Management Challenges around
Enhanced Reporting
Alan Hilton – Prudential Regulation EMEIA
17 June 2013
Challenge 1: You wouldn’t start from here!
Existing disclosures are not without issues...
“Based on publicly available reports, the analysis shows considerable variation in average
published mRWAs...
...the quality of disclosures was found to be insufficient to allow investors and other
interested parties to assess how much of the variation reflects differing levels of actual risk
and how much is a result of other factors.”
Report on the Regulatory Consistency of Risk-weighted Assets for Market Risk.
Basel Committee, January 2013
Page 2
Management challenges around enhanced reporting
Challenge 2: CRD IV is clear – the management body is
accountable for all aspects of reporting and disclosure
Directive - Article 88
Governance Arrangements
“...arrangements shall comply with the following principles:
a. the management body must have the overall responsibility for the institution and approve and
oversee the implementation of the institution's strategic objectives, risk strategy and internal
governance;
b. the management body must ensure the integrity of the accounting and financial reporting systems,
including financial and operational controls and compliance with the law and relevant standards;
c. the management body must oversee the process of disclosure and communications;”
Regulation - Article 189
Corporate Governance
“All material aspects of the rating and estimation processes shall be approved by the institution's
management body or a designated committee thereof and senior management. These parties shall
possess a general understanding of the rating systems of the institution and detailed comprehension of
its associated management reports.”
Page 3
Management challenges around enhanced reporting
Challenge 3: CRD IV is here and represents a substantial
change in the way the UK Industry is Regulated
CRR/CRDIV changes to GENPRU/BIPRU
Removed
Rules
29%
New or
Divergent
Rules 20%
►
20% of CRR/CRDIV rules are new or divergent
from GENPRU/BIPRU
►
29% of GENPRU/BIPRU rules will be removed
under CRR/CRDIV
►
6% of CRR/CRDIV rules contain provisions for
the EBA to develop technical standards or
allow the potential for a national discretion
►
45% of CRR/CRDIV rules are equivalent or
consistent
Further Guidance from the EBA
►
Regulatory or Implementing Technical
Standards due from the EBA in around 100
subject areas
►
Many timetabled at or around CRD IV
implementation date
►
EBA guidance on specific aspects of disclosure
(materiality, confidentiality and frequency) by
December 2014
Areas for EBA to
develop technical
standards or
potential national
discretion 6%
Equivalent or
consistent rules
(majority with minor
wording differences)
45%
Page 4
Management challenges around enhanced reporting
Challenge 4: COREP/FINREP and increased public
disclosures present significantly increased demands
COREP
Public disclosure
►
High level of data granularity, volumes. 9,000
individual cells
►
Increased slice and dice – currency, geography
and legal entity
►
►
Potential need to redesign business processes
and architecture
FINREP
New requirements and mandatory
requirements including:
►
Diversity
►
Remuneration
►
Employee numbers by country & turnover
by country
Pillar 3
►
Requires reporting of 3,000 additional data
items across 86 tables
►
Much enhanced
►
Pervasive impact across finance, product
control, risk and treasury operations
►
More granular
►
More standardised
►
Significant systems/process change
►
►
Reporting needed 30 days after close – a
challenge
New items – capital buffers, credit adjustments
and credit mitigation
►
To include subsidiaries of material importance
in local market
►
Reconciliation of FINREP to Accounting
Page 5
Management challenges around enhanced reporting
Challenge 5: The bar is raised in terms of regulators’
expectations for data aggregation and risk reporting
BCBS Principles for Effective Risk Data Aggregation & Risk Reporting
►
Calls for more advanced analytics, aggregation and reporting capabilities
► Capital penalties explicit for non-compliance
► Monitoring/enforcement by SIG and local regulators (e.g., PRA for UK HQ G-SIBs)
Governance &
Infrastructure
1. Governance
2. Data Architecture &
IT Infrastructure
►
Risk Data
Aggregation
Capabilities
3.
4.
5.
6.
Accuracy & Integrity
Completeness
Timeliness
Adaptability
Supervisory Review,
Tools & Cooperation
7. Accuracy
8. Comprehensiveness
9. Clarity
10. Frequency
11. Distribution
12. Review
13. Remedial actions
& supervisory
measures
14. Home/Host
cooperation
Institutions designated as G-SIBs will need to meet the Principles within three years. Timeline for
existing GSIBs is as follows:
2013
►
Risk Reporting
Practices
Self assessment and
implementation plans shared
with FSB
Page 6
2013-2015
►
Standards Implementation
Group (SIG) to track
G-SIB implementation of
BCBS Principles
Management challenges around enhanced reporting
2016
►
Expected BCBS
Compliance
Responding to the Challenges: A checklist
►
Systems
and
Controls
►
►
►
Data quality
►
►
►
Integrated
Fin and Reg
Reporting
►
►
People
►
Firms will need to revisit their approach to Systems &
Controls under CRD IV
Are controls comprehensive? Appropriate? Effective?
Consistency
Increased granularity of reporting will impact data quality
tolerance & materiality thresholds
Data quality of new data will come into scope
Shorter timelines, more complex reporting, reduced
adjustment options/capabilities
Review,
sign-off and
submission
processes
The crossover between risk, finance and regulatory
teams is increasing
The target operating model for a firm’s COREP/FINREP
solution should take into account these overlaps to
design the most effective and efficient process to reduce
systems and people costs, dependencies, etc.
Reporting Teams will need to switch overnight to new
requirements this will impact training & ability to adapt to
change.
Firms reliant on tactical solutions may have manual
processes, requiring additional resourcing; this is not a
one-off cost.
►
►
►
►
Architecture
►
►
►
Disclosure:
external
analysts
►
►
►
Consistency of data across COREP, FINREP, Financial
disclosures, Pillar 3, Bank of England, PRA & FCA will
be difficult to manage.
Reporting activities across Finance and Risk will be
increasingly run in parallel
For COREP & FINREP, the data volume to be reviewed
and approved is dependent on the dimensions each firm
has to complete: reporting units, geographic and
currency etc.
The traditional process of review and sign off needs to
be considered in light of submission requirements.
Timelines are short, quarterly releases in prospect, ongoing regulatory developments (leverage, liquidity, RRP).
Many firms are pursuing a tactical route initially
New impetus to review firmwide reporting & converge
architecture, systems and processes
Optimal format for disclosure unclear.
Disclosure may impact on a firm’s focus on accuracy of
reporting
Impact of disclosure on a firm’s business needs to be
assessed and managed
Supporting qualitative disclosures
Management challenges around enhanced reporting
Thank you
IMAGE EXPIRY: MM YY