Regulatory reporting challenges for Asian banks

With the increasing intensity of regulatory oversight, the importance of a bank’s ability to report to local regulators and respond to ad-hoc requests accurately and promptly has never been greater.

Banks need to pay more attention to an area often overlooked as the poor cousin of financial reporting – local regulatory reporting.

Banks are increasingly finding their current infrastructure unable to cope. Up to now, many have relied on temporary tactical solutions and non-scalable manual and fragmented processes that increase the cost of business and the risk of errors.

As a result, banks are under pressure to reassess their local regulatory reporting strategy and this invariably involves investment in technology.

Before embarking on a change initiative for local regulatory reporting, banks should keep the following considerations in mind:

1. The single biggest issue with implementation is data quality. This issue is particularly prevalent as a result of business expansion in recent years, where banks inherited a legacy of multiple source systems that are often working in silos within each business.

Hence, problems like inconsistent data, multiple mapping tables and manual adjustments are common.

2. With the increase in reporting complexities, accurate regulatory interpretations become a key success factor for implementation. Banks need to incorporate regulatory expertise as part of their implementation.

3. As regulators move towards total governance, it is more common to have reporting that requires risk, finance and operations data.

Hence, a local regulatory reporting strategy would need to consider the data, process, technology and governance requirements of a solution spanning multiple internal functions.

4. The local regulatory reporting landscape is still evolving and constant changes and updates will be the new norm. This makes maintenance of local regulatory reporting a major consideration.

So when evaluating different technology alternatives, a high priority should be placed on the flexibility and ability to make changes to calculations and reports going forward.

5. In addition to reporting templates, regulators are increasingly making ad-hoc requests with tight deadlines. The inability to turn around reports quickly obviously raises regulators’ scrutiny.

Hence, implemented solution need to be able to drill down to source data and transactions easily.

6. As local regulatory reporting incorporates the Basel disclosures, one option to consider is whether it makes sense to consolidate the Basel calculations and reporting onto the same technology platform.

7. Often, an issue for global or large banks is that their core ledger is a global solution with a standard chart of accounts and global governance.

However, this can make the increased need for local financial, tax and regulatory reporting difficult. One option to consider is a local sub-ledger supporting all of the above.

8. The reporting solution will need to be updated over time e.g., different data feeds and sources, new reporting templates. It is important to understand how difficult this is going to be with the implemented solution.

Can these changes be made by users or super users of the system or would it require the intervention of the vendor or bank’s IT function?

9. Large banks can consider a standard local regulatory reporting solution globally or regionally for better data consistency, governance and cost savings on software and implementation. The key success factor for a regional model would be the flexibility to cater for unique requirements for different jurisdictions.

10. There are now more software vendors in the niche market of local regulatory reporting. The decision to buy an off-the-shelf software versus building one in-house is very different today, compared to just five years ago.

Hence, banks should take this opportunity to evaluate and compare the available options.

Over the next few years, we are likely to see more regulators announcing new changes and initiatives. Banks face an uphill task meeting a growing list of regulatory and compliance requirements which they balance along with implementing other business initiatives.

Hence, it is critical for the banks’ finance functions to make the right choices sooner than later to overcome the significant challenges in local regulatory reporting that lie ahead.