GETTING READY FOR CRD IV: A GUIDE

 Content management specialists SynApps Solutions’ Sales & Marketing Director Mark Winstone thinks banks need to move quickly to address their mandated Capital Requirements Directive/CRD IV requirements, and that content management solution–based technology can help

Globally, regulatory reporting is rapidly and inescapably going electronic. Authorities, post the Credit Crunch/global financial crisis, have a tougher new approach to financial reporting in order to prevent future liquidity crises.

And to make their lives easier, as well as to promote transparency, they are also standardising the way they want international banks to share information with them – namely it needs to be presented in XBRL , the eXtensible Business Reporting Language, a freely available and global standard for exchanging business information.

In response, financial services organisations need to generate a standard financial report to meet these regulatory demands so the compliance watchers can get a clear report of whether they have over-stretched themselves or not. In fact, provision of reports in the XBRL format became mandatory from January this year (2014); and all these rules now apply going forward. The first one of these specific format reports, for Liquidity Coverage Ratio, has to be in by the end of April this year. Therefore, there is obviously a lot of pressure on financial organisations to get this worked out in time.

Soon thereafter, it will be necessary to report on the much larger regulations around FINREP (Financial Reporting) and COREP (Common Reporting) with each being in the appropriate XBRL format that must comply to the specific taxonomy (structure) as defined by the relevant regulatory authority. In fact, each of the specific report structures are passed down from the European Banking Authority (EBA) to the local regulatory organisations. Thus, compliance will be to a centralised taxonomy, which will have a common set of rules that govern how the data in the report should be presented.

Do you fall into the ‘could do better’ CRD IV camp?

This means a lot of information has to be captured and properly organised, in a relatively short time-frame. How are banks coping?

The reality is the required information tends to be held on a number of different systems, e.g. SAP, Oracle or what is more common, an internally developed application specific to the financial organisation. Plainly, there is no easy way to get XBRL directly out of such sources in the structure that is required by the authorities. You can extract data into an Excel spreadsheet, you can enhance that with manually entered information, you can export the data as CSV, but that none of that will give you XBRL – unless you are prepared to do some significant work to it.

The smart question to ask yourself is to what depth of competence you need to be able to handle the inner workings of financial reporting templates and the compliance with the required taxonomies? Can you develop all this in-house or should you use third party help?

To go down the first route, you will need to have the following in place – and soon (remember the deadline!): the right developer and skills in-house, enough resource to interpret the rules and map them on to your specific needs, an XBRL ‘transformer’ (a tool to move data from one format to another), a proven way to handle error exceptions and XBRL error returns, the confidence you have all the data you will need to plug into the right templates, plus a means of making all the above into an embedded business process, as CRD IV, COREP (Common Reporting), LC (liquid coverage), FINREP (Financial Reporting) and Large Exposures and Stable Funding Ratio become more and more part of your daily reporting life.

Do CRD IV right – with the least pain you can!

If you have all this in place, then it looks like you have committed resource to cracking the problem, and in good time.

If you don’t however, maybe it’s time to look at some of the technology available that could manage all of these issues at once – allowing you to concentrate on your actual main business? Specifically, you need a technology that converts your collated and validated data to XBRL in the structure as defined by the relevant regulatory taxonomy, ensures that it conforms the associated rule set defined for that taxonomy and approves it. Any errors that are found during the validation process should be sent back to be corrected and re-submitted.

To help you search for the solution that works best for you, here are some tips on how financial institutions can meet their CRD IV requirements in the most efficient, pain-free ways:

• Scalability and comprehensiveness are paramount.  You need a system that not only deals with CRD IV, but can ensure compliance of your various reports such as COREP, LC, FINREP and Large Exposures and Stable Funding Ratio, in terms of structure (taxonomy), content (rules) and format (XBRL).
• Don’t forget that regulations are both vague and in flux. You need a supplier at the top table with the Powers That Be, else the taxonomy you code up within your XBRL engine may be incomplete, leaving you vulnerable
• A streamlined CRD IV review and approval process is really going to help. To move information between different people to work with and collate data, or else what chance do you have of meeting your deadlines?
• Security is paramount, to do the CRD IV job safely and efficiently
• You need a full audit history of the review and approval cycle, so you always know who and when it was completed and signed off. You should also have access to historical reports, should they be needed, so everyone (including your auditors) can see what has previously been submitted – and for the required regulatory number of years.

The good news is that such software exists: software that will produce, transport and validate into XBRL using the configured regulation taxonomy. The alternative? A lot of manual heavy lifting – and the real risk of fines for missing deadlines and reputational damage.

The overall message, then, is to find a fully-compliant, battle-tested, user-friendly, competitively priced CRD IV solution – and in good time for you to meet this regulatory challenge properly.

Mark Winstone is Sales & Marketing Director at SynApps Solutions. SynApps has developed ConXReporting technology to help financial firms get to grips with their core compliance reporting issues (http://www.synapps-solutions.com/)