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Best Practices for Liquidity Regulatory Reporting According to FSA PS09/16Moody's Analytics Liquidity Risk and FSA Reporting Webinar Series

January, 19th 2010XAVIER PERNOT, ANTOINE SPINELLI

2FSA Liquidity Regulatory Reporting WEBINAR 2010 2

Agenda

1. New liquidity regulatory reporting requirements from FSA

2. Issues that need to be addressed in the process of generating the reports

3. Practical implementation of Regulatory Reporting

3FSA Liquidity Regulatory Reporting WEBINAR 2010

Towards New Liquidity Regime

3

Discussion paper issued by FSA in December 2007

» Review of the liquidity requirements for banks and building societies

» CP08/22: ‘Strengthening liquidity standards’ in December 2008

» CP09/13 , CP09/14, CP09/16 Policy Statement 09/16 issued in October 2009

Committee of European Banking Supervisors» Technical Advice to the European Commission on Liquidity Risk Management

(1st part : Aug 2007, 2nd part: Sept 2008)– Large banks to build their proper liquidity risk management model to be approved by supervisor

» March 2009 : Interim Report on Liquidity Buffers & Survival Periods

Basel Committee on Banking Supervision» Principles for Sound Liquidity Risk Management and Supervision (June 2008)

Turner Review (March 2009)

» ‘It is essential now to restore liquidity regulation and supervision to a position of central importance.’Lord Turner, Chairman, Financial Services Authority, Turner Review

New requirements | Issues to be addressed


» Adequate liquidity and self-sufficiency (BIPRU 12.1 and 12.2)– UK banks are expected to be able to stand alone and should monitor and manage their own

liquidity separately from the liquidity of other institutions in the group» Branches will have to hold local operational liquidity reserves

– FSA may agree to modifications of this self-sufficiency requirement for overseas branches if it can agree cross-border supervision arrangements

» Enhanced systems and control requirements (BIPRU 12.3 and 12.4)– All BIPRU firms will be subject to liquidity risk-management, stress testing and contingency funding

plan (CFP) requirements» Pricing liquidity risk

» Management of collateral positions

» Robustness of stress testing and CFPs

» Individual Liquidity Adequacy Standards (BIPRU 12.5 and 12.6 for Simplified ILAS)– Introduction of new quantitative standards based on three separate stress tests: an idiosyncratic

liquidity stress (2 weeks), a market-wide liquidity stress (3 months) and a combination of the two

– ILAA/SLRP/ILG process

» Granular and frequent regulatory reporting requirements– Data in a standardized format and on a contractual basis is vital to form firm-specific, sector- and

market-wide views on liquidity risk

New requirements: building blocks | Issues to be addressed


More on FSA Liquidity Modifications

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Overall liquidity adequacy rule (Self-sufficiency principle)

Intra-group liquidity modificationWhole-firm liquidity modification

UK branch UK solo entity

Effect: branch can rely on liquidity resources available elsewhere within the firm

Effect: firm can rely on liquidity resources available elsewhere in its group• foreign parent (non-UK DLG)• other entity in UK (self-sufficient ILAS Group or UK DLG)

Impacts on reporting requirements


Some useful terminology

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» Short description of Full ILAS and non-ILAS firms– Full ILAS

» BanksBuilding societiesFull-scope investment firms not meeting the criteria below

– Non-ILAS» Limited licence

Limited activity firmsFull-scope investment firms with a balance sheet less than or equal to £50m

» Firms can obtain a simplified ILAS waiver from the FSA if they meet some eligibility criteria which depend on the bank’s business model

– A simplified ILAS firm will be authorized to use a standardized buffer ratio instead of adhering to the full ILAS process


New data items created by FSAData item Description Frequency

FSA047: Daily flows Collects daily flows out to 3 months to analyse survival periods and spot potential liquidity squeezes early

BAU: Weekly (Daily if liquidity stress)Respectively Monthly/Weekly for Simplified ILAS

FSA048: Enhanced Mismatch Report (EMR)

Captures the ILAS risk drivers and contractual flows across the full maturity spectrum

As above

FSA050: Liquidity Buffer Provides more granular analysis of firms’ marketable assets holding

