs that identify optimal impact across business, finance, risk, operations systems, and processes

The strategic impact of reporting

The financial crisis highlighted the weakness of data programs at financial institutions. Data problems became acuter as more complex, frequent, granular data requirements were mandated. The outputs from these data collections created binding constraints on banking institutions, without recognition of critical data elements and end-to-end regulatory change management.

At the same time, regulators’ expectations for data significantly increased. The regulatory pressure for high-quality data resulted in a new requirement for a CFO attestation of the quality and internal controls for the capital planning data collections. The collective consequence of these events has been the creation of an environment where data integrity and enterprise data management are now institutional imperatives.

Recognizing the strategic impact and long-term efficiency gains, banking institutions begun to take a transformative approach to managing data, implementing formal data quality programs, and increasing controls across regulatory reporting. In terms of maturity, the objectives of most firms have been to reach an “optimized” regulatory reporting environment where:

  • There is a firm-wide regulatory reporting framework overseen by senior management and managed in partnership with finance and risk, and business lines
  • There is an end-to-end data governance framework where data is managed centrally, which includes setting standards for storing data, defining data definitions, measuring data quality, enforcing data standards, and testing data
  • There is a regulatory data architecture and strategy infrastructure that is highly automated where material manual processes addressed within a standard time period that is integrated with internal data architecture
  • There is a firm-wide change management framework that identifies reporting requirements related to regulators’ policy initiatives, new products, or institutional policy changes
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A better governance structure

The banking industry’s journey toward an optimized environment is underway. The first step of this transformative journey is a culture change and disciplined end-to-end change management that aligns with a strategic architecture and regulatory data strategy. That is, acceptance that regulatory and financial reporting is an enterprise-wide activity, with accountability by senior management business lines and corporate functions such as finance, operations, and risk.

This differs from the traditional approach where source data was managed in siloes in each business line. Business lines held data as their own, defined, and designed for their own purposes. Corporate finance (where regulatory reporting functions were typically reporting from an organizational standpoint) would request reportable data and owned the process for compiling the data. The result of this approach was:

  • A limited understanding of data needs
  • Low awareness of the institutional impact of data
  • Ineffective accountability for data integrity
  • Lack of integration in finance and risk architectures and hierarchies built
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Reaching an optimized state of reporting

The banking industry has made progress in bringing real accountability to the business lines and data owners across the organization. Today, governance or regulatory reporting is generally positioned between a level of “foundational controls” and “moderate.” Firms with a foundational controls environment have a well-defined regulatory reporting frame, with an inventory of data owners and accountability that is defined for all aspects of the data lifecycle.

Some firms have reached a moderate reporting environment where the institution has an end-to-end regulatory framework, where roles and responsibilities are defined across the report production process. These firms also have accountability policies where effective actions are taken when the policy is breached. To achieve an optimized state, firms should implement a governance structure that brings:

  • Active oversight of firm-wide data to the executive level
  • Partnership in business lines and corporate finance functions in managing the data lifecycle

To learn more about advancing regulatory reporting for banks, download the full report.

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