In 2018, risk regulations and compliance continue to grab the attention of banks and financial institutions—which of course applies to existing measures such as Basel III and the comprehensive capital analysis and review (CCAR). But new measures also sit on the anvil, awaiting enforcement by the regulatory agencies. These include the fundamental review of the trading book (FRTB), set to go live in 2019, and Pillar 3 disclosure requirements.
Add it all up and it comes as no surprise that financial services organizations need ways to contain the cost of compliance on existing and newer regulations through various initiatives. The question is: How will they do it?
In the risk and compliance adoption value chain, regulatory reporting represents a key area where most banks and FIs allocate much of their annual budget (to generate frequent required updates). As regulations have matured, most of the newer requirements insist on qualitative analysis of the data. The trouble is that banks are saddled with many challenges that turn this into a cumbersome task:
- High cost for the right technology and tools. It’s been observed that many banks have gone in for third-party solutions, which are very expensive.
- Multiple data sources—which make it difficult to achieve the required standardizations for regulatory reporting.
- Complex, manually intensive processes—which are also error prone and costly. Most of the regulatory reporting process in banks is complicated and manual. It’s estimated that nearly 80 to 85 percent of time is spent on report preparation. Think about that. Now consider this: Only a meager 10 to 15 percent of business time is spent on the actual review and analysis of reports.
- Lost time marketing to scale. The requirements of newer regulation, and/or enhancements, mean a major time investment to effectively adapt to them.
- Lack of adequate data governance and controls. This pertains to existence of multiple data sources; lack of adequate data quality controls; and governance processes. All of these make the reporting process error prone and high on remediation.
- Difficulty in gathering actionable insights. This results from data sources that lack integration and function in silos.
All these sticking points are moving organizations to think more on adopting regulatory reporting as a service (RRaaS). So what is RRaaS? How does it work? And what are the benefits for banks already taxed by the rigors of regulation?
RRaaS aims to create a common technology platform where all regulations are kept and maintained in a centralized location (in this case, on the cloud). Through this virtual solution, banks can save on technology, infrastructure and business resource costs.
RRaaS helps banks to gain actionable insights and make better informed business decisions. Simply put, it does this by helping collect the required data, while it manages and monitors the entire reporting value chain. Because RRaaS is hosted on the cloud, the solution integrates with an organization’s existing data sources—which can then reside on and in various systems, databases, feeds from external websites and even unstructured online content from social media, which may be needed depending upon the reporting scenario.
The data is further enriched, transformed and modeled per business requirements before it moves to the consumption layer: a customizable, interactive layer that contains a host of dashboards and reports available for end business users.
The entire reporting value chain—from collection to consumption—now boasts adequate data governance and controls. That bolsters data quality management as well as data security.
From collection and consumption to adoption
RRaaS addresses many reporting challenges; it serves to do the following:
- consolidate data from multiple sources
- provide adequate data governance and controls
- centralize all bank reporting activity
- speed up compliance with newer regulations
- assist management to make informed, quicker decisions
- create an interactive interface for business users, via the cloud, that allows seamless access to required information
Putting it all together: The road to RRaaS adoption
To be certain, many banks remain in initial and exploratory stages with the RRaaS concept. But adoptions are slowly increasing because it gives organizations the analytical capabilities to better understand their data. A host of questions have slowed the adoption of the concept: security aspects, return on investment and infrastructure requirements, to name a few. Hence some banks have enlisted a “proof-of-concept approach” towards a deeper understanding of the benefits.
That said, those who’ve passed the initial POC stage have started to adopt readily available third-party RRaaS solutions. This opens the door to commercializing the same to other institutions, once their RRaaS solutions attain the necessary maturity. When that time arrives—if not before—banks will discover thorough acumen behind the thorny acronym.
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Ajay Katara is a domain consultant with the risk management practice of the banking and financial services (BFS) business unit at Tata Consultancy Services (TCS). He currently leads the BFS risk practice portfolio on regulations and robotic process automation.
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