The spring and summer of 2020 were marked by waves of regulatory changes regarding prudential requirements and reporting in light of COVID-19. These occurred in the midst of the shift towards further Basel III implementation, coming through from CRR II/CRD V. In addition to this, we are approaching the end of the transitional period for the UK’s withdrawal from the European Union, on 31 December 2020. The deadline’s impact will be felt not only by reporting institutions regulated by the UK regulators, but also across the EU, as decisions about equivalence and mutual recognition of standards are made at a political level.
The concern of many banking institutions right now is to adopt the COVID related amendments together with other, already-planned changes in the immediacy of the pandemic-related adjustments. Investment firms currently governed by the CRR/CRD, will face yet more transformation from June 2021 with the introduction of the new prudential regime of the Investment Firms Directive and Regulations (IFD/IFR).
CRR II/CRD V implementation dates have altered in some areas as the European Banking Authority (EBA) deprioritised certain workstreams to make way for COVID-19 revisions through the Quick Fix CRR amendments in June 2020. Domestically in the UK, some supervisory workstreams with reporting implications have also been pushed back. These include operational resilience; changes to regulatory data collection; and amendments to the supervision of outsourcing in the light of new technologies. In May 2020, the UK Financial Services Regulatory Initiatives Forum published the latest estimated implementation timelines in the recently launched Regulatory Initiatives Grid. This recently launched publication aims to coordinate the raft of changes and mitigate operational impacts on the industry.
By contrast, the EU withdrawal transition deadline is a fixed date of 31 December 2020. Whether financial institutions operating in the UK are bound by CRR II/CRD V requirements in the UK depends firstly on the date of implementation of the requirements (irrespective of whether the relevant legal text came into force before 31 December 2020); and secondly, whether the requirements are in the form of binding regulations, technical standards or guidelines.
This means a cluster of as-yet unconfirmed data-related changes, originating from UK and EU made policy decisions, are building up for institutions. In addition, implementation dates are by no means all confirmed. Both issues will fundamentally affect supervisory reporting to UK banking regulators in 2021 and beyond.
From 1 January 2021 it remains to be seen how closely the UK regulators - and institutions operating in the UK - will follow non-binding CRR II/CRD V requirements that must be implemented on or after that date. UK regulators would have more latitude, in theory at least, to apply guidelines with modifications, for example to reflect the specificities of the UK market, or to diverge from those requirements on cost-benefit grounds.
One possible indicator of minimal divergence in future is IFR/IFD implementation, due from June 2021. There are overlaps between certain aspects of the prudential regimes under the CRD and the IFD frameworks, for example definitions of capital and fixed overheads are being replicated from the CRR. While there will be new elements introduced such as the more risk-sensitive K-factor, the FCA has signalled it doesn’t envisage major variance from the finalised EU standards, despite them coming into force after the UK has left the EU. This approach reflects the UK regulators’ longstanding influence and participation in IFD/IFR policymaking and could be read as an indicator of the future approach.
Irrespective of the eventual UK regulatory approach to future EU standards and guidelines, supervisory data will undoubtably be subject to ongoing, intensive investigation by regulators. This extends beyond the output values in reporting templates to the narrative reports in ICAAPs and ILAAPs; the robustness of data processes; and financial interpretations and judgements made by institutions, as shown in submissions to regulators and publicly-disclosed information to the market.
Whatever the changes, the Abacus Banking solution will continue to adapt as necessary for regulatory reporting under both EU and UK requirements.
The Abacus360 Banking software solution delivers efficiencies with its one-to-many highly granular data model. Through its innovative technology, Abacus360 Banking automates the reporting process from data delivery, data analysis, audit and reporting, including calculations and validation, through to transmission to supervisory authorities in the necessary electronic file formats. Abacus360 Banking enables scalable, flexible reporting capabilities for corporate and retail banking, aiding UK-based and cross-border banks in effective and traceable risk reporting in multiple jurisdictions.
In addition, BearingPoint’s managed services remove the burden of monitoring regulatory changes and assessing their operational and technical impacts. Application management and outsourcing under managed services free up personnel to execute the organizational and business changes necessary for more effective supervisory reporting.
Organisations can take control of regulatory change transformation by raising skill sets internally around risk data and reporting. Practical training in this area is scarce but is just as relevant to those new to the industry as it is for experienced risk or technology specialists, whether policy makers or working in corporate or retail banking. Organisations need to invest in building a common core knowledge of combined risk management and regulatory reporting. Training on risk reporting equips personnel across risk, treasury, compliance and technology areas to speak a common language, facilitating both organisation-wide strategic transformation and business as usual production of regulatory data.