A Point of View

Regulatory Reporting: What Banks can do to

Keep Pace with the Changes
Introduction
Governments across the globe accord prime importance to the health of their banking systems. This is especially true since the
consequences of increased risks in the banking system, and their effects on the global economy came to the fore during the
financial crises of 2008-09.
Banking regulators play a pivotal role in the setup, development, and safety of the banking system, thereby ensuring its continuity
and profitability. Having to look out for the interests of multiple stakeholders such as government, public, borrowers,
intermediaries, and investors, banking regulators need comprehensive information to work with. To manage banking systems
effectively, regulators seek timely and accurate information from member banks, in specific formats, at regular intervals. Regulatory
reporting is the submission of raw or summary data needed by regulators to evaluate a banks operations and its overall health,
thereby determining the status of compliance with applicable regulatory provisions.

Why Regulatory Reporting is Vital

Regulators seek information on liquidity management, asset liability management, foreign exchange exposure, risk management,
and more, to assess an entitys financial health. Data collected in this process facilitates early identification of problems that could
have threatened the profitability of reporting banks, ensures timely implementation of prompt corrective action, and serves other
legitimate supervisory purposes. Regulatory reporting also helps regulators plan and implement monetary policy. Some of the
reported information also serves as public disclosures, helping investors, depositors, and creditors to better assess the financial
condition of reporting banks.

The Evolving Regulatory Environment

With the introduction of Basel I, II, and III, among other regulatory requirements, banks and financial Institutions are compelled to
develop robust processes and systems, owing to the increased requirement of information reporting, calculations reconciliations
and audits, and so on. A solution that automates and streamlines the process to generate accurate reports in a timely fashion, and
is scalable and flexible to meet future demands, is therefore the need of the hour.
Regulatory requirements differ across countries and regions. Some governments follow a proactive approach where they control
the majority of the banking organizations, restrict lending and investing activities, and limit the entry of new players. On the other
hand, some governments do not directly control banks, but place significant emphasis on having banking organizations disclose
accurate information on a periodic basis, as a means to monitor their performance.
After the crisis of 2008, regulators across the world tightened the controls over financial markets, and introduced new regulations
and directives to:
n Improve transparency and accountability of financial instruments like derivatives, options, and embedded derivatives,
associated cash flows, and their disclosure in financial statements from the finance and risk perspective.
n Increase consumer protection by spreading awareness on the upside and downside of their investment decisions.
n Avoid too big bailouts, as they put immense political, social, and economic pressure on countries.
n Bolster corporate governance at banks by implementing internal controls over investment decisions, market decisions,
employee related decisions, and more.
Why Financial Institutions find it Challenging to Meet Ever-changing Requirements
Even as financial institutions provide a variety of services to customers across the globe, the need to report financial information to regulators
of respective jurisdictions is growing by the day. This is not an easy task for banks as they need to generate not only internal reports, but also
collate data for Financial Reporting (FINREP), Foreign Account Tax Compliance Act (FATCA), Common Reporting Standards (CRS), and BASEL
reports, among others. Existing IT systems at most banking and financial institutions are not equipped to handle the ever-changing reporting
requirements with ease. Key problems that banks face are:
Multiple sources of information: Banks do not have a single source of information. Depending on the granularity of information required,
banks need to collate data from different sources to comprehensively meet reporting requirements. At times, this requires development of IT
applications which have an impact on the time and cost aspects of the reporting exercise.
Multiple report formats: Depending on the nature of business, banking systems need to file reports in different formats as specified by the
governing regulator. Organizational systems and processes in most cases are not flexible enough to create new, or modify existing, data
models to meet changing requirements.
Inaccuracy of data: Banks exchange information through financial statements, risk reports,
submissions for capital adequacy, and regulatory reports. All these reports are generated Regulatory reporting is of
from different systems, and banks need effective reconciliation processes to cross-check the prime importance, but
accuracy of data across systems. disparate sources of
Stringency of timelines: Regulators expect financial institutions to quickly alter their information, varied
internal processes to meet the modified reporting requirements within scheduled time reporting formats, crunched
frames. Though prior information on these implementation dates is shared with banks, more timelines, and unavailability
often than not, the time is not sufficient to action the required changes. of skilled resources, make it
Lack of skilled resources: Changing reporting requirements mean that banks not only need a challenging exercise for
finance experts, but also require professionals skilled in mapping business requirements to financial institutions.
existing IT systems, developing new applications if and where needed, and so on.

