After years of piling new requirements on banks, regulators appear increasingly keen to help financial institutions resolve the issues that have arisen with rising reporting obligations. We see this trend as broadly positive – but it is also likely to create some complexities of its own.
The latest example is the Monetary Authority of Singapore’s (MAS) unveiling of its roadmap for the transformation of the collection of data from financial institutions. This was first flagged at a FinTech event in Singapore last year at which the regulator made it clear the initiative was designed to address a “major source of pain” for banks – duplicate requests for data under different collection exercises.
Under the roadmap, all new regulatory returns to MAS must be provided in machine-readable formats. This requirement will be extended to new surveys and ad-hoc data requests from next year onwards, with MAS pledging to seek and incorporate feedback from banks on relevant templates. The regulator also announced its intention to change how it defines data requirements, shifting emphasis from aggregate statistics to details on underlying transactions, again noting it would consult with the industry to set appropriate levels of granularity.
Interestingly, the roadmap gives banks the right to turn down any requests from MAS for data that has already been provided to the regulator -- all with the aim of helping institutions “reduce the resources and preparation time needed to produce data.”
A new global paradigm
MAS’ move is in keeping with a broader movement globally of regulators working to automate and streamline the data gathering process, with mixed implications for banks. As far back as 2010, the Reserve Bank of India (RBI) released guidelines on the automated flow of data to create a “straight through” process of reporting from bank servers to the regulator. The European Central Bank, meanwhile, introduced AnaCredit in 2011 to create a harmonized credit information database, resulting in more detailed credit and counterparty reporting requirements for banks but also more standardization.
In Austria, the central bank has in cooperation with industry developed a multi-dimensional reporting methodology with the objective of improving data quality, accuracy, consistency and reliability, while also enhancing flexibility and reducing system costs; a potential model for other jurisdictions.
Australia’s regulatory authority has also embarked on a “data transformation” project to replace its current outdated data submission tool. APRA is looking to tender for a future-proof solution which requires no application installation and has greater flexibility surrounding data submission methods. At the same time the regulator needs to ensure the solution benefits both the users and the regulator alike, and will be consulting with the industry and vendors before making a choice later in 2018.
Turning back to MAS, the emphasis on automation means banks will be watching new forms closely. The regulator has published finalised templates for the revised versions of MAS 610 and MAS 1003 – broadly in line with previous versions -- and a draft version of their formulas.
The update also confirms a six-month parallel run period (April-September 2020) in which current and revised forms will have to be filed, and relaxes the timeline for the planned removal of the domestic banking unit (DBU) and Asian currency unit (ACU) accounting divide, which should free banks up to concentrate on system changes to prepare for implementation of the new notices. Given the data duplication announcement, automation should be a key part of this process.
Tackling the transition
There’s little doubt automation will, as regulators intend, reduce report preparation overheads over the long term. However, many institutions will also have concerns. Some institutions may find that collecting more granular data is likely to increase reporting complexity. Providing all data in machine readable format by MAS’s planned deadline may also be challenging.
In some cases, the manual entry of data into source systems is already relatively efficient, and well established. Automation is likely to require the integration of multiple source systems to facilitate data sharing. This provides further impetus for banks to transform the disparate data marts and processes underpinning key functions into a more integrated, future-proof approach that will benefit compliance. It will also necessitate the maintenance of clean data in front office and other upstream systems, since the freer flow of this data could give rise to information that impacts the institution’s credibility and reporting outcomes.
The pivot towards automation and more detailed (rather than simply more numerous or onerous) data requests provides a clear impetus for banks to minimise the number of source systems they operate, to reduce the effort associated with integrating granular data. It highlights the importance of having robust, built-in controls at the data entry point of each system to guarantee an appropriate level of standardisation and quality control. With requests (and changes) emerging from a variety of jurisdictions, banks should also seek out systems that are customisable across locations to adhere to various local regulatory requirements, and that can be easily scaled to additional locations to support the growth or transformation of the business.
It’s worth keeping in mind that greater automation, granularity and frequency of reporting promises much more than efficiency gains. Banks will be creating more accurate, detailed data pools that are ripe for analysis, representing a considerable source of internal risk management and business intelligence insight. Institutions would be remiss if they did not seize the opportunity.
Future-proofing against the regulatory change
Finally, MAS’ new requirement will likely imply that even the new MAS 610 forms may not be sufficiently granular to achieve true “single detailed submissions across Singapore” as envisioned within MAS’ roadmap, and that changes down the road should be expected. Because of this, banks should consider solutions which don’t only help ensure the MAS 610 compliance but which also address potential new requirements around data granularity whilst enabling banks to avoid unpredictable costs arising from exposure to regulatory change.by Swati Kothari, Regulatory Product Manager, Wolters Kluwer