What does the future of regulatory reporting look like? 

Wil the amount of reporting requirements continue to grow? What will the role of tooling be? Will we continue to use templates in the future? These are some questions we often hear from clients when it comes to regulatory reporting. 

Unfortunately, we don’t have crystal ball to help us find answers to the ins and outs of regulatory reporting in the future. Nonetheless, we do think that we can take a shot at sketching an outline of the reality that is to come in the regulatory reporting domain by looking around us, seeking best practices and evolving from lessons we have learned, the hard way, in the past. 

Reporting as we know it today 

It is hard to believe that in the 90’s and early 00’s banks did paper-based reporting once per year. The flip side of that, which is much easier to believe, is that the absence of readily available data and insight lead to one of the biggest financial crises in our modern history. 

As a result of this, authorities have reacted with wave upon wave of new regulation to ensure more transparency, stability and a healthier financial services sector. Nowadays we are accustomed to: 

  • Prudential reporting 
  • Statistical reporting 
  • National reporting 
  • Supranational reporting 
  • Regular reporting 
  • Ad-hoc reporting 

Whilst the rationale to report is definitely worthwhile to pursue. We do see that within some of our clients the process to realise a regulatory report is not always efficient, requires many manual interventions, additional resources and is more often than not a tactical solution only ensuring compliance on the short term. 

A shift in direction and why? 

There are a couple of reasons why we think that the current way of reporting is likely to change, for the better, in the near future. 

The pace of change – Traditional financial services firms are being challenged by all kinds of newcomers to the market shaving off bits and pieces of their business models. They find themselves competing with neo banks, startups and other digital / online challengers with much less baggage and shorter decision times geared towards disrupting well-established (i.e., complacent) industries.  

A case could be made that regulatory reporting is one of the most important things a bank should do, but one should not forget that it is not their core business. They need to stay relevant to attract and retain customers. 

Exponential growth in datapoints – The amount of data points required for all mandatory reporting is continuously growing. “There were more than 56.000 regulatory alerts in 2019, with an average of 217 alerts daily”. These statistics don’t include the additional regulatory obligations for Financial Service Providers around Covid-19, when we add these to the list over the past 2 years there is an even further increase.” 

Increased complexity of reporting – Regulations are becoming more demanding and the period in which a report is expected to be delivered is shorter and shorter, notable examples being stress tests and reports delivered in response to Covid-19 scenarios.  

In addition, the complexity is also stemming from the required interaction of the many different components required to realise a report, i.e., systems, departments, projects and programs as well as overlapping regulations.  

Stretched resources and budgets – Regulatory reporting comes at a price. The cost of compliance has steadily increased over the past couple of years. Although budget is carefully allocated and priorities are set accordingly, there is still a scarcity in terms of the timely availability of resources regardless the cost. The fact that the current approach is still very much a manual people-driven approach results in fierce competition in the labour market for skilled resources. Even internally, employees with experience and know-how are becoming a scarce commodity.  

What would change? 

Increased use of technology and tooling – Linearly adding resources to try and field an exponential increase in data points being requested by regulators is not sustainable. The business case for tooling is growing, future challenge being to select the right partner and tooling for the job.  

Efficient usage of data – Better governance around data will enable more efficient aggregation capabilities and generate more insight into golden sources. Thus, enabling to better steer on the overlap and ensuring a source once for multiple reports approach. If not already the case, sound data governance principles and practices should receive high priority as to ensure a solid reporting foundation for the future.  

Compliant by design solutions – Reconciling the current reporting landscape and aligning the data overlap is a worthwhile investment but it will take time and a strong guiding hand from senior management.  

What we do see is that for future reports there will be a shift towards solutions for a specific area that will facilitate the end-to-end process in such a manner that evidencing compliance and delivering a report will become easier. Also laying the foundation for future reporting requirements and changes to be implemented faster and with less effort. 

Reporting requirements around ESG is a good example, as the field is still relatively new, guidance on implementation is much needed and the requirements are still being defined and the regulations are evolving.  

Move away from templates – As proven in Austria where the majority of banks and financial service providers decided to launch a joint project to reorganize reporting to the Austrian National Bank (Oesterreichische Nationalbank “OeNB”). Through a buffer company AuRep they run a common software platform, which works as the central interface between the banks and the OeNB.  

“Granular bank data sets are captured automatically for supervisors to interrogate in whichever way they want, whilst the banks retain control over their commercially sensitive data, maintaining only the so-called “passive data interface” on the AuRep platform.” 

This real-time approach could serve as an industry best practice and further roll-out of the idea behind this approach is worth exploring in the future.  

What to do next? 

As the saying goes, the best way to predict the future is to create it. In terms of regulatory reporting this really rings true. The best way to do this in the regulatory reporting environment is to increase focus on experimentation and innovation. 

Specifically focussing activities around the long-term projects launched by the European Systemic Risk Board (ESRB) and the European Central Bank (ECB): 

  • Banks’ Integrated Reporting Dictionary (“BIRD”) aiming to alleviate the reporting burden for banks, foster cooperation in the field of regulatory reporting, and improve the quality of data reported to the authorities 
  • Single Data Dictionary (“SDD”) The Single Multidimensional Metadata Model (SMCube) is used to define the structure of a group of datasets that have been compiled following different modelling methodologies (e.g. SDMX, DPM/XBRL). This model establishes a new level of abstraction in addition to the original approaches so that the different datasets can be used in combination. 
  • European Reporting Framework (“ERF”) – The ERF model aims to ensure a precise, simple and unambiguous definition of information relevant for reports. 

With years of experience in the regulatory reporting landscape our ACT team of experts are well equipped to help improve the current challenges faced with regulatory reporting and to contribute to shaping innovative and sustainable solutions required for the future of regulatory reporting.

Back to News & Events