Coping with Evolving Regulations: Technology to the Rescue

To meet the reporting requirements of an ever-changing regulatory setup, banks and financial institutions are looking to upgrade their
legacy systems, or implement tools that will help identify, collate, and convert data into required formats to generate reports. While there are
a number of tools and service providers in this area, the demand increases with every new regulation.
These regulatory reporting tools help banks avoid inherent problems like legacy system issues, lack of granular data, excessive system feed
and complexity in data mapping, compatibility for data feeds, and so on. Modernizing and automating regulatory reporting processes will
deliver several functional benefits to banks including:
Efficient source data integration, data loading, and report production: Most international banks use different source systems, which may
or may not be in line with standard reporting requirements. A central system will help consolidate data and act as a single repository of
information, minimizing inconsistencies in data.
Coverage for a wide range of reporting requirements for regulatory authorities of different geographies: The nature and format of
required reports vary according to country and regional regulators. Modern regulatory reporting tools have inbuilt report generation
capabilities that are capable of creating varied reports.
Full compliance with the latest Basel I-II-III developments: Regulatory requirements like the Basel regulations, change with the need of
the times. Advanced tools help banks modify and build system capabilities with ease, thereby minimizing the time required to implement
revised requirements efficiently.
Customized report generation: Advanced reporting tools will not only provide the ability to generate varied reports, but also facilitate the
creation of reports for specific purposes with the help of formatting and data mapping tools. To ensure consistency across all daily, weekly,
monthly, quarterly, and annual reports, these tools can validate reportable numbers by reconciling various periodic reports. Moreover, these
tools have the capability to generate branch-level and organization-level reports, in a single run, resulting in significant time and effort
savings.
Reconciliation of reports with underlying General Ledger (GL) and transactional systems: Modern banking reporting solutions provide
data validation tools that reconcile with GL or source system numbers.

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Time-effective audit preparation process: Inbuilt data validation and reconciliation tools
help maintain elaborate audit trails, thereby reducing the time taken for the audit The use of advanced
preparation process. technologies can help
Ease of incorporation of changes in regulations, business, or technology: New reporting financial institutions keep
tools are flexible enough to accommodate changing regulations, new business lines (new pace with the changing
data mappings), and can interface with external systems and other data formats. Flexible regulatory requirements and
architecture allows easy adaptation to changes across the institution, geographies, and ensure full and timely
jurisdictions, without systems changes, thereby reducing implementation time.
compliance. Technology is
Ease of operation: Barring a few exceptions, these tools are designed for users who dont therefore not only an
have extensive programming knowledge, which makes them easier to use. Users only need enabler, but also a simplifier.
to have the basic working knowledge to create mappings and generate reports.

Conclusion
The financial crisis and the consequent economic slowdown resulted in regulators across jurisdictions introducing additional reporting
requirements as well as changes in regulatory reporting formats. New regulations pose many challenges to banks and financial institutions,
and it is therefore imperative for banks to take a relook at their systems and deploy solutions that help them comply effectively with the new
requirements. They can choose to adopt available solutions aimed at meeting specific needs to modernize and automate their regulatory
reporting, or partner with a service provider to develop tailor-made tools that will meet their current and future reporting requirements.
Whatever option they opt for, banks will have to act as quickly as possible since most new regulations have stringent timelines.

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About TCS' Banking and Financial Services Business Unit

With over four decades of experience working with the world's leading banks and financial institutions, TCS
offers a comprehensive portfolio of domain-focused processes, frameworks, and solutions that empower
organizations to respond to market changes quickly, manage customer relationships profitably, and stay
ahead of competition. Our offerings combine customizable solution accelerators with expertise gained
from engaging with global banks, regulatory and development institutions, and diversified and specialty
financial institutions. TCS helps leading organizations achieve key operational and strategic objectives
across retail and corporate banking, capital markets, market infrastructure, cards, risk management, and
treasury

TCS has been ranked #2 in the 2014 FinTech Rankings Top 100 of global technology providers to the
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Financial Insights. TCS has also been recognized as a 'Leader' and a 'Star Performer' in Everest Group's 2014
PEAK Matrix reports for Banking and Capital Markets Application Outsourcing (AO).

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