Driving ROI through financial reporting

Jason McCreight, Deloitte

Outline

1. Introduction2. Regulatory landscape for banks3. XBRL4. XBRL and Multidimensionality5. Data Point Models and Dimensions6. Standardised Reporting7. Multidimensionality in Regulatory Reporting8. Implications For Banks9. Benefits Beyond Compliance10. Summary

1. IntroductionA coming of age for regulatory reporting

CRDIV proposes a number of measures to

raise the quality, consistency and

transparency of banks’ capital.

XBRL submission of COREP and FINREP

data will be mandatory:Q1 2014

XBRL is rapidly gaining acceptance as a standard

global framework to support the more effective production, consumption and exchange of financial

information.

2007 … 2011 2012 2013 2014 2015 … 2020

2. Regulatory landscape for banksA recap of the past five years

CRD IV(European BASEL III

adaptation)

EBA(European Supervisory Authority)

Banking(National Supervisory Authority)

COREP FINREP

European Directives

Financial Supervision

ReportingObligations

Basel III(CRDIV)

Basel I & II (CRD, II, III)

Basel III(CRDIV)

Automated “eRegulation” &

XBRLManual EUC & paper reporting

2. Regulatory landscape for banks“Navigating the Compliance Labyrinth”: A Deloitte

Publication

Deloitte Centre for Banking Institutions:

20 of largest 50 US banks by assets

http

://www.finextra.com/finextra-downloads/newsdocs/Deloittecompliance.pdf

of respondents agreed strongly that compliance with regulatory

requirements had become more challenging over the last five years

of respondents agreed strongly that compliance with regulatory requirements will become more challenging in the next 3-5 years

increase in expenditure on compliance

159%

95%

90%

3. XBRLThe basics

•A language for the electronic communication of business and financial data revolutionising business reporting•XBRL’s impact on financial reporting and data exchange has been compared to the impact of bar-coding on merchandising

What is XBRL?

•Mandated part of how financial organisations will have to submit automated prudential reports in the fourth iteration of the Capital Requirements directive (CRDIV)

•Standards-based method allowing more efficient preparation, publishing, exchange, and analysis of regulatory financial data

Why is it being adopted?

•COREP and FINREP submissions must be made in XBRL•Banks should expect a global adoption of XBRL from Q1 2014 onwards

When will it become mandatory?

•The cost savings stemming from greater efficiency and improved accuracy & reliability can be realised by all those involved in supplying or using financial data

•The capabilities of the regulator to analyse and compare financial data will be dramatically enhanced.•Greater market efficiencies can be realised across global capital markets•Investors are allowed an “apples for apples” perspective when comparing financial information•Streamlining financial reporting processes can eliminate divergent systems within businesses, thus reducing costs

Who benefits?

3. XBRLA global standard for business reporting

XBRL

Powerful and flexible, specifically designed to meet the requirements of financial information.

“Tags” enable automated processing of business information by computer software, allowing the data to be treated “intelligently”.

Shows how items are related to each other, thus representing how

they are calculated.

Identifies whether data fall into particular

groupings for organisational or

presentational purposes.

Local banksNational

Supervisory Authority

EuropeanBankingAuthority

XBRL mandated by EBAXBRL

4. XBRL and multidimensionality• A multidimensional database (MDB) is often called a “cube”. This is

a dramatic simplification as they can often have many more than the 3 dimensions that this visually represents

• It is a database optimised for analysis• These databases can rapidly process data so that answers can be

found quickly• The data elements in the COREP reporting templates have been

converted to a highly structured multi-dimensional data model• NSAs and banks can use the Data Point model to structure the

design and processing of their internal reporting processes end systems.

Bank NSA

DPM approach allows both banks and NSAs to align their systems to the data definitions

DPM

Bank NSA

Requires manual interpretation and re-keying of data

Traditional Approach DPM Approach

5. Data Point Models and DimensionsExamples

Data point model Dimension

6. Standardised Reporting

Solution 1 Solution 2 Solution 3

Regulator

Bank YBank X Bank Z

Solution 1 Solution 2 Solution 3

Bank YBank X Bank Z

XBRL

Regulator

• XBRL’s impact on financial reporting and data exchange has been compared to the impact of barcodes on merchandising

• Like the barcode, XBRL is a system for coding and decoding information:

i. Multiple forms of information consolidated into a single, standards-based formatii. A single piece of financial data is multidimensional

7. Multidimensionality in Regulatory ReportingCRDIV XBRL as a transition mechanism

• Multidimensional data is very rich and powerful• In an ideal world a Regulator could provide an MDB & ask it to be populated. However

numerous software companies provide solutions• It is this link that businesses can leverage to enhance other internal and external reporting

and go “on the offensive”, whilst simultaneously adhering to regulatory standards

XBRL REGULATORY

Standardised Transmission of data between Banks & Regulators

BA

NK

S

REGULATORY CUBE

8. Implications For Banks

“Apples to Apples”

Comparability

Regulator Power,

Control & Insight

Investor demands for high quality information

Response to change

Regulators will have far more power and control over data in coming years, given the flexibility of the

new XBRL reporting process.

Domestic and foreign banking institutions

should expect tougher oversight and

enforcement of regulatory

compliance, beyond COREP and FINREP.

CRDIV will be an evolutionary process and will require time for the standards to

stabilise and become clear.

Banks should expect to further investment requirements in 2014

and beyond.

9. Benefits Beyond Compliance

Standards-based

Extensible

Automated

Reliable

Transparent

Convergent

ConsistentXBRL

Value-add effort maximisation

10. Summary

• XBRL is a data transmission mechanism.• However it is different to many of its predecessors as it allows the

richness of multidimensionality to be built in & retained• This kind of technology is quite new – it has been around for 20 years• It has been adopted & used consistently in Finance functions; handling

results consolidation & publication, planning & analytics• Today’s principle point was that it can also be used more in the

Regulatory area.• Wider use should help to produce and analyse accurate data more

efficiently• It can be used both by the banks & the regulators to drive greater

compliance but should also produce benefits beyond this