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10/20/2016

Regulations Pose New Challenges for Regulatory Report Production Processes

Recent regulations requiring banks to form US Intermediate Holding Companies (IHCs) and comply with Comprehensive Capital Analysis & Review (CCAR) requirements have resulted in the need for Bank Holding Companies (BHCs) and Foreign Banking Organizations (FBOs) to adapt and improve their processes for Financial Reporting and Activities Monitoring done through reports such as the FR Y-9C and 14A/Q/M reports. The changing regulatory landscape is putting pressure on Banks to increasingly stabilize the processes for producing existing reports, while simultaneously implementing new requirements. In order to meet this challenge, organizations are re-evaluating their processes in an effort to identify key areas for improvement. 

Changing Regulatory Landscape

The Federal Reserve Board (FRB) published the final rule on Enhanced Prudential Standards (EPS) for BHCs and FBOs, which requires qualifying FBOs to consolidate their US subsidiaries into a US IHC. It is expected that the IHCs will be subject to the same regulatory reporting requirements as BHCs. This will result in significant transformations for FBOs in their regulatory report production process, as the IHC will need to consolidate information from several entities and process the data in order to produce its reports.

The Federal Reserve also passed the CCAR rule to assess whether BHCs operating in the US have sufficient capital to continue operations throughout times of economic and financial stress and that they have robust, forward-looking capital-planning processes. One element through which this is done is by monitoring the activities of BHCs/IHCs through the use of regulatory reports such as the 14A/Q/M reports.

Key Regulatory Reports Impacted

Some of the key reports that will be impacted by the regulations described above are related to producing Financial Statements, Financial Reporting, and Activities Monitoring. Please see Figure 1 below for further details on specific reports.

Overview of Regulatory Report Production Process

The production of regulatory reports is a very onerous process that demands the cooperation of multiple functional areas and diligence from each of those areas to ensure efficiency in the process and accuracy of the final reports. Producing these reports is a massive undertaking that is further complicated by new regulations requiring more granular data at a greater frequency.

Some of the main challenges going forward include:

  • Sourcing of data at an increasingly granular level
  • Increased co-operation between functions
  • Re-evaluating the ownership of regulatory reports
  • Identifying data sourcing gaps

Other key aspects of the process outside of the linear end-to-end steps:

  • Reference Data Management
  • Post-Submission Activity  (Lessons Learned and Documenting of Procedures)

 

Highlighting the Challenges

Today, banks are faced with the challenge of harmonizing their processes to align with the changing regulatory reporting requirements. Some of the major areas dealing with challenges are illustrated in Figure 3.

Sia Partners’ Approach for Addressing the Challenges

Sia Partners is experienced in assisting our Clients in improving their report production process. Our approach focuses on the three following areas:

  • Project Governance

  • Enhancement of Banks’ IT infrastructure

  • Document the process and define the controls

Conclusion

Banks are under increasing pressure from Regulators to continuously improve their regulatory reporting processes to be able to quickly adapt to changing requirements. There is a need for robust strategic and tactical initiatives to ensure a seamless regulatory reporting production process for banks. The solutions will involve numerous areas within banks and will require additional resources to be committed. Sia Partners is well suited to tackle the challenges facing the industry.

 

Sia Partners

  • Key Takeaways

    • The changing regulatory landscape is increasingly putting pressure on banks to enhance and stabilize the processes for producing existing reports, while simultaneously implementing new requirements. In order to meet this challenge, organizations are re-evaluating their processes to identify key areas for improvement.
    • Banks are facing specific challenges in all steps of the production process: report preparation, data collection, technology, governance and controls, and resourcing.
    • The approach taken by Sia Partners to address these challenges include project governance, bank’s IT infrastructure enhancement, and documenting the processes and defining the controls. 
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