Does data discovery hold the key to regulatory reporting?

Following on from the major financial crisis of 2008 and the resulting global recession, governments across the world have established tighter financial regulations in order to prevent and mitigate a similar situation occurring in the future.

Financial regulators have been made accountable for the health of the banking and finance sector and thus play a crucial role in the setup, development and safety of the banking system, ensuring its continuity and profitability.

Although obviously more in the spotlight now, regulatory reporting is not a new concept. In the UK, the financial services sector was regulated by the Financial Services Authority but was dissolved following public criticism after the financial crisis. In its place today is the Prudential Regulation Authority (PRA) and Financial Conduct Authority operating (FCA) on a “twin-peaks” basis with regards to regulating the industry.

The reason for the split was so that the regulatory authorities could meet the regulatory demands of the financial services market. The PRA relies heavily on judgement and is very much “forward-looking”; they have been made responsible for providing prudential regulation for banks, building societies, credit unions, insurers and major investment firms. Whereas the FCA provides conduct regulation in retail, wholesale, financial markets and the infrastructure that supports those markets.

Why regulatory reporting is needed?

Built on lending, the nature of the financial services market means that organisations such as banks, building societies, insurers, etc. rely on having a healthy market in which to operate in, without this their services and ultimately their profitability suffers.

The data that regulators collect from financial services organisations serves to provide regulators with an indication of an entities’ financial health and the identification of any early on-set issues so that prompt preventative action can be taken. The act of setting and implementing monetary policy is also governed based on the data provided.

Technology challenges facing financial institutions

By tightening regulations, financial institutions are having to evolve in order to keep pace with the changing legislation and financial reporting requirements laid out by regulators. Existing systems in use at financial institutions aren’t equipped to meet the constantly evolving reporting requirements set out by regulators while at the same time meeting their own internal reporting needs. The main technology challenges financial organisations need to solve include:

• Multiple sources of data: financial institutions have a variety of systems storing data across their operations, typically these are all stored in different file systems, governed largely by the system storing them. This means that these data sets are often siloed. Existing reporting systems within a financial institution are unable to or require significant development to integrate these various data sources which is both expensive and time costly. To meet the regulatory reporting standards set, financial institutions need to replace them with systems that can seamlessly connect to all operational systems and unify all of the data into a singular repository.
• Multiple report formats: As well as the pressures of internal reporting, financial regulators request a number of data submissions of varying formats, dependent on the nature of business the individual financial institution is involved in. Not only should reporting systems be able to integrate existing data of varying format, they should be able to regularly share reports in formats specified by the regulator.
• Data quality: One challenge relating to data quality is the variety of formats data is stored in individual systems. This can cause many inconsistencies when brought into a singular repository and requires stringent validation rules in order to avoid data inaccuracies such as duplicates.
• Skills shortage: The increase of financial reporting regulation means growing pressure on a specialist workforce with an already existing skills gap, which is likely to continue growing.

It is crucial that these technology challenges are fast-tracked and solved quickly as regulators have stringent deadlines which govern when an institution needs to submit financial reports. If missed, the organisation will receive a financial penalty to deter late or inaccurate report submissions.

A practical solution – search-powered analytics

To meet these evolving reporting requirements, financial institutions will need to identify their legacy reporting systems and replace them with modern alternatives that are scalable to meet the requirements of the regulatory body now and in the future.

Our recommendation would be to implement a reporting system built on search-engine technology as these solutions can process data and requests quickly, can integrate with multiple systems seamlessly and can scale easily to the needs of the organisation.

Our solution CXAIR is a business intelligence tool built on search-engine technology and has recently gained popularity in the banking & finance sector because of the changing financial reporting requirements set out by regulators.

With CXAIR, financial institutions can expect to benefit from:

• Data validation & cleansing: The accuracy of data within a financial report is reliant upon validation rules set up to cleanse inconsistencies and errors at granular level. Without this, financial institutions will be liable to financial penalty, similar to missing submission deadlines because of inaccurate data. CXAIR has an in-built data warehouse where users can easily define and apply business rules to apply updates and logic to cleanse data. This includes validation of postcodes, NI numbers, addresses and dates.
• Single version of the truth: Siloed data sources are highly ineffective when used to build reports for financial regulators. Time-consuming and potentially expensive development is required to join them together into the specified report format ready for submission. By directly integrating with each operational system, CXAIR can easily unify data into a singular repository and apply data validation rules as set up by the user. This ensures data accuracy and prepares the data so that it is ready to be outputted into regulatory reporting formats.
• Fully scalable: System scalability plays a vital part in regulatory reporting now and will continue to do so in the future. The evolving requirements of regulatory authorities means that it would beneficial for banks and other financial institutions to implement systems that are able to scale with the growing demands of these financial regulators. Built on search-engine technology, CXAIR, is capable of scaling to billions of rows of records while maintaining fast response times and can connect to all operational systems within the finance sector.
• Meet all regulatory reporting formats: To avoid fines from regulators, financial institutions must make sure they submit reports on time and in the formats they have specified. By preparing the data within a single repository in CXAIR, submitting data to regulators in a specific format becomes a quick and painless task and removes the risk of financial penalties.

The growing regulations caused by the financial crisis of 2008 has provided numerous technology challenges to financial institutions who are now required to submit several reports to regulators in a variety of formats. To stay with the pace and meet future requirements these organisations need to evaluate their systems and identify those legacy systems that need to be replaced or upgraded. If not, they put themselves at risk of financial penalties because of missed deadlines or incorrect data submissions.