A New Approach to Regulatory Compliance

Transcription

1 A New Approach to Regulatory Compliance David Paris Global Solutions Partner - Risk, Compliance and Data HCL Technologies

2 TABLE OF CONTENTS A FRAMEWORK FOR REGULATORY REPORTING FACTORY CONSTRUCTS 3 A SOLUTION ACCELERATOR 4 REPORTING FACTORIES 5 AUTHORS 6 ABOUT HCL 7

3 Banks should automate the production of regulatory reportings to be able to achieve regulatory compliance at a reduced cost and on time. Regulatory reporting factories can thus be built on an end-to-end model, including technology componentry, date re-use and transformations. Since the 2008 financial crisis, regulators in virtually every jurisdiction have significantly upped the ante in terms of levels of disclosure, granularity, traceability and frequency of regulatory reporting requirements. This quantum leap in standards has caused significant headaches for a number of firms, with issues like data quality, data adequacy and enrichment, functionality and lineage as key areas where capabilities have needed to be enhanced significantly. In many cases, these types of resources are very scarce in any single bank, much less when virtually all are competing at the same time to meet tight regulatory compliance and submission deadlines. Stakeholder Interaction & QA Controls Report Development & Production Governance and Data Management Close Process High - level business requirements Policies and procedures Process audits Report build and testing Report maintenance Cross-functional data governance 5 4 Data standards and quality Data extraction New or updated report request governance DATA MANAGEMENT Legal entity financial review Consolidations Legal entity analysis Product control / CAU alignment Data security Controls G/L/other ledger level extraction takes place Regulator interactions Research & guidance Analyzing report result Report finalization Report finalization 6 close Report production Report validation Data sourcing Calculations Figure 1: Producing Reporting Services A FRAMEWORK FOR REGULATORY REPORTING FACTORY CONSTRUCTS There are 5-6 (the number may vary by financial institution and sometimes country, depending on granularity and grouping of processes, etc.) key services areas involved when producing regulatory reports, which may briefly be characterised as follow: Stakeholder interaction: regulators, internal financial and risk management, internal (to the regulated institution) audit and control, internal IT and others who provide basis minima and guidelines which the report content, format and traceability must satisfy Governance and control: post-input per the above, internal and, as may be desired, external vendor processes and personnel to define policy standards, specific SLA [1] and KPI [2] requirements, define specific report formats and approve them Report development and production: post-input per the prior step, internal or (as may be desired) external vendor processes and personnel to identify, design, build and operate specific report output requirements (in terms of data content, calculation coding, format and presentation specifications, etc) 3 HCL Whitepaper

4 Data management: post-input per prior step, identify, extract,cleanse, standardise/ normalise, enrich and provide the necessary raw or semi-processed data from product, line of business, ERP [3], G/L [4] and other systems needed to produce the report outputs specified previously Close: as a pre-requisite to all of the above (not derived therefrom, but a precursor to), perform the processes, audits, consolidations, eliminations and other financial procedures necessary to capture any and all relevant transactions and present them in G/L, S/L [5] and at other levels per relevant appropriate financial accrual accounting methods (it is essential that the reporting output processes noted above align and can tie to, rather than be totally separate from, the above to ensure accuracy of reporting) An example of how these various services areas may work in an end to end use case of a request to produce a new regulatory report or modify the content to an existing regulatory report type follows (graphic 1 : red denotes activities which should be kept by a financial institution; black notes those which, due to more generic nature, responsibility and industry similarity might be considered for external vendor services. Asset Class Instrument Type Security Product Date Country Geography Master Currency Rating Sector Counterparty Scenario Shock Corporate Action Master Exposure Type Risk Type Basel Treatment Capital Composition Master RWA Master General Ledger Credit Hedge Master Time Bucket Delinquency Operational Loss Event Threshold Unit of Measure Basel Event Type Reconciliation Master Credit Score Master Age Loan To Value Education Level Account Head Account Master Tranche Loan Purpose Master Lien Master Credit Facility Master Corporate Loan Master Organization LOB B3DF Capital Composition B3DF Exception Bucketsition B3DF Leverage Exposures B3DF Risk Weighted Assets Regulatory Capital Balance Regulatory Capital Reconciliation Credit Valuation Adjustment Counterparty Exposures Credit Mitigants Credit Quality Sencitivity Counterparty Financials FVO and HFS Mortage Servicing Rights Wholesale Credit Retail Creadit Other Then Temporary Account Summary Operational Risk Capital Figure 2: The data required by report types for the new US Comprehensive Capital Adequacy Requirements A SOLUTION ACCELERATOR This framework for services definition and classification, as well potential user/provider role definition can allow regulated financial services firms to: consistently analyse their own current capabilities; define and assess the possibility to source any or most of these from various external vendor options; set control points, hand-off requirements and related KPI s and SLA s for these controls and hand-offs HCL WHITEPAPER 4

