One year after the start of the global pandemic, what are the main challenges for regulatory reporting that should be in 2021-2022 and beyond?

–      The European Commission has adopted a proposal for a directive on the Corporate Sustainability Reporting Directive (CSRD – to be transposed into national law by December 2022), promoting the objective of the European Commission to direct capital flows towards more sustainable activities.

–      Q3 2021: adoption by the European Commission of the revised framework of the Alternative Investment Fund Managers Directive (AIFMD) aimed at protecting investors as well as reducing part of the systemic risk that these types of funds may present for the EU and its economy.

–      Q1 2021: European Commission adopts the crypto framework Markets Regulation in Crypto-assets (MiCA) to help regulate crypto-assets currently out of reach and their service providers in the EU.

–      To be discussed in 2021 – The DORA (Digital Operational Resilience Act) legislation proposed by the Commission is an important first step in the creation of a regulatory framework for the operational resilience of financial services in EU law

–      To be transposed into national law by August 2021 – Cross Border Fund Distribution aims to facilitate the cross-border marketing of UCITS and AIFs, strengthen investor protection and improve transparency of fees.

–      To be in place by 2023 – CRR II, CRD V – amended capital requirements regulation and directive aim to improve the ability of the banking and financial sector to withstand potential shocks.

– Implementation of this system is planned between 2024 and 2027 – Integrated Reporting Framework (IReF) which aims to reduce the burden of reporting for banks, reducing associated costs by rationalizing and standardizing reporting, bringing together all the information needed to calculate the minimum reserve level taking into account the ECB’s recommendations.

There is increased volatility in the financial services landscape. Marked and frequent changes in digital transaction are envisaged over the course of the year. E-commerce has enjoyed a bumper 12 months with no signs of slowing. This, coupled with a current third lockdown, will contribute to the rise in digital transactions.

Implementation delays could be seen due to operational issues negotiating the new working environment and rollout to ‘fit for purpose’ supporting technologies.

This links to operational resilience, which has been a key topic this past year. It has a huge role to play, particularly as we adopt a greater proportion of remote working in the model.

It is becoming increasingly evident that some organizations are looking towards a more holistic approach to regulatory reporting, pertaining to having an integrated ‘data hub’ that can be used to meet multiple regulatory reporting requirements. This also lends itself to the cross validation of multiple reports that regulators are undertaking.

Greater co-ordination and consolidation of data across operations, finance and risk is there to support the inter-dependencies of external reporting. It also supports robust internal reporting and management information whereby everyone can look at a different cut of the same data depending on their own internal requirements.

As organizations grow and frequency of regulatory reporting increases, reporting processes need to be adaptable to changes in content, format and timing of requirements. Keeping developments and change can be better addressed looking at regulations holistically and adopting such approach than in isolation.

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1.   Compliance management

Adherence to regulatory requirements is a mandatory burden that financial institutions must cope with. The budget in terms of money and resources allocated to these activities is becoming increasingly relevant, the organization’s management buy in must be secured even if reporting is a no-revenue generating activity.

2.   Regulator’s role

Local Regulators are themselves subject for example to ECB supervision, managing and processing huge amount of data coming from local Financial Institutions. They need to be ready to implement new controls as far as new regulations are published and set to production, dealing with an always evolving operational context.

Their task of sequential processing is complex, keeping in mind that the feedbacks they provide can be related to multiple backdated years.

3.   Organization

Senior management oversight on policy and procedures is a key governance component, allocation of responsibilities must be clear through all organization’s levels. Internal culture can play a relevant role on this aspect, teams impacted need to build a wide confidence on regulatory data, including mapping with core system’s databases.

4.   Data quality

Financial Institution’s IT systems often rely on a core system, not originally designed with regulatory reporting orientation. The consequence, considering that usually reporting is generated interfacing a dedicated platform, is that there is complex layering and interfacing activity to be implemented and maintained.

In such a context data consolidation and data quality can be a relevant issue, re-engineering systems that do not talk to one another with common data layers could become a long-term investment to build straightforward information chains.

Firms are now oriented to re-design and automate internal processes, to increase the flexibility to quickly evolving regulations. Confidence in regulatory submission can be achieved increasing with organization’s departments competence, robust data structure and quality, clear roles and responsibilities, smooth processes.