Regulatory Reporting for Financial Institutions: The Technology Challenge

Big Data Analytics: Modern day Use Cases
Regulatory Reporting Costs and Burden for Small & Mid-Sized Banks

While we have previously analyzed the impact of regulations on banks due to various key issues (see related articles at the end of the blog), implementation of new technology and the need to update IT infrastructure has been a significant issue for banks and financial institutions.

Regulators demand information on various activities (liquidity management, asset liability, foreign exchange, risk management, transactional data, and more) to analyze an organization’s financial health. This process is implemented from time to time and requires data to be collected and processed in different formats as per the requirements of the regulator.

Although this reporting process seems relatively easy, it starts getting complex as regulatory requirements differ across regions, also changing according to which regulatory body the bank is reporting to. With the evolving regulatory environment and the introduction of new rules (BCBS 239, MiFID II, Basel I, II, III, Volcker Rule, etc.), banks need to streamline their process of information gathering, calculations and analysis, reconciliations and auditing, generation of reports, and so on. To do this, financial institutions and banks must implement robust processes and systems.

Technology is one of the key challenges for banks to get their reporting process streamlined. Here is a look at the key technology challenges for banks and why a solution that automates and streamlines the regulatory reporting process to generate accurate reports in a timely fashion is the need of the hour.

What are the challenges? [1]


Credits: EY Report on Regulatory Reporting

According to the 2014 Federal Reserve regulatory reporting survey conducted by EY, two of the greatest challenges faced by financial firms are:

  • Managing Data Quality
  • Maintaining Data Granularity

System Limitation and Data Integrity were cited as the major challenges leading to inaccuracies in data quality and inconsistency in maintaining data granularity. It is noted that data integrity issues increased from 65% in 2012 to 72% in 2015.

It was also found that banks and financial institutions were not spending adequate time on performing analytics and review process. Reporting analytics is integral as it assesses accuracy and completeness of information before it is sent to regulators. It validates that reported data is an accurate representation of the institution’s financial position. Despite the Federal Reserve asking organizations to spend 80% of their time on analytics, banks are not doing so.

The findings show that more than 68% of the banks spent more than 50% of their time on preparing regulatory reports, while 20% managed to dedicate 50% of their time to analytics, review and sign-offs. Only 12% could comply with the Fed’s suggestions.


Credits: EY Report on Regulatory Reporting

Banks are adopting many more analytical procedures to maintain internal controls on their data. Variance analysis, trend analysis, ratio analysis, and other analytical processes are being implemented to ensure data accuracy and completeness. However, there are still various banks that do not have adequate technology in place to perform analytics easily.

Financial institutions have also begun to understand the importance of automation to reduce manual intervention. Even today, a high number of banks still perform a large volume of manual adjustments to provide granular financial data. 75% of firms surveyed have developed high-level plans to automate recurring adjustments. Automation significantly reduces the time and resources required to perform recurring tasks,

The findings point to the following key changes that banks need to make:

  1. Streamline Regulatory Reporting Process.
  2. Dedicate additional resources and time to analyze data.
  3. Automate recurring processes to simplify report generation processes.
  4. Upgrade existing data warehouse platforms to handle and store larger volumes of data effectively and efficiently.
  5. Manage data from multiple sources by shifting to centralized data sources.

What are the reasons behind these challenges?[2]

Existing IT systems at most banks and financial institutions are finding the dynamic regulatory environment challenging, most finding it hard to keep pace with the new requirements and demands. Here are some of the key reasons why the regulatory reporting process is complex:

18887920396_8d680c8848_zMultiple data sources

For reporting, banks compile heterogeneous data that comes multiple data sources, e.g. market/risk data, finance data, reference data, transactional data, etc. Banks need to collate this information to meet reporting requirements, requiring development of IT applications that are equipped to handle large influx of data from various data sources. This impacts time and cost required to generate reports.

Data storage complexity

The large influx of data that comes in is stored in different systems, depending on the type of data. As banks exchange information through financial statements, risk reports, capital submissions and other regulatory reports, this information needs to be effectively crosschecked and analyzed for ensuring data accuracy. This required an effective reconciliation process to be in place, to ensure data is accurate across systems.

Multiple report formats

Reporting formats vary depending on the regulator, regulatory requirement, report type and geography of the bank where the report is to be submitted. Most organizational systems are not flexible enough to modify existing data model to meet changing requirements. It requires complex coding to be fed in the system to adapt to the new requirements, which keep changing periodically.

Strict timelines and resources

Regulators require financial institutions to alter their internal process and meet reporting timelines, failing which they are severely fined.  Though information of implementation dates and reporting deadlines are shared beforehand, most banks are under stress to meet these deadlines as the systems in place are rigid and require complex coding and resources to be modified.

To do this, banks not only require skilled financial experts but also professional coders who are in sync in mapping business requirements in existing IT infrastructure. Developing new applications and tweaking processes that are already in place is time-consuming and requires frequent changes.

Why choose Hexanika?

Hexanika is a FinTech Big Data software company which has developed an end-to-end solution for financial institutions to address data sourcing and reporting challenges for regulatory compliance. Our innovative solution improves data quality, keeps regulatory reporting in harmony with the dynamic regulatory requirements and keeps pace with the new developments and latest regulatory updates.

Hexanika helps establish a compliance platform that streamlines the process of data integration, analytics and reporting. Our software platform can develop and clean data to be sourced for reporting and automation, simplifying the processes of data governance and generating timely and accurate reports to be submitted to regulators in the correct formats. Our solutions also significantly reduce the time and resources required for everyday-regulatory processes, and are robust enough to be implemented on existing systems without requiring any specific architectural changes.

To know more about our products and solutions, read:


Contributor: Vedvrat Shikarpur

Image CreditsTech in Asia using Creative Commons License

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[1] EY: Regulation now: the new standard and how firms are adapting

[2] TCS: Regulatory Reporting: What Banks can do to Keep Pace with the Changes

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