Monthly

FSA051: Funding concentration Captures firms’ borrowings from unsecured wholesale funders, by counterparty class

Monthly

FSA052: Wholesale liabilities Collects daily transaction prices and transacted volumes for wholesale unsecured liabilities

WeeklyMonthly for Simplified ILAS

FSA053: Retail, SME and Large Enterprises and Corporate funding

Captures firms’ retail and corporate funding profiles and the stickiness of various retail deposits

Quarterly

FSA054: Currency analysis Provides an analysis of FX exposures on firms’balance sheets

Quarterly

FSA055: Systems and Controls Questionnaire

Allows FSA to monitor a non-ILAS BIPRU firm’scompliance with the new requirements

Annual



Class of Firm(according to current liquidity requirements)

FSA047, 048, 052 FSA050, 051, 053, 054

Sterling stock bank 1 June 2010 1 November 2010Building Society (Standard ILAS)

1 June 2010 1 November 2010

Building Society (Simplified ILAS)

1 October 2010 1 November 2010

Mismatch Banks 1 October 2010 1 November 2010Branches, with or without GLCsInvestment firms

1 November 2010 1 November 2010

When to report?

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Agenda





Key features System requirements

Granularity & contractual basis Transaction-level data handlingFinancial transactions modeling

High reporting frequencies and short submission deadlines

Platform high-availabilityRapid computations on high volumes

Standardized data items Delivery of regulatory final formatsFull auditability

Several levels of reporting reflecting liquidity flows within a firm or group of firms

Intra-group consolidation

StandardizedContractual FrequentGranular



Centralized data repository which provides:

Historical Data Management

Data Loading, Checking, Reconciliation

Financial Instruments modelling

Customer & Exposure-Level Information

Group calculation Home supervisor

Calculation framework which enables:

Group vs Legal entity independent access

Multiple setups (per Jurisdiction)

Support for Stress-Testing

Reporting framework which enables:

Regulatory reports generation

Drill-down analysis of results

Web-deployment of dashboard reports

Trend analysis with on-line historical data

What-if scenarios results’ comparison

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New requirements | Issues to be addressed – Transaction-level data & Intra-group consolidation


» Need for cash inflows and outflows over a certain period of time (FSA047/FSA048)– Relying on comprehensive data model versus importing all cash-flows

– Ability to define behavioural assumptions

» Security position management for Liquidity Buffer– Handling encumbered positions in maturing Repurchase Agreements

» Stress testing framework– Marketable assets using haircuts and selling assumptions

– Wholesale funding with non roll-over assumptions

– Retail funding with stickiness assumptions

– Draw-down assumptions for facilities

New requirements | Issues to be addressed – Cash-flow generation

Inflows

Outflows

Calculation framework


Regulatory mapping: from bank’s data to regulatory data

A system designed for regulatory reporting should– provide the regulatory data (for each supervisor involved in

bank’s group)

– include rules to map bank’s data to regulator’s data

– allow quick & easy update of regulatory data and rules to follow changes in the regulation

New requirements | Issues to be addressed – Standardized data items

FSA reportsBank’s data

Regulatory data

Mapping rules

Internal reports for Liquidity Risk Management


Regulatory mapping: an example for FSA048Mapping order

Bank Product Type Supervisor Table name Sub Type Flag transferable Liq. Product Type

32 BANK_LOAN_A FSA LOANDEPO WHOLE T WHOLE_LOAN_TRAN

33 BANK_LOAN_A FSA LOANDEPO WHOLE F WHOLE_LOAN

34 * FSA LOANDEPO * * OTHER_LOAN

New requirements | Issues to be addressed – Standardized data items

Rule 32: for the supervisor FSA, all loans with bank’s product type ‘BANK_LOAN_A’ marked as transferable will be mapped to regulatory product type ‘WHOLE_LOAN_TRAN’

FSA048 production rule: data with regulatory product type ‘WHOLE_LOAN_TRAN’ will be used to fill row 9

Rule 33: for the supervisor FSA, all loans with bank’s product type ‘BANK_LOAN_A’ marked as not transferable will be mapped to regulatory product type ‘WHOLE_LOAN’

