April 8, 2015 – By Nicholas Hamilton, Research Analyst, Policy and Product Strategy
The Firm Data Submission Framework (FDSF) is the lifeblood of the Bank of England’s (BOE) stress testing work, supplying it with the data it needs to analyze the resilience of the UK’s banking system. However, banks’ efforts to submit the necessary data to the Prudential Regulation Authority (PRA), which is responsible for FDSF, have often been complicated by the evolving nature of the requirements. The good news is that this is now going to change, as the PRA has announced its intention to establish a steady state for FDSF.
Since it was first introduced, the scope of FDSF has been continually expanded to encompass more risk types – including the addition of counterparty risk this year. As banks attempt to keep pace with the changes, the task facing them has been made more challenging by a number of inconsistencies in the FDSF data definitions and templates. Banks have also often been given little time to analyze and implement updated versions of the templates before using them to submit their data to the PRA.
The regulator has acknowledged these issues. It knows that if it wants banks to submit good quality data in a timely manner, it must give them the stability and time they need to prepare. To this end, it plans to introduce two important changes that will create an FDSF steady state:
- Stable core data model: The PRA will delineate the portions of the FDSF templates that will not be changed in the foreseeable future. This is designed to give banks the confidence they need to invest time and money implementing more robust processes for populating the relevant fields.
- Annual template releases: The PRA will also begin releasing updated versions of the FDSF templates only once a year, and will give banks more time to absorb the changes before they must report. This will ensure they fully understand the updates and how the PRA’s data definitions map into their own.
The PRA has begun consulting the banks that are currently subject to FDSF and expects to finalize its changes by the end of the year.
The proposed changes are excellent news for the reporting institutions (as well as the wider group of banks that will be required to comply with FDSF in the future). The introduction of FDSF was a significant event for banks, particularly as it was the first time many risk functions were required to report externally. However, some banks decided not to implement the sorts of strategic solutions they would have liked, because of concerns about changes to the requirements. The greater certainty the PRA now intends to provide regarding FDSF means banks can proceed with more robust and effective compliance projects.
As they look for ways to optimize their FDSF reporting programs, banks should consider the benefits of using a single platform to aggregate and submit all of the necessary data to the PRA. FDSF requires data from multiple lines of business. By consolidating all of this on a single platform, banks can be sure the data they report is consistent and accurate, and they can eliminate costly duplicate processes.
Banks should also examine whether their current reporting tool gives them the ability to reconcile their FDSF reports with other regulatory submissions, such as Common Reporting (COREP) filings, and whether they can easily and effectively audit their entire reporting process.
As FDSF enters a new stable phase, it is time for banks to consider how they can take a more strategic approach to compliance.
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