When preparing for the raft of regulatory change across APAC, banks would be well advised to focus on ensuring seamless data integration in the face of regulatory calls for ever more granular data.
Regulators across Asia-Pacific continue to step up their pressure on banks to achieve more transparency and consistency. Initially, global regimes such as the Basel III’s LCR (Liquidity Coverage Ratio), NSFR (net stable funding ratio), IFRS 9 (the 9th International Financial Reporting Standard) and CRS (the Common Reporting Standard) were rolled out, raising the bar for reporting by financial institutions.
Still, these new obligations are now being supplemented with local regulatory reporting overhauls, with Australia and Singapore taking the lead. For the first time in many years, both APRA (the Australian Prudential Regulation Authority) and MAS (the Monetary Authority of Singapore) have decided to completely revamp their key financial position reports, impacting all supporting forms, and requiring multiple new attributes, calculations and aggregations. This will be a key focus for financial institutions in Australia and Singapore, with 2019 and 2020 being the respective roll-out deadlines.
Furthermore, with these reports being the regulatory reporting “anchors” in their respective markets, nearly every other return will ultimately need to reconcile back to them. In 2019, we expect to receive more clarity on how these complementary returns will subsequently change – especially for Singapore.
Other regulators in APAC have also indicated that many changes are on their way, including updated reporting requirements for Large Exposures, IRRBB (Interest Rate Risk in the Banking Book) and SA-CCR (Standardised Approach for Counterparty Credit Risk).
Change of approach: the internal overhaul
As transformation sweeps the sector, to comply – more than ever before – financial institutions need to integrate data from many different systems, produce much more granular information for regulators at higher frequencies, submit machine-readable files, all while providing full traceability from submissions back to the underlying source data.
Traditionally, many institutions took a largely manual approach to regulatory reporting – typically via internal spreadsheets and macros – providing the comfort of sticking to established procedures and enabling business users to easily visualise and organise data. But this convenience is prone to human errors and comes with numerous control risks, a price which many are no longer willing to pay given the extent of the changes recently introduced by regulators.
Freely changing or adjusting data, formulae and formatting heightens the risk of errors, inaccuracies and inconsistencies, and makes establishing a clear audit trail difficult. This approach is also inherently limited in terms of extensibility and scale, as the scope of the spreadsheet is typically extended beyond its original purpose in response to new regulatory demands, quickly making it impractical to manage the increases in data and complexity required by incoming rules.
In essence, very few banks in APAC can still get away with regulatory compliance without an adequate level of automation and control. It is hence no surprise that emerging technologies and business models are equipping financial institutions with the strategies and capabilities needed to address these challenging new requirements.
Leveraging tech-driven opportunities
In 2019, we anticipate that more banks than ever before will invest in strategic, automated technology – RegTech – to comply with their increasingly complex regulatory requirements, not only to avoid being caught out by wary regulators, but also to attain the levels of internal transparency needed for consistent compliance. In particular, artificial intelligence, big data and blockchain have some promising applications which are currently being evaluated by the industry.
In fact, many banks will also use their regulatory overhauls as an opportunity to take a step back and evaluate alternative business models which are available today, such as the managed services model, which has received a lot of interest of late. While various regulators have shown explicit support for this model, many financial institutions are only now truly understanding its key advantages.
This year there will be some brave banks in APAC who will challenge the status quo by taking a managed services route to regulatory compliance, and they will be closely watched by their peers and regulators alike.
Beyond 2019, it is clear that managed services will slowly, but surely, become the norm, and eventually the way of the future.
Wouter Delbaere is Regulatory Reporting Director, APAC, for Wolters Kluwer’s Finance, Risk & Reporting business.