FSA048 production rule: data with regulatory product type ‘WHOLE_LOAN’ will be used to fill rows 20, 21 or 22 according to entity type mapping rules


Agenda





Regulatory risk reporting main concerns

» Producing the reports:– Time and complexity to produce the reports (thousand of cells)– Availability and quality of information coming from various systems and calculation

engines– Checking report quality and consistency before sending to regulator– Comparing report over time and scenarios

» Justifying and auditing reports:– Justifying aggregated figure, going into the detail of individual contribution– Being able to go through the details of calculation of individual indicators– Top-down and bottom-up audit

» Developing and maintaining the reports definition:– National regulations evolve over time– Calculation and reporting engines need to maintained simultaneously

16Practical implementation | Main Concerns


Regulatory final formats are delivered

» Reports are generated in the format required by the regulator.– Reports are generated either in database (improved security) or as a disk file – Final XML format and validation are generated, ready to be uploaded in

GABRIEL platform

» Maintenance is contractually guaranteed. It includes:– Changes to formats or templates– Changes to aggregation rules– New reports– No effort for regulatory updates or new regulation installation

» Scope of the delivery– Report FSA047 to 055– File converter Excel to XML (compliant with Gabriel)

Practical implementation | Delivery


Integrated solution with a dedicated menu entry for theRegulatory Reporting Tool

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FDM : Financial datamart(central data repositery)FDM : Financial datamart(central data repositery)

RRT: RegulatoryReporting ToolRRT: RegulatoryReporting Tool

Practical implementation | RRT


Generated reports are stored within the datamart to improve security and audit

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List of generatedreportsList of generatedreports

Practical implementation | RRT


Regulatory reports are delivered in both Excel and XMLPractical implementation | Final Format


Regulatory reports are provided with full auditabilityAuditing the full report: Top Down

Auditable columnsof the Excel file canbe retrieved in a OLAP cube

Auditable columnsof the Excel file canbe retrieved in a OLAP cube

60+ are alreadyreferenced in the Fermat Solution

60+ are alreadyreferenced in the Fermat Solution

Practical implementation | Auditability


Regulatory reports are provided with full auditabilityAuditing the full report: Bottom Up

•Drill down can be performed on any line

•Dimensions are chosen by users. Anydimension of the system is available in audit cubes

•You can drill down to contract reference

•Drill down can be performed on any line

•Dimensions are chosen by users. Anydimension of the system is available in audit cubes

•You can drill down to contract reference

Rows of the Excel fileRows of the Excel file Columns of the Excel fileColumns of the Excel file

Practical implementation | Auditability


Regulatory reporting

Liquidity results

Reconciliation & Adjustments at each level of the process

Financial systemGL reconciliationFermat Datamart

Technical reconciliation

Technical reconciliation

Validation rules

Practical implementation | Reconciliation


Validity Checks» The regulatory maintenance offered by Fermat also comprises the validity

checks published by the regulator– We deliver the system with all regulatory checks– Whenever the validity changes, we update the application

» Users can implement their own validity checks– Improvement of the regulatory checks (checking other columns)– Check values of the reports against figures from external systems

» Example: reconciling reports cells with data from accounting reports

Practical implementation | Validity Checks


Reports adjustments

» Adjusting the contents of a report is a common situation:– Accounting reconciliation can reveal gaps that need to be adjusted– Last-minute deals may need to be imported

» Fermat offers several ways to perform adjustments:– It is always possible to insert a new contract and relaunch only an incremental calculation– An adjustment line can be inserted after a liquidity calculation

» Manually » Automatically at the end of a reconciliation process.

– Every manual change is subject to access rights and audit trail

Practical implementation | Adjustments


Fermat EFS (Electronic File Submission tool) for FSA GABRIEL StandardStep 1: Launch the conversion

Step 2: Select start, end and submission date of reporting

Step 3: Users can see the XML file and submit it to GABRIEL

Practical implementation | Submission


Q&A


Summary


Key Contacts

Antoine Spinelli

Director, Head of Global Business Solutions – Moody’s Analytics

Tel: + (331) 5330 2188 – E-mail: [email protected]

Xavier Pernot

Director, Product Management – Moody’s Analytics

Tel: + 33 (0) 4563 817 18 – E-mail: [email protected]


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