compliance automation the regulatory reporting challenge michael thomas ceo stb systems director,...

Compliance Automation

The Regulatory Reporting Challenge

Michael ThomasCEO STB Systems

Director, Lombard Risk Management plce: [email protected]

t: +44 20 7384 5007

Excellence in regulatory reporting and financial crime detection

mailto:[email protected]

• The effect of Basel II on reporting institutions in the UK

• The parallel introduction of Integrated Regulatory Reporting

• Reporting for Standardised banks – data and other technology requirements

• Electronic reporting

• Creating a business benefit

• Anti money laundering & financial crime

Agenda


• UK listed software company focused solely on risk and compliance solutions

• The leading UK supplier of regulatory reporting solutions with more than 140 UK customers and more than 200 worldwide

• STB-Reporter already implemented for UK, Cayman Islands, China, Hong Kong, Indonesia, Ireland, Luxembourg, Singapore, South Africa, USA

• Experts in this field since 1993, with more business professionals than programmers

Who we are


• Branches not regulated for CAR in UK have only small regulatory changes

• Small UK registered institutions likely to have small negative impact on CAR with basic or standard approaches – some more significant changes on the regulatory reporting side

•Larger institutions performing full reappraisal of use of capital against the risk profile of their business

• Increased focus on evaluation of risk and then its proper management

• Assess if there is a regulatory need or business benefit from adoption of advanced approaches

The effect of Basel II on reporting institutions in the UK


• Business benefit of advanced approach must be significant to justify cost of implementation and should not just be a straightforward capital calculation

• Assessment of data adequacy and systems requirements for advanced approaches

• Banks implementing advanced methodologies have purchased and implemented capital computation engines already at considerable cost

• Data cleansing and reconciliation of systems essential, but lead to greater confidence in enterprise management and risk control



• Established vendors of regulatory reporting products are supporting basic and standardised approaches, so limited incremental costs involved

• FSA and Bank of England very supportive of regulatory vendors and recognise the true value of automated processes in this area

• Minimises cost of implementation of Basel II regulatory reporting effects

• Significant cost of change limited to those implementing advanced approaches based on significant business benefits



• The IRR unifies reporting across all financial industry sectors based upon authorised lines of business

• Focus on data:

The parallel introduction of Integrated Regulated Reporting


The parallel introduction of Integrated Regulated Reporting


Data not forms

Data Set

Data Item

Data Element

• FSA assessing reporting requirements to minimise demands on smaller firms

• Consistency in common data and interpretation of definitions provides greater clarity to the market and more useful comparators for the regulator and the public

• Implementation alongside Basel II reduces the cost, but does increase risk due to big bang approach, although phasing introduced to counter this

• High concentration of automated reporting processes makes change achievable at more contained cost level

The parallel introduction of Integrated Regulatory Reporting


• Basel II impacts all firms, not just those implementing advanced approaches

• New Credit Risk requirement: more granular than before with individual weighting of assets

• Market Risk mainly affecting firms with trading books, otherwise mostly unchanged

•Operational Risk only implied under Basel I, but now an explicit requirement requiring much new data

Reporting for Standardised banks – data and other technology requirements


• Credit Risk & Operational Risk expand the data you need to capture:

• STATIC DATA:•Flags for CR Wholesale Approach (Standard, Foundation/Advanced IRB)•Flags for Counterparty CR Approach (CEM, SM, IMM)•Flags for CR Mitigation Approach (Standard, Haircuts, FIRB/AIRB)•Flags for CR Risk Retail Approach (Standard, AIRB)•Operational Risk method used•Wider Integrated Group waiver – much wider integrated group rules

• CUSTOMER DATA•Counterparty Credit Rating for standardised approach calculation



• LOANS•Valuation of property for LTV purposes•Provision amount•Number of days overdue on a scheduled loan payment (largest value)•Rolling Bank Loan indicator•Arrears amount•Amount written off•Impairement charge•Impairement indicator

• FACILITIES•Days exceeded

• DERIVATIVES•Sovereign referenced interest rate indicator



• REPOS•Core Market Participant indicator•Exposure Haircut indicator relating to the security•Settlement currency•Repo Margining period•Minimum Holding period

• GUARANTEES/COLLATERAL•Guarantor’s credit rating•Currency of collateral•Collateral Indicator (definition of existing field being expanded)•Collateral margining period•Minimum holding period•Own estimate haircut amount•VaR Model Collateral amount (if VaR Approach is used)



• OPERATIONAL RISK DATA•Basic Indicator approach – net interest income (av. last 3 years*15%)•Basic Indicator approach – net non-interest income (av. Last 3 years*15%)•Flag for Standard Approach – business line code (or Bucket)•Standard Approach – business line name (av. last 3 years*bus. line%)•Standard Approach – net interest income (av. last 3 years*bus. line%)•Standard Approach – net non-interest income (av. last 3 years*bus. line%)



• Mandatory Electronic Reporting (MER)

• Progressive introduction by industry sector alongside new reporting requirements

• Online – key into website• Offline – key into form & upload to MER• Web upload – create XML instance & upload to MER (no keying)• Direct Communication – secure file transfer of XML to FSA

Electronic Reporting


Electronic Reporting

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Electronic Output

• Automation of regulatory reporting processes:

• Ensures consistency to reporting• Introduces improved levels of control• Creates fully auditable results• Insulates operational systems from the regulatory computations• Creates a permanent on-line history• Minimises the impact of future regulatory change• Results in the creation of consolidated data model of financial and compliance data

Creating a business benefit



STB: Creating a business benefit

FXSybase

CustomersASCII/CSV

General LedgerSQL Server

Prices, Indicesetc

Rates, M2M…

DealsOracle

Accnt. BalanceAccess

STB-ReporterSTB-Super Consolidator

Any Data Sources Data acquisition & transformation Regulatory Reporting

Bank of England

Data Import

Scenario data

Reconciliations

Others..Exceptions

STB Data

Model Input

OtherApplications

Electronic

Other outputs

FSA Electronic

• Make use of consolidated data for other business purposes:

• Liquidity stress testing• Business decision support through scenario creation• Analyse historical data for trends and CRM purposes• Implement consistent head office reporting processes independently of the operational systems, which may differ in each location• Run regulatory processes daily and use regulatory data as part of risk management process• Build AML & Financial Crime database into the compliance data model•…

Creating a business benefit


• A major area of operational risk management

• Significant risk of fines, branch closure and reputational damage

• Compliance database can be used to manage financial crime risks

• Similar characteristics to regulatory applications – a need for consolidated data in a single data model with retention of history

• Important to get all relevant information drawn together in order to have a complete view on the compliance desktop

Anti money laundering & financial crime


• Cover as many areas as possible

• Customer Due Diligence

• Suspicious Activity Monitoring

• Watch List Monitoring

• Ability to perform historical investigations/searches of transactions and payments

• Link Analysis capability to find hidden relationships – vital for fraud investigations

• Centralised reporting to your local FIU

Anti money laundering & financial crime


• Good data management is key

• Ability to consolidate diverse data into a consistent view

• Complete end to end process, from source data to electronic delivery

• Auditability and proper access controls to regulatory and compliance solutions

• Full automation of processes is the only sensible way forward

The Regulatory Reporting Challenge



Thank you!

e: [email protected]: +44 20 7384 5007

Excellence in regulatory reporting and financial crime solutions

mailto:[email protected]

compliance automation the regulatory reporting challenge michael thomas ceo stb systems director,...

Documents

reporting institutions

reporting requirements

uk compliance automation

compliance solutions

regulatory need

uk customers

significant business

effect of basel