5 The type of solution accelerator which may be used to both enable consistent reuse of the same or similar data for multiple reports, as per steps 2-4 in the abovenoted diagram, is shown by the graphic 2 which displays how various report types for the new US Comprehensive Capital Adequacy Requirements require various data elements on a repetitive, or more discrete, basis (a similar matrix can be used for CoREP and FinREP use also). A simplified example of how these types of operations may be automated is indicated in the graphic 3 (the model indicated to produce future state CoREP reports has operated previously for Architecture Business Files Stage1 Stage2 Stage3 Stage4 Stage5 Stage6 Stage7 FACTO GECFB EEF FRANCE CDF RE EEF NORWAY Artosia Capital AG Interbanca EDW & CCT Generated Files SFTP ETL process by informatica Central ASM Team Data Load Report Tool DB Data Load thru SQL Loader Data Quality Checks Manual Entries & actions performed by ASM Centarl Team Calculation & Custom BIRT process COREP Custom Reports Validation Result files from one Fremch entity COREP Reports Submission Result files from concolidated additional entities in SPAIN and France Regional Client Holding Company/ COREP Local Regulators Key Activities Upload Client Workspace Parameters Update currency Update Risk Ratings Create contexts Put the Reporthing date in Edit made Update Guarantors Rating Analyze Loading Logs Delete Circular references Ask for additional links Load Manual Entries Apply Global guarantee limit application Load Operational Risk data Load Data in Reporting engine Analyse loading logs Load Consoliation perimeter table Load other assets & other credit risk from files Finalize Reconciliation Data Coherence check and data load Manual entries input Internal reports and run checks Figure 3: A model of automation for the future state Corep Reports REPORTING FACTORIES Banks globally and particularly in the European Union are facing unprecedented levels of new and regular changing regulatory reporting requirements for capital adequacy, liquidity and other solvency-related purposes. They should therefore develop such reporting factories to help them achieve regulatory compliance at a reduced cost and on time. [1] Service Level Agreement. [2] Key Performance Indicators. [3] Enterprise Ressource Planning. [4] General Ledger. [5] Subsidiary Ledger. AUTHORS David Paris Global Solutions Partner - Risk, Compliance and Data HCL Technologies 5 HCL Whitepaper

6 ABOUT HCL About HCL Technologies HCL Technologies is a leading global IT services company working with clients in the areas that impact and redefine the core of their businesses. Since its emergence on the global landscape, and after its IPO in 1999, HCL has focused on transformational outsourcing, underlined by innovation and value creation, offering an integrated portfolio of services including software-led IT solutions, remote infrastructure management, engineering and R&D services and business services. HCL leverages its extensive global offshore infrastructure and network of offices in 31 countries to provide holistic, multi-service delivery in key industry verticals including Financial Services, Manufacturing, Consumer Services, Public Services and Healthcare & Life sciences. HCL takes pride in its philosophy of Employees First, Customers Second which empowers its 91,691 transformers to create real value for customers. HCL Technologies, along with its subsidiaries, had consolidated revenues of US$ 5.4 billion, for the Financial Year ended as on 30th June 2014 (on LTM basis). For more information, please visit About HCL Enterprise HCL is a $6.5 billion leading global technology and IT enterprise comprising two companies listed in India HCL Technologies and HCL Infosystems. Founded in 1976, HCL is one of India s original IT garage start-ups. A pioneer of modern computing, HCL is a global transformational enterprise today. Its range of offerings includes product engineering, custom & package applications, BPO, IT infrastructure services, IT hardware, systems integration, and distribution of information and communications technology (ICT) products across a wide range of focused industry verticals. The HCL team consists of over 96,000 professionals of diverse nationalities, who operate from 31 countries including over 505 points of presence in India. HCL has partnerships with several leading global 1000 firms, including leading IT and technology firms. For more information, please visit Hello there! I am an Ideapreneur. I believe that sustainable business outcomes are driven by relationships nurtured through values like trust, transparency and flexibility. I respect the contract, but believe in going beyond through collaboration, applied innovation and new generation partnership models that put your interest above everything else. Right now 90,000 Ideapreneurs are in a Relationship Beyond the Contract with 500 customers in 31 countries. How can I help you? TM