22 Apr Unpacking The FR 2052a Change – Full Steam Ahead For July 1, 2021
By Don Mumma, Managing Director, Risk Management, AxiomSL
On behalf of impacted financial institutions, AxiomSL is laser-focused on dissecting the details hidden within the Fed’s 139 pages of proposed new instruction for the FR 2052a change released on March 29, 2021.
Even before the proposed FR 2052a change, this key US Complex Institution Liquidity Monitoring Report was challenging for the 41 large banks covered by the mandate. Indeed, during the pandemic crisis, many had to ramp up their liquidity reporting frequency (as often as daily) while also responding to the Treasury’s COVID-19 PPP changes. Many sought AxiomSL’s automated data-driven solution and cross-report reconciliation capabilities and thus were able to respond confidently to sudden demands, submitting reports before the Fed was ready to accept the new data.
Complex Changes, Broad In Scope – With A Deadline Shock
Banks generally anticipated that the instruction coming with the FR 2052a change would only cover alignment with the new US NSFR rule. As such, the consensus was that the FR 2052a change would be relevant to the 15 filers covered by the US NSFR rule and not to the 26 Category IV filers not required to comply – even though some were planning to calculate NSFR for internal reporting purposes anyway.
In actuality, banks were quite surprised by the massive increase in the scope of the FR 2052a change. The instructions affect everyone, not just NSFR reporters where it turns out that only about 10 of the changes are needed for NSFR calculation purposes.
Perhaps the biggest shock of all was the July 1, 2021 start date – a go-live filing date only 10 weeks from this writing. Although the due date makes sense in terms of intended concurrence with the published new NSFR timeline, the pressure to meet it has the industry reeling.
Financial Institutions’ Concerns
The banks’ need for understanding the FR 2052a change and its implementation was evident on April 13, 2021, when more than 180 representatives of 30 banks attended AxiomSL’s webinar “FR 2052a Changes”. With discovery just getting underway at many firms, plenty of concerns arose as responses to the live poll indicated:
- 78% believe implementing the changes will require a 40% to 60% rework (as compared with their initial FR 2052a implementations – when most had more than a year’s lead time)
- More than 80% are still analyzing a new requirement to calculate Supplemental B table adjustments to reduce FR 2052a cash inflows and outflows to accruals needed to compute NSFR carrying values (only one of many details they still need to examine)
- In terms of Category IV entities including FBOs, 31% will compute NSFR pro forma, others are still considering, and 38% won’t do so
- More than 75% believe the deadline ultimately needs to be extended into Q1 2022. (The discussion revealed that with respect to the 60-day comment period in progress through May 28, many trade-group organizations co-signed a letter requesting the Fed to extend the deadline.)
Unpacking Some of the Most Complex Changes
As summarized in the following table, many of the proposed changes have negative impacts that financial institutions across all categories must immediately understand and assess.
And More Unknowns…
In addition to the highlighted items and the expectation of further Fed responses/changes during the comment period, banks must contend with another key variable: the Fed has yet to release the XML schema. When it comes (perhaps in May or June), adjustments must be made quickly to enable July 1, 2021 filing.
AxiomSL At Full Throttle – A Solution Is On The Way
The good news is that AxiomSL’s work on its solution’s FR 2052a update has begun in earnest and is progressing full steam ahead. We will soon release detailed documentation on the FR 2052a change that is also articulated according to a firm’s entry point (reflecting that each firm category type has different compliance obligations). We are also very well versed in the new requirements around NSFR, having worked full steam ahead on the NSFR solution since October 2020.
By May 2021, the FR 2052a standard input layer will be ready which will enable you to accelerate your new source data inputs, and in turn, establish the handshake between your data and AxiomSL’s solution in timely readiness for the July 1, 2021 deadline, as indicated by the recommended implementation timeline depicted here.
Leveraging Deep Experience With FR 2052a
While challenging work and some headaches lie ahead, AxiomSL is fully prepared to address them drawing upon its deep experience implementing its FR 2052a solution with more than 25 banks over the last decade.
As mentioned during the webinar, some of the most onerous and least obvious requirements that AxiomSL is solving and that banks must have on their radar are:
- Derivatives netting – Due to rapid preparation and the productive work happening in partnership with five firms that already started their NSFR implementations, AxiomSL has already solved and validated many of the challenges around derivatives netting.
- Remapping PIDs – With the injection of new PIDs, others were then renamed and must be remapped.
- Remapping SFTs and calculations – FR 2052a LCR reporting is mapped based on book positions instead of counterparties for NSFR assets.
And, of course, organizations required to comply with the new NSFR rule must work towards these deadlines in parallel. According to AxiomSL’s previously released NSFR timeline, by the end of May, the final NSFR release will incorporate the FR 2052a change as it currently stands.
Post The Deadline, A Futureproof US Liquidity Ecosystem
Looking beyond the July 1, 2021 FR 2052a change start date, AxiomSL’s holistic approach to US liquidity risk management will enable firms to benefit from an ecosystem that incorporates capabilities including:
- FR 2052a new dimensions and domains
- New NSFR inputs and add-ons
- Daily/monthly reporting
- Liquidity stress testing (LST)
- Auto generating Appendix VI – LCR bridge
- Auto generating Appendix VIII – NSFR bridge
- Automatic extensions such as the FR Y-15 bridge
- LCR and NSFR public disclosure quantitative template
- Reconciliation of LCR and NSFR positions
- Alignment and reconciliation of NSFR to LCR at the HQLA categorization level
AxiomSL’s automated cloud and SaaS-enabled FR 2052a solution and liquidity ecosystem, its deep industry knowledge and experience working closely with many banks on implementations combine to enable clients to respond nimbly to change – and pave the way for firms to futureproof their overall liquidity risk management.