COVID-19 Effects On NSFR Reporting: Financial Institutions Must Set Sail Strategically Amid Choppy Seas

Concerns that effects of the COVID-19 pandemic could lead to a global liquidity crisis has caused a surge in regulatory requirements for liquidity monitoring and reporting that have hugely strained financial institutions. Meeting the net stable funding ratio (NSFR) reporting requirement lies at the heart of this operational and strategic challenge.

NSFR is one of the new standards introduced following the 2008 financial crisis. The main purpose of the requirement is to ensure that financial institutions’ sources of funding are sufficiently stable to support their assets and activities on a one-year horizon, and is calculated by dividing a firm’s available stable funding (ASF) by its required stable funding (RSF).

Strong Headwinds — Deteriorating Funding Conditions And Greater Scrutiny

Since 2008, compliance with liquidity reporting requirements, including NSFR reporting, has consistently improved. While this provided buffers for financial institutions before the COVID-19 pandemic, headwinds from COVID-19 are reversing these gains. The global economy is facing unprecedented challenges, with spreads widening substantially and new unsecured debt issuance virtually coming to a halt. In addition, worsening economic conditions mean that firms are performing daily monitoring for internal liquidity management needs. All this while accommodating changing regulatory requirements, including NSFR reporting, has resulted in a significant increase in risk reporting and operational resource expenditure.

As financial institutions accommodate a post-COVID-19 new normal in which regulators are shining a spotlight on liquidity monitoring; they are asking themselves whether they are functionally, technologically, and operationally ready for the upcoming NSFR regulation changes.

The Unfortunate Timing Of A Perfect Storm: Highlights Of Jurisdictional Specificities

These challenges translate into less time and resources available to address medium-term strategic changes. Such changes include accommodating new regulations and altered NSFR rules based on jurisdictional requirements, which vary across the globe. NSFR reporting requirements discussed here include the following jurisdictions: Australia, Brazil, Canada, Colombia, Europe, India, Japan, Malaysia, Mexico, Singapore, Switzerland, and the United States.

Since these requirements are new, current processes and calculations must be enhanced to meet them, thus creating one more step for financial institutions as they struggle to collect the relevant data and complete all calculations required for NSFR reporting and compliance.

Avoiding Capsizing At Sea: AxiomSL’s Seaworthy Vessel

RoughSailing

To survey conditions in the regulatory seascape, financial institutions must be able to adapt to both anticipated as well as unexpected challenges. Unless they have transparent, flexible, and holistic best practices in place, financial institutions risk capsizing.

They must be adept and nimble to effectively tackle the following:

  • Tight timeframes
  • Regulation changes
  • Huge data volumes
  • Stress testing scenarios

 

Going forward, financial institutions must ensure their functional, technological, and operational readiness for the upcoming NSFR reporting requirement changes to ensure that timely NSFR compliance is not compromised. In a challenging COVID-19 environment where regulators’ focus on liquidity monitoring has greatly increased, it is even more important than ever for financial institutions to have complete transparency into their data and calculations and be prepared to manage change.

With AxiomSL’s proven technology, instead of encountering stubborn headwinds, organizations can enjoy beneficial tailwinds as they strive to satisfy regulatory requirements and deliver the data integrity and auditability that regulators demand globally.

Organizations need to prepare for NSFR reporting: Let AxiomSL help you navigate challenging headwinds, read our topical article by completing the form below:

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