28 Nov Addressing Regulatory Cliffhangers In Brazil With Innovative Technology
The Resolution 4557 Illustration
By: Marlene Dos Santos, Regulatory and Risk Subject Matter Expert, Brazil
Brazil’s regulatory eco-system is complex and demanding for all financial market participants. As mandated by the National Monetary Council (CMN), supervised banks and other entities must regularly provide extensive risk and liquidity information to the Central Bank of Brazil (BACEN) and to the Securities and Exchange Commission (CVM). Global systemically important banks (G-SIBs) and international financial institutions doing business in Brazil must acclimate to Brazil’s unique regulatory regime. Achieving compliance presents a three-fold challenge.
- Understanding: To pinpoint which regulations apply to them and what is required, supervised financial institutions (FIs) first must interpret and understand relevant Brazil regulations while coping with a significant language barrier.
- Reporting: Next, they must build the capability to source the right data and correctly submit required reports accurately, on time — as often as intra-day.
- Adapting: Lastly, they must be prepared to adapt to changes that come frequently, often with only a moment’s notice to respond.
An FI dealing with this situation may well ask itself: Do our technology capabilities stand up to the regulatory challenges we face in Brazil?
If the FI lacks a high-performance data-driven technology platform and instead relies on rustic data collection, systems and processes, it will struggle to meet its regulatory requirements. The volumes and velocities of required data, the complexities of aggregation and calculation, and immutable regulatory deadlines and changing requirements will begin to look awfully like the precipices of very high cliffs.
Regulatory challenges become compliance cliffhangers unless FIs address them with the innovative technology.
The Resolution 4557 Illustration
For many FIs operating in Brazil, Resolution 4557 exemplifies these challenges. Basel-III driven, it encompasses liquidity risk and the interest-rate risk in the banking book (IRRBB). As such, it is complex in scope and detail. The gradual issuance of Circulars and other instructions that dictate required methodologies and measures required for risk monitoring can place supervised entities in a state of suspense — creating a compliance cliffhanger. Circulars 3869 and 3876 are cases in point.
Under Resolution 4557, BACEN establishes minimum quantitative requirements for measuring and monitoring short- and long-term liquidity risk. The requirements for the liquidity coverage ratio (LCR) are already in place. However, addressing NSFR is a more recent development. In December 2017, BACEN issued Circular 3869, a complex rule that requires aggregating and reporting on very large quantities of data. Despite it taking effect in October 2018, complete details of the NSFR rules were issued only two months before the deadline. With Carta Circular 3900 of August 2018, BACEN provided more information about the report’s layout and submission procedures, including the following timetable.
Thus, preparation for Circular 3869 compliance has been a true cliffhanger for international FIs doing business in Brazil.
In the case of Circular 3876, BACEN issued it in January 2018 for effect in November 2018. It provides the calculations and procedures for determining IRRBB, which refers to the risk to the bank´s capital and earnings arising from adverse movements in interest rates impacting the banking book’s outstanding positions. Supervised institutions must report IRRBB using two metrics: economic value (EV) and net interest income (NII), and meet the following deadlines for delivering certain reports.
Recognizing that some of the required data is interconnected across the requirements, they are considering how best to manage to these deadlines. For example, despite some of the reports being due in July 2019, some firms believe they actually need to be fully ready by January 2019. The IRRBB annual disclosure has to be ready in December 2018 (from the as-of-date in December 2017), yet data for that report contributes to deliverables for July 2019. In general, it is broadly anticipated that BACEN will continue to issue more detailed requirements and procedures in advance of these deadlines. In other words, BACEN 3876 is challenging and shaping up to be another cliffhanger.
More Cliffhangers To Come
On the horizon loom more directives. For example, another new Basel-driven regulation is anticipated regarding a simplified alternative to the standardized approach market-risk capital requirements first for the fundamental review of the trading book (FRTB), and then for the market risk standardized approach (SA) x internal model (IMA). These are only a few examples of the regulatory complexity facing financial institutions doing business in Brazil.
How can firms successfully meet the three-fold regulatory challenge in Brazil: understand, report, and adapt?
AxiomSL taps its deep global regulatory experience and its on-the-ground knowledge of the regulatory landscape in Brazil to provide FIs with innovative technology that enables them to successfully addresses these regulatory compliance cliffhangers.
AxiomSL’s innovative ‘Platform for Change’ is designed to implement without disruption. Because it is designed to ingest data from disparate sources (no need for data transformation) and for process and reporting transparency (no black-box obfuscation), integrating AxiomSL’s platform and regulatory solutions into the FI’s technology eco-system immediately improves the FI’s overall data management and data governance stance. The FI gains flexibility to meet regulatory requirements, handle change and withstand scrutiny.
Implementing AxiomSL’s innovative technology and regulatory solutions creates immediately benefits across the enterprise, including:
- Strong data management/governance through transparent architecture.
- Faster time-to-market through the ease and clarity of visual business-rules, reliable data integrity and informative dashboarding of statuses and outputs.
- Data accuracy throughout entire workflow processes from precise dynamic data lineage and traceability.
- Cost and project-timeline reduction through automation and ease of implementation.
- Ability use trusted data for multiple regulatory needs and to derive business insights that drive growth.
With AxiomSL’s flagship data integrity and control platform, Brazil-ready regulatory solutions and on-the-ground know-how, FIs can to do business in Brazil confident in their ability to comply with Brazil regulations. Then, instead of dreading regulatory cliffhangers, firms can relax and enjoy the view.
For more information or to schedule a demo, email us here.