Our ESG expert and Product Director Erik Becker recently met with FinTech Global for an interview on ESG reporting.

Regnology has been on quite a journey. Previously known as BearingPoint RegTech and founded in 1994 it subsequently rebranded under the name Regnology in 2021 following its merger with Vizor Software. As the world slowly emerges from the chaos of the last few years, the newly named company is ready for new opportunities in a world where RegTech is in increasingly high demand.

What does the name Regnology mean? According to Regnology product director Erik Becker, the name goes to the heart of its core business – regulatory technology.

Regnology has been an innovator of regulatory and supervisory technology solutions, Automatic Exchange of Information (AEOI) and tax reporting for over two decades. These offerings include professional and managed services and technical support for its services and solutions. The company also houses a ‘reporting factory,’ the RegTech factory, which is digital, fully integrated and automated and helps banks reach substantial economies of scale.

In short, Regnology provides a range of regulatory, supervisory and tax reporting software solutions and services from a single source. The firm’s RegTech solutions enable firms to manage and report regulatory data to supervisory authorities, while its SupTech solutions enable regulators to manage and analyse data that supports the prevention of financial crises. The company also offer tax reporting and AEOI solutions to assist financial institutions on the one hand and tax authorities on the other in ensuring global tax transparency.

Regnology works constantly on new reporting innovations. With the RegOps concept as an innovation in regulatory reporting, for instance, Regnology have developed an agile platform for digitalising the regulatory value chain. RegOps is a regulatory reporting framework that combines an integrated data flow – the common processing of standardised, granular data sets – on a large data-enabled platform for computation and analysis.

Where the company is really blazing a trail is in the hot-button area of ESG. Regnology markets its ESG disclosure module as a part of its flagship Abacus360 Banking product, which is used for national and international regulatory reporting. The module is designed for Single Supervisory Mechanism (SSM) banks that are required to comply with the European Banking Authority (EBA) ESG risks disclosure reporting ITS from 2022 onwards. Regnology detailed that from next year on, these institutions will be required to report twice a year on climate change-related risks.

In addition, Regnology are currently planning to cover the requirements of EU Taxonomy Regulation, (which sets out the different disclosure obligations of ESG risks, and overlaps with the EBA ITS as regard Green Asset Ratio (GAR)) by way of a further solution.

What differentiates this solution from others?

According to Becker, Abacus360 Banking offers, “standard software for regulatory reporting across several jurisdictions and has a wide customer base in Europe.”

He added, “Abacus has one single data model that is used by all reporting, risk and finance applications and thus enables data consistency across departments, as required by the Basel Committee on Banking Supervision’s (BCBS) 239 standard.

"The solution’s USP is that the data model already contains most of the data needed for ESG reporting. What this means in practise is that banks already using Abacus360 Banking, and who opt for the new ESG reporting module, will have a considerably less demanding implementation effort than setting up ESG reporting as a stand-alone solution. The solution has flexible deployment scenarios allowing for either on premises installation, software as a service (SaaS) or complete business process outsourcing (BPO)."

 

With climate change and sustainability becoming an increasing prescient and relevant topic for financial institutions, the ESG market is continuing to grow considerably in stature. However, as Becker highlights, “ESG does not simply include the reduction of climate and environmental damage, but also addresses social issues and sustainable corporate governance.”

“The economic consequences of the pandemic further strengthen the need for social sustainability. The situation thus has its challenges but also has its opportunities. Demand for sustainable financial products such as sustainable investments, green bonds, impact investments and green financing is increasing markedly, for example.

“Clients are looking to invest with purpose, which means that they seek transparent reporting ESG KPIs. Institutional investors need to be able to offer transparent solutions for their clients, even if the opportunity for investment is in short, albeit growing supply. New ESG KPIs will be instrumental in differentiating between the competition.

“Ultimately, climate and ESG-related risks need to be taken into consideration in key areas of banking business such as investment products, credit and portfolio management. Financial institutions will benefit by introducing the tailored integration of these risks into their risk management framework.”

ESG roadblocks and trends

What are the biggest roadblocks for the mass uptake of ESG in the financial services industry?

For Becker, one of the key challenges is transferring one’s own ESG strategy into the organisation. He notes that, “ESG or ESG criteria must be embedded into existing processes, otherwise there is a risk of high redundancy as well as parallel control (e.g., in the credit or investment cycle and the corresponding decisions that play a central role in the management of funds or assets).”

"Another key roadblock is collecting, managing and using ESG data for risk modelling and disclosure. The collection, acquisition and interpretation of this information is resource intensive. Using third parties such as ESG data providers can be helpful here, although the information obtained through these channels is not always comparable and not standardized. Centralizing this data and integrating it into existing data warehouses covers most regulatory requirements or its use for internal purposes."

 

At a time where ESG is becoming less of a choice and more of a necessity, the sector is beginning to heat up. What trends in ESG does the industry need to watch out for this year?

“The first delegated act on sustainable activities for climate change adaptation and mitigation came into force on January 1st, 2022, and the European Commission began consultations on the second delegated act to address the remaining objectives. The taxonomy regulation and its delegated acts will provide an opportunity for a radical increase in sustainable finance, and the second delegated act has already proven incendiary.

“Meanwhile, climate stress testing in 2022 can be used for ESG risk assessment. Also in 2022, the European authorities plan to draft a new Corporate Sustainability Reporting Directive, which will require around 50,000 companies to file reports. This is expected from January 1st, 2024. “

Does the mass uptake of ESG require more public-private partnerships to really take off?

In the eyes of Becker, this is definitely needed, along with the inclusion of ESG criteria in Public Private Partnership (PPP) regulations.

“Gradually, people’s views and levels of awareness will change as the impact of future climate change becomes more apparent. This will lead to greater support for “green” issues and subsequently socially responsible PPP projects.

“Overall, ESG concepts and practices have grown exponentially since the 2008 global financial crisis. This includes demands for the private sector to contribute to finding a solution to today’s global challenges, combined with a requirement that infrastructure projects be more resilient to external shocks such as climate disasters.

“Integrating ESG factors also offers a potential economic spin-off in that they will require private sector partners to assess and manage ESG risks and issues throughout their procurement and supply chain activities. However, coupled with the inclusion of ESG in PPP regulations, monitoring of these regulations is then also essential to avoid the risk of greenwashing.”

What are Regnology’s plans for 2022 and beyond?

Following last year’s rebranding, Regnology is looking to continue to spread its wings as it grows its market standing. What does it have planned this year?

“For 2022, we are investing heavily in cloud native. Our vision is connecting regulators and the industry to drive financial stability, tax transparency and a sustainable future."

"Regnology Cloud meanwhile will offer Software as a Service for both the financial industry and its regulators. It will act as a platform for secure, cloud-based access to our reliable RegTech, SupTech and tax reporting solutions, allowing our customers to focus on their essential activities, namely the organisation and execution of business processes."

 

“Our focus is clearly on accelerating international growth and expansion, driven by organic growth, but also by acquisitions.

“On the product side, we will continue to invest intensively in product development and platform solutions. With new regulations frequently being introduced, the key for all stakeholders is having significant amounts of high-quality data, faster. Thus, we see our core tasks as improving processes and technical set up for more effective data collection and better-quality reporting.

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