In our last article, we explored the cross-border reporting challenges faced by financial services institutions (FSIs) in the EU and how the European Central Bank’s (ECB) Integrated Reporting Framework (IReF) may help. Today, we’ll discuss key challenges and solutions in implementing IReF.
The proposed IReF scope represents a dramatic, end-to-end shift in regulatory reporting. Across Europe, national regulators are demanding higher volumes of more granular data, raising the cost of compliance while placing pressure on FSIs’ internal teams. By standardizing and harmonizing requirements on both the national and EU levels, IReF is designed to help these firms meet the increased reporting burdens with ease and efficiency while increasing the quality of the insights that can be derived. As the ECB puts it, the goal is to bring about a framework where stakeholders “define once, report once, regulate once and perform as one system.” But while this will yield long-term benefits, it will still require a data evolution, with reimagined workflows and new roles to be played, creating short-term disruption.
That means FSIs must take proactive steps today to ensure smooth adoption of IReF. While they’re sure to encounter challenges along the way, the right technology and overall approach can greatly streamline the transition, helping firms to not just comply, but thrive.
To enable efficient reporting of mandatory standardized regulatory data, it is important to standardize the input. Today, regulatory reporting complexity in the EU stems from two primary sources.
First, the two-level supervision framework involving both national regulators and supranational regulators requires duplication of data and creates a large reporting scope, straining resources.
Second, the varied approaches of the national regulators, who maintain their own specific definitions, requirements and calculation rules, lead to difficulties for large FSIs operating in multiple jurisdictions. IReF seeks to standardize these local requirements, which often contain significant overlap – and that necessitates a common data dictionary and data model for reporting. This consistency will make the reports easier to work with and more useful while eliminating key pain points.
IReF seeks to standardize these local requirements, which often contain significant overlap – and that necessitates a common data dictionary and data model for reporting.
Adriana Ellice-Flint Product Director
But in the short term, the increased granularity of IReF reporting will pose challenges. Because the ECB wants the underlying data, as opposed to template-based aggregations, the importance of checking this data for accuracy and performing validation work earlier in the process will be magnified. Discrepancies can no longer be hidden in the aggregation phase. The sheer volume of data that often exists in disparate locations across the FSI makes ensuring this consistency a massive challenge.
This creates a reporting workflow in which minute deviations have the potential to yield a large volume of errors.
In addition to comparing the underlying data to previous reports, these firms must also perform cross-report validations, fostering consistency across all obligations to align with regulatory priorities. Ensuring user-friendly data lineage traceability, with FSIs able to easily track all data transformations and map them to specific requirements, is key here.
The potential for different reporting formats presents yet another challenge. Both SDMX and XBRL are candidates to support this more granular reporting framework, and the utility of one versus the other may shift as the landscape evolves and new requirements are enacted. To fully prepare for the shift to IReF, FSIs must have the ability to support both.
From ensuring access to the right data and regulatory expertise, to marshaling disparate internal teams to support more granular reporting, failure to prepare for IReF will lead to increased costs, decreased operational efficiency and heightened risks around inconsistent reporting, possible breaches of regulatory supervision and more.
Adriana Ellice-Flint Product Director
These challenges are not merely academic in nature – there’s every likelihood that they will have a profound impact on FSIs’ business. From ensuring access to the right data and regulatory expertise, to marshaling disparate internal teams to support more granular reporting, failure to prepare for IReF will lead to increased costs, decreased operational efficiency and heightened risks around inconsistent reporting, possible breaches of regulatory supervision and more.
Finally, while it’s not a new issue for FSIs, the increased granularity will magnify existing data management challenges – the volume could quickly overwhelm most on-premise systems, jeopardize timely reporting submissions, not to mention increase the cost and stakes of managing the hardware. The answer, as in so many technology challenges, is the cloud. With the near endless scalability of cloud-based systems, FSIs can support any level of reporting granularity while ensuring easy data access and consistency across the entire organization.
Add it all up and IReF implementation amounts to a significant challenge for FSIs. Fortunately, Regnology is here to help. We have the technology, the expertise and the reach to not just help firms navigate any regulatory reporting challenge, but actually increase efficiency in the process.
Our widespread industry footprint enables us to serve frustrated FSIs that have already done extensive work to build reporting infrastructure for unique requirements at the national level.
Thanks to our acquisitions and client wins, we work with FSIs and engage with regulators throughout the Eurozone – including in Germany, France, Belgium, Austria and Switzerland – to build efficient reporting frameworks that meet their precise needs. That means we deeply understand the required elements and necessary workflows – and that we’re uniquely positioned to translate these into a unified IReF data model. We speak the distinct regulatory language of each national jurisdiction, enabling us to identify the common threads, adapt them with as little disruption as possible and fuel end-to-end processing for all.
This concept of adaptation is key given the nature of IReF – remember, it will not impose new requirements, but rather new methods for meeting the same requirements, from template-based workflows to more granular submissions.
Adriana Ellice-Flint Product Director
This concept of adaptation is key given the nature of IReF – remember, it will not impose new requirements, but rather new methods for meeting the same requirements, from template-based workflows to more granular submissions. That’s why we will still provide a template view for FSIs’ internal controls, and why we are building functionality to continuously compare partial datasets to previous submissions, which will enable FSIs to identify and validate trends before a sample becomes unmanageable. We sit atop these existing workflows as an add-on layer to allow for more granular formats – as an enabler and accelerator, not a disruptive replacement. In this way, we improve not just the quality of processing, but the overall experience as well.
We bring all the technical elements necessary for a successful IReF implementation, from cloud-based technology to modular architecture, enabling us to seamlessly connect different functionalities across the reporting process. We cover both SDMX and XBRL and are actively building a converter between the two formats. We combine all these attributes with the unparalleled expertise that comes from our decades of experience working with data across the regulatory landscape.
All this means that we are ideally positioned to help any FSI meet any IReF implementation challenge head-on. Our flexible technology can support any reporting use case, from a comprehensive, fully outsourced solution to more discrete functionality that supports FSIs’ existing tools. We are leveraging AI and other emerging technologies to create new efficiencies and help bring about the future of enterprise software. And most importantly, we are centering the end-user experience at every step, no matter what their specific needs are.
As we’ve seen in the discourse to date, FSIs generally agree on the need for IReF, and they have a solid understanding of the adjustments they need to make. They just need an efficient way of actually making them – and that’s where we come in. Through our advanced platform, versatile expertise and robust data management, data modeling and data lineage capabilities, we are enabling an evolution to comply with the proposed IReF scope, no matter what it may ultimately look like.
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Product Director Regnology
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