The banking industry knows it has a regulatory problem. Pre-2008 laissez-faire attitudes have been replaced with a flurry of regulation. Banks feel they are guilty until they can prove their innocence. Regulations added piecemeal to cover different risks have been met with discrete, point solutions. Both sides of the regulatory fence are now working to create a more holistic, rules-based system. This will not only reduce the huge costs of compliance but lead to faster and more effective regulation. Done well, regulatory reporting could even become a competitive advantage!
Each new regulation kicks-off a time and cost intensive project as banks work out how to comply. Initial ‘fixes’ are manual, with individuals plugging figures from multiple sources into Excel spreadsheets. As reporting matures banks go through evolutionary pain to automate these processes – often building bespoke systems to manage them.
As a result, we find among customers that about 15% of the finance team’s total headcount is taken up with regulatory reporting. Smaller banks are disproportionately hit, shouldering 70-80% of the reporting burden of a large bank, but with a fraction of the resources. International players have additional complications, tailoring processes to meet different national interpretations contributing to an estimated $780 billion bill
for managing inconsistent interpretations of regulation.
Individual teams create reports that significantly overlap, presenting the same data in a variety of ways to meet compliance demands. The sheer volume and variety of information needed often means initial submissions are late or inaccurate. Long nights desperately searching for data to meet a reporting deadline are followed by early morning calls to the regulator to explain why you now need to amend your report. It is as if everyone has just a few pages of an old-style A-Z map: each navigates their own neighbourhood streets with no view of how they link together. What they need is a single ‘Google Map’ for reporting.
Banks should use mandatory data frameworks as the heart of strategic, data-centric approaches to reporting. Identifying the common re-usable features that drive the analysis required by regulators sets the groundwork for automation of much of the reporting process. New reporting requirements can be fulfilled by leveraging existing data and analysis and simply adding on new elements as needed.
For the past decade regulation is something that has been imposed on banks. A bank-wide data strategy enables proactive engagement with regulators instead. Banks can help devise better regulations with the data real-time analysis of risk they have at a granular level. This is a new level of engagement for CFOs and regulatory compliance teams and one that can enhance their standing internally and externally. It also helps defend against Big Tech – who are less well connected and less well understood by regulators and for whom regulation is an anathema.
Banks can break out of a cycle of ongoing reactive response to every new regulation. Strategic, cooperative and data-focused design of regulation will save cost, increase accuracy and minimise Big Tech’s data advantage.
Regulators have already welcomed early and transparent collaboration on digital regulatory reporting and banks should capitalise on this early progress. The next stage is to devise a data-models that support regulatory reporting as a service. Some banks have been reticent to ‘expose’ their data and to allow regulators to ‘pull’ information as needed. But establishing platforms that contain the data needed can shift onus from reactive reports to proactive real-time feeds of data.
An enterprise data strategy will improve regulatory reporting for banks and provide regulators with better, more granular and timely data. It will deliver a massive reduction in reporting overheads and make a real contribution to cutting costs whilst increasing accuracy and reducing mistakes. That not only avoids fines but helps regulators do a better job in maintaining the stability and reputation of the industry. Consistent data at the heart of regulation is a win-win.