April 20, 2015 – By Ralf Menegatti, Product Owner, EMEA
In the wake of the 2007-8 crisis, the Financial Stability Board (FSB) was the given the task of filling the gaps in the data that regulators collect about the linkages between the world’s largest banks and their exposure to different sectors and markets.
The first phase of the resulting FSB Data Gaps Initiative placed significant pressure on regulatory functions at the global systemically important banks (G-SIBs) in its scope, when reporting began in 2013. The bar is now set to be raised again with the implementation of phases two and three of the initiative, which will require the use of a flexible, high-performance reporting platform that enables G-SIBs to quickly add new data sources and make efficient use of data they have already uploaded for other purposes.
Phase two of the Data Gaps Initiative builds on the phase-one demands for information about G-SIBs’ largest counterparties, by also requiring the banks to report on their institution-to-institution (I-I) liabilities, funding suppliers and funding structure. The third phase will expand the framework further to include institution-to-aggregate (I-A) consolidated balance sheet data broken down by country, sector, instrument, currency and maturity, when reporting begins in early 2016. All of the data must be reported to the local regulator in the country in which the G-SIB is headquartered – this includes France, Germany, Italy, Spain, Sweden, Switzerland, the Netherlands and the UK.
In order to prepare, G-SIBs need to overcome a number of obstacles. For a start, they are unlikely to currently capture many of the granular data items that are required – such as sub-categorizations of counterparty sectors and credit risk transfer instruments. As a result, they will not only need to implement new data capture systems, but also establish data governance frameworks, including data quality checks, so they can be confident of the accuracy of the data they report.
The timeframe for doing this work will be tight: the FSB has proposed giving G-SIBs six months between the publication of the final report templates and the beginning of reporting, but trade associations believe the banks really need 12 months to prepare. In order to establish the necessary data governance processes within the FSB’s aggressive timelines, banks need a reporting platform with multi-level sign-off controls, which allow administrators to assign different roles and levels of access to individual users. Their chosen platform must also be able to document governance procedures natively, as G-SIBs cannot afford to spend time doing this manually.
Of course, not all of the data required for the Data Gaps Initiative is new. In fact, there are a number of striking similarities between the data the FSB is asking for and that which banks already report to other regulators. For example, the balance sheet information needed for the I-A template is similar to that needed for Financial Reporting (FINREP), and the data G-SIBs are being asked to report on their exposures to central counterparties (CCPs) is similar to that already required as part of Basel large exposure requirements.
The FSB has been asked to consider whether G-SIBs really need to report such similar data again and, if it concludes that they do, to align its requirements and definitions more closely with those of other regulations. However, the removal of overlapping requirements or the complete alignment of FSB and other regulatory requirements seems unlikely. Therefore the most efficient way for G-SIBs to tackle the next phases of the Data Gaps Initiative is by ensuring they have a single reporting platform they can use for all regulatory requirements – including those of the FSB, FINREP, Basel and others. In this way, G-SIBs will only need to upload and process the relevant data once before using it to satisfy different regulations.
Once the G-SIBs are satisfied they have access to all of the necessary data, they will face another challenge to aggregate it from across the group and report it to the relevant regulator within the FSB’s tight deadlines. For instance, as part of the I-I credit data template, G-SIBs will need to report aggregated total exposure figures on a weekly, as-of-Wednesday basis. This sort of data is usually produced on a month-end or quarter-end basis. G-SIBs will only be able to migrate to the FSB’s weekly reporting cycle if they have a scalable, high-performance platform.
G-SIBs have had two years to get used to the first phase of the Data Gaps Initiative. With the FSB now set to significantly increase its data demands, it is time for banks to assess whether they have the technology they need to keep up.