Company insight
Banks turn to RegTech to stay in step with rules
Regulation in the fi nancial services industry is a constantly moving target, making compliance challenging. At the same time, failure to comply can bring heavy penalties, so banks are increasingly seeking technological solutions to drive regulatory reporting effi ciency. Future Banking talks to Linda Middleditch, the chief product offi cer at Regnology, to learn more.
R
egulatory reporting is a process without which financial institutions couldn’t operate. It is a process,
moreover, that must occur with diligence and rigour in the face of an ever-changing set of rules – particularly since the financial crisis of 2008 – and its scope is constantly expanding.
Despite this importance, however, regulatory reporting is a cost centre, a burden, a drain on revenue and, if not done correctly, the source of potential penalties from the authorities that run the industry.
There is more pressure than ever before on banks to monitor and report a vast range of complex exposures: liquidity, loans, derivatives transactions, securities, ownerships, shareholdings, taxes and more. All this requires constant teamwork, with credit, risk, finance, accounting and compliance to work together effectively.
Linda Middleditch, chief product offi cer, Regnology
and comply with several different regulatory requirements.”
“The need for granular and timely data has been underlined by recent banking collapses in the US and elsewhere,” Middleditch continues. “We have also observed that regulatory reporting has extended from the conventional model whereby firms reported their balance sheets and income statements to regulators. Regulatory reporting is now more complex, requesting more calculations, a more granular level of data, data on a real-time basis and compliance to various types of reporting obligations.”
“Banks’ increased appetite to rely on third parties for not only providing a state-of-the-art regulatory platform, but also to support the multi-jurisdictional reporting process, is another driver of consolidation.”
“The regulatory reporting environment
is ever-evolving and has changed significantly over the past couple of decades,” emphasises Linda Middleditch, the chief product officer at regulatory technology developer Regnology. “We have seen a significant increase in [the] volume and complexity of financial regulations, putting pressure on financial institutions to monitor and report a range of complex exposures,
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A future full of change At present, reporting obligations are specified in different legal frameworks. One example is the European Central Bank’s (ECB) statistical regulations on balance sheet items (BSI) and interest rates (MIR). Another is the European Banking Authority’s (EBA) Implementing Technical Standards (ITS) reports – respectively known as FINREP and COREP.
This firestorm of acronyms – and attempts to ease the burden – continue apace. Take, for instance, the Banks’ Integrated Reporting Dictionary (BIRD), which aims to alleviate the reporting burden for banks, foster cooperation in the field of regulatory reporting, and improve the quality of data reported to the authorities. Another example is the European System of Central Banks (ESCB) Integrated Reporting Framework (IReF), which aims to integrate the existing statistical data requirements related to banks into a unique and standardised reporting framework, thus ensuring integration across countries and data domains.
“The roll-out of regulatory initiatives such as BIRD and IReF are pressing financial institutions to adapt their reporting infrastructures to meet these new trends,” says Middleditch. “Other emerging risks related to ESG and systemic stress are also being embedded in the regulatory reporting frameworks. To keep pace with the rapidly changing regulations, financial institutions need a modernised infrastructure and reporting model.” This is a major challenge for banks that choose to retain regulatory compliance functions in-house, as many do, though more and more are choosing to outsource the process to specialist external providers. “The same challenge applies to both sides of the equation,” Middleditch argues. “In-house, banks have a holistic understanding of the regulatory challenges and their impact on their organisation. They also have a unique perspective on where the breadth of data sits across systems, and how best to collate them. The key is to partner efficiently with a vendor
Future Banking /
www.nsbanking.com
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