It is crucial that these technology challenges are fast-tracked and solved quickly as regulators have stringent deadlines. Quite rightly so — looking at 2017 and beyond there will be major changes to regulatory reporting driven by the Markets in Financial Instruments Directive II (MiFID II).
Financial regulators have been made responsible for the strength of the saving money and fund division and in this way assume an essential part in the setup, development and safety of the keeping banking system, ensuring its congruity and benefit.
Although clearly more in the spotlight now, regulatory reporting is not new idea. In the UK, the financial services sector was managed by the Financial Services Authority but was dissolved following public criticism after the financial crisis.
In its place today is the Prudential Regulation Authority (PRA) and Financial Conduct Authority working (FCA) on a “twin-crests” premise with respect to directing the business.
Why regulatory reporting is needed?
Based on loaning, the nature of the financial services market means that organizations, for example, banks, building social orders, back up plans, and so on depend on having a sound market in which to work in, without this their services and eventually their benefit endures.
The Challenges of Regulatory Reporting
There is no doubt though that within the financial services sector the speed of change and increase in complexity is high on the agenda. Quite rightly so — looking at 2017 and beyond there will be major changes to regulatory reporting driven by the Markets in Financial Instruments Directive II (MiFID II), the Markets in Financial Instruments Regulation (MiFIR), the Common Reporting Standard (CRS), and Basel III to name a few.
This is on top of changes already brought into force by the likes of the Foreign Account Tax Compliance Act (FATCA), Client Assets Sourcebook (CASS), and European Market Infrastructure Regulation (EMIR), together with the complexity and the amount of reporting required under, for example, Financial Reporting (FINREP) and Common Reporting (COREP). The uncertainty of Brexit is also looming and will linger for some time.
We will need to wait and see what impact the UK’s exit from Europe will have on regulators, and any potential knock on effect on regulatory reporting
The impact of regulatory reporting challenges are already far reaching. The cost of compliance does still seem to outweigh the prospect of facing a regulatory fine and associated reputational damage. This may go some way to explaining why there is still perceived resistance when trying to secure budget for regulatory initiatives in comparison to revenue generating projects.
Regulators themselves do not always get things right first time. It was reported last year that the Internal Revenue Service (IRS) spent $15 million on a delayed implementation of an upgraded system for handling an aspect of FATCA. However, the software had critical data quality problems that resulted in a four month delay, with unplanned work having to be undertaken. Although the new system was built in accordance with requirements, it was found to not meet the expected business results. The key failure was attributed to the effort required to meet project deadlines and manage resources — an all too familiar scenario when organisations themselves are implementing new regulations.
Open to Interpretation: The rules and regulations themselves are never clean cut and at times can be contradictory, as well as being open to interpretation not just by organisations, but by consultants and auditors alike. Guidance and requirements are not always straightforward, and more often than not, annexes and appendices can be somewhat lengthy and detailed. It is this lack of clarity that often adds to the cost of compliance, as organisations need to call on subject matter experts (SMEs) to help with the interpretation and application of regulations.
However, the software had critical data quality problems that resulted in a four month delay, with unplanned work having to be undertaken. Although the new system was built in accordance with requirements, it was found to not meet the expected business results. The key failure was attributed to the effort required to meet project deadlines and manage resources — an all too familiar scenario when organisations themselves are implementing new regulations.
Data is ‘King’: The reality is that many organisations are typically faced with multiple different systems that do not talk to one another and multiple different data feeds in different formats — with spreadsheets and macros thrown in for good measure. This is not necessarily a criticism — it is no mean feat to be able to extract, amalgamate and consolidate data from core systems, whose primary purpose is not to support regulatory reporting.
Workflow And Case Management: Tracking issues can be difficult when there are thousands upon thousands of transactions and lines of data. Innovative reporting solutions now provide the ability to manage data using case and workflow management tools. Automatic escalation of breaks and exceptions provides the ability to have a chance of identifying and capturing issues before they become breaches. This typically includes automatic labeling and analysis of breaks, and RAG statuses to reflect organizations risk ratings and SLA. Root cause analysis is fundamental for long term review and being able to drive process improvement
Download Free PDF Report here - Challenges of Regulatory Reporting in 2017