Good financial reporting needs more than simply data
Jim McGivern, senior business consultant of financial data management provider AutoRek, looks at common reporting and what ‘good’ should look like for financial institutions.
In the aftermath of the financial crisis, the industry is still looking back at its causes and dealing with the consequences at hand. Policy makers and regulators are working hard to change the structure of financial regulation in the UK in order to restore the industry’s reputation and build a more controlled market. In light of this, more rigorous regulations have been established in order to provide greater visibility in the market. This means that today’s firms need to think about the way they conduct business and fine-tune certain processes to operate in an infinitely compliant and transparent manner.
As regulators continue to reposition financial services as an efficient and viable market for customers, it is compulsory for financial institutions to rise to the challenges of showing stronger financial data management as the demand for greater clarity in the market increases. There is also a rising amount of pressure falling on financial firms to reveal even more accurate information along with relevant commentary.
For example, as officials work to build a more controlled market, the reporting demands on organisations are changing. From 1 January 2014, European banks, building societies and investment firms are required to deliver a vast amount of additional risk and capital data to their regulators. Whilst the latest proposals to be put forward by the International Integrated Reporting Council (IIRC) outline the introduction of integrated reporting, a framework that will standardise financial reporting across organisations. As a result, firms will need the flexibility to change their existing procedures, as and when, new measures are brought in to put a greater emphasis on governance and accountability for regulatory reporting.
The evolution of corporate reporting
Until now the EU’s banks and other credit institutions reported similar information to their regulators, but did so in slightly different ways, which has previously made comparisons difficult. The Fourth Capital Requirements Directive (CRD IV) requires the European Banking Authority (EBA) to standardise banks’ reporting to their national regulators. The EBA has drawn up a set of standards that will replace current reporting templates for existing requirements for all EU BIPRU firms – banks, building societies and investment firms. The creation of government risk and compliance controls means that businesses need to complete a review of their data gathering processes and streamline regulatory reporting.
To do this, financial institutions need to pull together data in any format from all sources, explode millions of records into analytics that can be viewed in one place, enrich this information for the use of company stakeholders, match this data to business rules and finally, escalate the information at such a speed that it can be used to inform all important business decisions and also meet regulatory requirements.
‘Good’ reporting seeks transparency
Transparency has become a main priority for the financial services markets as it rethinks current reporting requirements. Considering this, organisations will need to reconsider their existing methods, introduce tools that can automate reporting procedures and optimise technology processes to combine different feeds from old and new systems to generate a holistic view of financial information.
As the reporting function continues to evolve, firms will need to focus on creating processes that turn reporting into a sophisticated tool that is able to deliver insight back to the business. New ways to collect suitably structured management information should be adopted that can be easily shared across the business. Firms will need to bring in businesses management information systems to act as a constant stream of robust production so that the story tells itself to the executive team day-by-day.
Developing a more integrated approach
Financial reporting can be extremely useful in providing an important source of current information and be utilised as a great tool for firms to make informed business decisions. Integrated reporting will therefore need to extend beyond financial information and risk in order to have a positive effect on a business. Organisations are already obliged to provide an enormous amount of business information to the regulators and their key stakeholders, but sadly this is often downgraded to “data” just by the sheer volume of it.
Another common problem encountered by financial firms is that the increasing volume of published controls is often comprised of un-auditable, speculative opinion. In other cases, the information is extremely time consuming and expensive to audit properly. As a result, it either falls out of the remit of the auditor or is subject to so many audit caveats that it is rendered unreliable. More voluminous, subjective commentary is not what the market needs or wants, however, and for businesses to provide it is not cost justifiable in any case. Clearly, a fine balance needs to be struck.
When used in the correct way, a more integrated approach to reporting will transform how firms think about the whole reporting process, and it is likely that the current perception of what ‘good’ financial reporting is will change. Shareholders, employees, bankers and other stakeholders are now given an overwhelming amount of statistics and verbiage, which makes it easier than ever to mask the truth of the direction and performance of a financial organisation.
Instead, if a financial services provider combines financial information with other aspects of the business, it can effectively enhance marketing and product propositions through obtaining a single view of the customer that will allow it to tailor customer service based on needs. As such, this meaningful information is able to provide the decision makers of financial organisations with much needed strategic insight. This information also has to be provided in the fast-paced global market. Firstly, so that it demonstrates compliance with the regulations that firms need to adhere to but also so that it directs attention and informs decision makers about important trends shaping the future of the business.
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