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Friday, September 20th, 2019

Wolters Kluwer :’s Finance, Risk & Reporting Experts Predict Increased Focus on Data Management for 2018

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by December 21, 2017 General

Data quality, consistency, reconciliation and lineage is now top of mind
for both regulators and the financial services firms they oversee.
That’s according to subject matter experts at Wolters Kluwer’s Finance,
Risk & Reporting business who are predicting an increased focus on data
structure and management for 2018. Whereas regulatory requirements were
previously centered on firms submitting static reports at a specific
time, in the correct format, there is now set to be an increased
appetite for more detailed and granular data to gain deeper insight.

“Financial services firms have been building solutions to address the
onslaught of regulatory requirements that have been enforced on them
over the years. These are often comprised of numerous technologies,
inflexible technology support, overlapping but variant functionality and
discrete independent data models that create a tactical legacy that is
costly and inefficient to maintain,” notes Rajat Somany, Global Head of
Strategy, Product and Platform Management for Wolters Kluwer’s Finance,
Risk & Reporting business. “This has been a problem which firms have had
to find workarounds for but those approaches are becoming increasingly
insufficient due to a gradual but significant step change in regulators’
mind-sets. Banks would now be well advised to implement systems that
allow them to satisfy regulatory demands that are increasingly focused
on obtaining meaningful data assurance as opposed to receiving static
reports.”

Regulatory drivers contributing to this trend include the Basel
Committee on Banking Supervision’s Standard Number 239 (BCBS 239). The
objective of BCBS 239 is to induce banks to improve the way they define,
gather and process risk data to enhance their ability to manage their
risk positions within their risk appetite. Adherence to the principles
will result in wide-ranging changes to the way banks manage risk and
hence their business. In many cases modernization of data management and
internal control procedures is required.

AnaCredit (Analytical Credit Datasets), meanwhile, requires firms across
the eurozone (plus some other countries on a voluntary basis) to deliver
granular credit and counterparty information. It introduces a
significant change in the amount of data that is required to be
reported, and on such a frequent basis — daily in some cases. All
affected firms will be expected to have up-to-date expertise around data
requirements and local discretions, as well as processes in place to
monitor further stages that could affect both their single and
multi-country operations in the future, Wolters Kluwer’s experts note.

“The demands of International Financial Reporting Standard (IFRS) 9 and
the Current Expected Credit Loss (CECL) standard also contribute to the
need to up the focus on data management. The shift in the treatment of
impairments from an incurred-loss model to one that involves measuring
expected credit losses, will mean substantial adjustments to data
management systems,” adds Jeroen Van Doorsselaere, Vice President
Product Management, Global Finance & Risk for Wolters Kluwer’s Finance,
Risk & Reporting business. “Principles and procedures for classifying
assets in terms of credit quality and calculating losses likely to
accrue from them will have to be developed. Once in place, the
procedures will have to be applied to every asset on the balance sheet.
Finance, Risk and Reporting will become truly integrated as the start
date for the new CECL standard approaches and we see the implementation
of IFRS 9. A truly integrated process ultimately provides the best
foundation for a bank’s Management Information System.”

Regional developments

Regional developments are likely to include an end to the relative dry
spell for North American regulators. “We have already seen this in the
U.S. with the delay of the phase-in of certain capital rules for
non-advanced approaches banks. This freeze comes as the U.S. regulators
are considering much demanded (most notably from the American Bankers
Association) simplifications of the capital requirements,” notes Todd
Lawrence, General Manager of Wolters Kluwer’s Finance, Risk & Reporting
business in the Americas. “The Federal Reserve also has made statements
recognizing the impact of the new current expected credit loss model to
accounting provisions and, consequently, retained earnings and
regulatory capital. They are therefore considering separately whether to
make adjustments to the capital rules in response to CECL and its
potential impact on regulatory capital.”

Additionally, the finalization of the post-crisis reforms to the Basel
III framework by the BCBS has already been fully endorsed by the Federal
Reserve. This only strengthens the expectations of a revised framework
in both the U.S. and Canada, Lawrence says. Wolters Kluwer’s experts
also note that regulators are shifting, or expanding, their focus from
the largest Tier 1 banks to mid-size banks. “These banks are heavily
exposed because of highly manual processes and key person risk,”
Lawrence adds. “In Canada, meanwhile, banks will be busy implementing
the Basel Capital Adequacy Reporting changes to include IFRS 9 related
details and remaining Basel regulations such as the Total Loss-Absorbing
Capacity (TLAC) standard.”

The Asia Pacific (APAC) region will also prove to be busy when it comes
to regulatory efforts to increase consistency and transparency. “For the
first time in many years, both The Australian Prudential Regulation
Authority (APRA) as well as The Monetary Authority of Singapore (MAS)
decided to completely revamp their key financial position reports,
impacting all supporting forms, and requiring multiple new attributes,
calculations and aggregations,” says Wouter Delbaere, Market Manager,
Regulatory Reporting, for Wolters Kluwer’s Finance, Risk & Reporting
business in APAC. “While APRA recently finalized its requirements and
deadlines, we are expecting MAS to achieve the same by early 2018.”

Other regulators across APAC have also indicated that many changes are
on their way, with The Hong Kong Monetary Authority, for example,
announcing the impact of IFR9 and Interest Rate Risk in the Banking Book
(IRRBB) on regulatory reporting in Hong Kong.

The European Union’s banking sector, meanwhile, faces a revised Capital
Requirements Directive and Capital Requirements Regulation, CRD V and
CRR II. “In a 500+ page package these revisions to CRD IV and CRR are
likely to stretch significant regulatory change into the next decade,”
Van Doorsselaere warns.

“Given the plethora of regulatory drivers globally, financial
institutions’ senior management teams will be looking for ways to
enhance their risk management and decision-making processes internally,”
Somany adds. “It’s safe to say that data quality, consistency,
reconciliation and lineage will remain key for regulators and banks
throughout 2018. And banks who want to ensure a competitive advantage
will adopt emerging technologies, such as RegTech, and business models
to equip themselves with the strategies and capabilities needed to
address these challenging regulatory changes.”

About Wolters Kluwer Governance, Risk & Compliance

Wolters Kluwer Governance, Risk & Compliance (GRC) is a division of Wolters
Kluwer
 which provides legal, finance, risk and compliance
professionals and small business owners with a broad spectrum of
solutions, services and expertise needed to help manage myriad
governance, risk and compliance needs in dynamic markets and regulatory
environments.

Wolters Kluwer N.V. (AEX: WKL) is a global leader in information
services and solutions for professionals in the health, tax and
accounting, risk and compliance, finance and legal sectors. Wolters
Kluwer reported 2016 annual revenues of €4.3 billion. The company,
headquartered in Alphen aan den Rijn, the Netherlands, serves customers
in over 180 countries, maintains operations in over 40 countries and
employs 19,000 people worldwide.

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