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Putting regulatory reporters in the driving seat with the cloud

Regulatory reports have become too complex to handle, forcing banks to search for alternative and sustainable cloud-based solutions that can reduce the cost of compliance.

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Putting regulatory reporters in the driving seat with the cloud

Editorial

This content has been selected, created and edited by the Finextra editorial team based upon its relevance and interest to our community.

While many financial institutions (FIs) outsource their regulatory reporting requirements to third parties, banks are also having to contend with a gap between what service providers deliver and the remaining workload that still remains in house.

In order to combat this, banks must empower internal team members referred to as ‘power users’ - those who understand frameworks and can anticipate future changes - to ensure that the regulatory reporting requirements are met, which can be done with the four principles outlined in Moody’s Analytics’ recent report ‘Reporting as a Service: Putting Power Users in the Driving Seat.'

Power users must be given:

1. Full ownership of reporting and data cycles
2. Powerful user interface toolkit with a rich set of functionalities
3. Continuous and automatic delivery of regulatory updates and upgrades
4. Performance on-demand.

Finextra spoke to Victor Pinto, senior director for banking solutions in Europe and Africa at Moody’s Analytics about how the cloud can reduce the cost of compliance by overcoming the limitations of data warehouses and increasing capacity and agility.

Reducing the cost of compliance

Pinto highlights that “SaaS is the real enabler of increased productivity for banks, since banks can rely on the vendor to provide a series of services, beyond hardware maintenance, on top of the solutions. Reporting as a Service can help banks reduce their regulatory burden and total cost of compliance.”

However, as discussed, the increasing number and complexity of regulatory reports are burdensome as FIs have to cope with regulatory changes which involve analysing, understanding and assessing the impact, in addition to implementing the regulatory changes and doing so in time.

He continues: “FIs that have their regulatory software in SaaS mode can potentially benefit from services from the vendor ahead of regulatory changes. For instance, the vendor could automatically put in place a parallel environment with the new regulatory requirements processed with the client’s production data.

“Together with this, clients could also have access to online training and explanations about the requirements. One can also imagine variance analysis also with explanations of all the calculations before and after the implementation of the new requirements.”

With the cloud, implementing new regulatory changes is simple and can be delivered seamlessly.
“SaaS deployment simplifies, eases and reduces the cost of the upgrade process for our clients. This means that, contrary to an on-premises deployment, clients do not need to plan for an upgrade to stay up to date, and can be sure that their software is continuously up to date and improved,” according to Pinto.

Owning data and reporting

Pinto explores how banks are accustomed to ETL: “extract, transform and load processes that require data to be extracted from one or many data sources and then transformed or repurposed and deposited into another repository, typically referred to as a data warehouse or data mart.”

However, a shift needs to occur as the industry is also seeing regulators requesting more ad-hoc reporting under the form of Quantitative Impact Studies, putting more responsibility on the end users who need to now analyse and adjust the reports at a faster rate.

“Innovative data analysis strategies such as schema-on-read are changing this paradigm and bring more ownership to end users. The data does not have to be physically transferred or
restructured, therefore shortening project cycles,” Pinto says.

He adds: “Cloud deployment and big data technologies allow the schema-on-read approach, by which end users who are familiar with the data and know what data is required for a specific report are empowered to do this directly without going through several iterations of data preparation. This allows banks to gain precious time in their regulatory reporting cycles.”

Continuous regulatory updates

To take specific regulations into consideration, Pinto says that with the finalised Basel III rules coming into force in 2022, in addition to the annual EBA taxonomy changes, banks will “need to keep their regulatory reports up to date every year - let alone the QIS. And they need to understand the final Basel III rules, assess the impact and implement them on time.”

If they choose an on-premises approach, FIs would be required to upgrade different environments for reporting and contend with pressure on computing performance due to increased data granularity and larger data volumes. However, SaaS provides banks with a flexible and cost-efficient way to address regulatory requirements.

“With SaaS deployment, banks will be able to handle any data volumes and ensure operational agility thanks to the scalability of the cloud, this becomes key in view of the new Basel IV rules that banks need to implement by 2022.

“Moreover, in addition to a SaaS deployment, banks need solutions embedding a powerful user interface (UI) toolkit with a rich set of functionalities such as data enrichment and data lineage to drill down and drill up so that the user can easily trace between the source data and final outputs, variance analysis and adjustments and reconciliation capabilities to ensure that the numbers reported are correct,” Pinto explores.

Scalable computing

While daily requests from regulators have been discussed, end user demands also fluctuate day to day and the cloud can supply scalable computing power according to need, high performance and availability being considered.

Pinto explains that “on-premises deployments force customer to invest in the maximum resource capacity to absorb processing pikes. The elastic nature of the cloud enables us to provision the resources on demand and pay for the time it’s used only.

“This drives cost to the minimum while ensuring we can achieve the expected performance with almost no limit.” He concludes: “A modern cloud architecture also enables us to dramatically improve the availability of the service since all micro-services are duplicated across several datacentres to serve all of our customers at once.

“Nearly 100% availability is impossible without high costs with on-premises approaches but can be guaranteed in cloud deployments.”

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