Posted by David Wright, on October 05, 2015.
Expectations for the largest banks continue to rise with the latest Federal Reserve proposal for CFOs to attest to the integrity and accuracy of the firm’s regulatory stress testing reports. On September 16, 2015, the Fed published a proposal in the Federal Register to revise the FR Y-14A/Q/M Capital Assessments and Stress Testing Reports. While proposed changes to reporting forms and instructions are typically viewed as a routine process, the inclusion of a CFO attestation of the filed reports, for both the actual data as well as the projections, raises the bar on expectations and accountability and reflects the Federal Reserve’s ongoing concerns with data quality.
The proposed requirement was prompted by material inaccuracies the Fed had identified in past stress test submissions for some institutions. It would apply to the banking companies included in the Large Institution Supervision Coordinating Committee (LISCC) program, but also encourages enhancement to the internal control environment for all FR Y-14A/M/Q filers. The Fed’s focus on data quality is understandable as it seeks to maintain the credibility of the stress testing results of industry participants as well as the Fed’s own independent stress tests, which rely on this data.
For the projected data on FR Y-14A/Q, the proposal would require attestation for the conformity to report instructions. That implies adherence to US Generally Acceptable Accounting Principles (“GAAP”) and “fair presentation” of forecasted information.
For the actual data on FR Y-14A/Q/M reports, the proposal calls for the CFO or an equivalent senior officer to attest to the responsibility for, and effectiveness of, the internal controls over the filed reports, as well to the material accuracy of the reported data and process of gaining reasonable assurance over such accuracy. In addition, the CFO would need to attest that the company’s controls are assessed regularly by management and audited annually. There is also a requirement to identify and promptly report internal controls material weaknesses and material errors/omissions in reported data.
Some initial takeaways for affected institutions:
The FR Y-14A/Q/M attestation requirement is subject to a public comment period that ends on Nov. 16, 2015, and the Federal Reserve has proposed that it go into effect on June 30, 2016. As the comment period begins and the process of formalizing this change moves ahead, Deloitte will continue to monitor and report on it.
Banking and Securities