SHS Reporting: Are You Ready?

19/07/2018 – By Abhishek Awasthi, Product Manager, AxiomSL EMEA

In the aftermath of the financial crisis, regulatory authorities developed and reformed the rules that impact the financial markets in order to stabilise the economy and increase transparency at a global level. Strategic long-term projects such as the Banks’ Integrated Reporting Dictionary (BIRD) and European Reporting Framework (ERF), led by the European Central Bank (ECB), are current examples of such initiatives. These regulatory projects aim to standardise all European statistical and supervisory reporting requirements to enhance data quality and reporting accuracy.
In a similar fashion, the ECB has developed the ‘Securities Holdings Statistics (SHS)’, a regulation which requires selected euro area banking groups to report to their National Central Banks (NCBs) any securities that they hold for domestic or foreign customers, broken down by instrument type, issuer country as well as further classifications.
While the ECB laid down the legal basis for this regulation in 2012, its final manifestation has been a work in progress over the intervening period. In 2016, the Governing Council of the ECB made changes to the regulation and updated its guideline documents accordingly; the first reporting based on the new requirements is expected to start with data concerning the reference period ending on 30 September 2018. These revisions introduced additional attributes to the data collection process, including guidelines for reporting information about risk and accounting, in order to ensure the delivery of satisfactory information on SHS. Similarly, Analytical credit dataset (AnaCredit) will also come into effect on 30 September 2018, and will act as the base for moving towards a harmonised credit exposure reporting structure within the eurozone.

Comparing AnaCredit and SHS

AnaCredit requires credit institutions to provide granular data on a loan-by-loan basis, whereas SHS will be collected on a security-by-security basis. Both regulations are applicable to entities based across the eurozone area; however, while AnaCredit entails reporting at an individual branch level, SHS reporting requires data at holdings level only. Firms will need group the required data under various categories, such as the investment fund shares, debt securities and listed shares. The regulation will also encompass securities for both domestic and foreign financial entities. The key aim of the extended SHS reporting requirements is to reconcile the pertinent financial reporting framework (FINREP) and common reporting framework (COREP) by collecting security-by-security information at a legal-entity level. As such, firms should apply harmonised accounting and risk calculation principles for each reporting group.

Key Challenges of SHS

With regulatory expectations at an all-time high, firms are under mounting pressure to meet the deadline for SHS requirements.
Data granularity and data quality are amongst the top challenges facing reporting institutions. For example, firms will need to source and aggregate the data relating to securities at a group’s head office. It is imperative to ensure that banks have a consistent data sourcing mechanism in place which can deal with this complexity and present the data at a satisfactory standard. If reporting obligations change and the underlying system is inadequate, the consequent actions will only create more complications.
Another big challenge for SHS reporting is the need to cross validate between COREP and FINREP reporting obligations. As it stands, satisfying FINREP and COREP reporting requirements is already a significant endeavour for banks to undertake. With the arrival of SHS, this process has become extremely difficult for firms to manage alone, as they would need to devise a way of extracting the key information from these two reporting modules and subsequently check their results against their SHS reports.
Typically, banks will have a different platform for each of those reporting requirements, which may cause duplication and inefficiencies in the reporting processes. Firms need a solution that provides a consistent view of their data across different regulatory reporting frameworks while reducing costs and complexity.

Holistic approach to data reporting

Many firms completely rethink their reporting systems to tackle ever-increasing regulatory requirements in an efficient and cost-optimised way. Such new systems need to make it easier for financial institutions to streamline regulatory reporting processes and put a greater focus on value creation. The benefits should go beyond compliance and enable improved operational efficiency and reduced costs.
AxiomSL’s strategic regulatory platform can consolidate securities data across disparate systems and different entities whilst delivering validations, data quality and data consistency checks, as well as the final submission of reports in the required format. Our wide-ranging product suite also includes FINREP and COREP solutions, enabling firms to cross-validate across different reporting frameworks much more easily.
Looking at data and reporting requirements across multiple platforms to satisfy COREP, FINREP, capital, AnaCredit and SHS requirements may create an inefficient operating model without the benefits of the convergence of reporting. Using a single integrated platform for data sourcing, data adjustment and overall data management creates that much-needed consistency.
AxiomSL is amongst the earliest providers of an SHS reporting solution and, in May 2018, became one of the first companies to complete test submissions for SHS reporting. Overall, AxiomSL clients find it easier to meet regulatory demands due to platform’s ability to provide a simplified cross validation process across SHS, COREP and FINREP requirements as well as inherent data management capabilities and robust architecture.

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