The Impact of New Banking Regulations on Controlling and Reporting Systems

Henri Wajsblat, Director, Financial Services, Anaplan

A new regulatory framework in Europe

The CRD-IV regulatory regime, introduced in 2013 by the Council of the European Union and applying to all banks and financial institutions registered in the EU, has resulted in additional and revised requirements that put financial and regulatory controlling and reporting systems under high pressure.

These changes, effective from the beginning of 2014, aim to strengthen the solvency and the short and mid-long term liquidity of the banks.

Within this new regulatory framework, the European Banking Authority  (EBA) has published a new set of reporting requirements regarding FINREP, COREP, Large Exposures and short term (LCR) and mid-term (NSFR) liquidity ratios highlighting tighter requirements from the regulator in terms of:

• Data quality and level of granularity of the information published;
• Frequency of reporting, with the standardisation of quarterly and annual consolidated reporting;
• And the deadlines to submit the reports to the regulator.

The adoption of these new rules is impacting the level of required functionality and integration between the financial & regulatory controlling and reporting systems of the banks.

In the controlling function, a deeper alignment between Finance and Risk is needed to address the new requirements of capital, liquidity and risk limits. The same observation could be made in the reporting function where a thorough reconciliation between IFRS financial statements and FINREP reports is required by the regulator.

What are the impacts on the controlling and financial reporting systems?

Consequently, banks have to re-evaluate the adequacy of their controlling and reporting systems with these new requirements and check diligently the:

• Richness of the data model allowing on the one hand delivery of  all the analyses of the financial data required by the new FINREP reporting requirements and on the other hand, the calculations of the solvency and liquidity ratios as well as other Basel III risk coverage

• Flexibility of the data model, allowing to keep up with a quarterly frequency of revised regulatory requirements communicated by the EBA.  Longer term, the adoption of the IFRS9 and its impact on IFRS and FINREP reporting enabling agile and real-time scenarios of analysis and simulations on the finance and risk data

• Reconciliation capabilities between financial, regulatory and risk data within an integrated planning and data analysis platform

Heading up to a re-hauling of the Banks’ performance management tools?

It is most likely that banks that do not operate sophisticated financial planning and reporting tools leveraging all these functionalities, decide to manage the very short term with the addition of offline spreadsheets to support their existing tools in order to face the regulatory requirements of the first quarters. The sustainability of such functional architecture is questionable in the mid-term since it leads to siloed data collection, calculations and reporting processes and does not allow the reconciliation between planning, controlling and reporting processes of the financial and regulatory data within an integrated platform.

In this context, is there an opportunity for banks to revisit their functional architecture and implement a sustainable solution to meet the new regulatory challenge?

Could the solution come in the form of new approaches and tools for integrated planning and reporting? Solutions combining an integrated platform of data modelling, leveraging in-memory technology and multi-dimensional analysis capabilities will meet the requirements of the new banking regulations in the areas of collaboration and reconciliation between finance, controlling and risk functions, depth of analysis and real-time reporting and simulations.