Regulatory reporting programs: Human capital imperative

Notwithstanding the importance of a sustainable governance structure and high-quality data, perhaps the most critical element of an effective regulatory reporting program is proper investment in human capital.

Unfortunately, in many cases, firms have underinvested, both in number and types of resourcing, in the human capital component of their reporting programs. This could be a result of senior management viewing the regulatory reporting organization as a “back office” function, where skills needed are limited to basic financial accounting knowledge with an operations orientation.  Traditionally, staff in a regulatory reporting function that was part of corporate finance were long tenured and knew legacy processes well.  Conversely, staff in the business lines, who were responsible for providing data to corporate finance, had little knowledge of reporting requirements or the impact of this data.  This approach worked as long as the data concepts were not complex, data requirements were static, and the processes supporting the report preparation process were not subject to frequent change.

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Technology and data governance: Investing in a way that pays back

Financial institutions are increasingly seeing the need for an increased focus on investments in technology and data governance that can provide standard-yet-granular and high-quality data to support financial stability, and help with monitoring their safety and soundness. The right kind of data must also be easily accessible and malleable enough to be re-purposed as needed, and provide actionable insights and analysis. Beyond regulatory compliance, executives understand that their firms stand to reap other business benefits that can provide competitive advantages.  This was echoed in a recent survey where CFOs were asked:

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Stepping off the curb: A better governance structure and effective operating models for regulatory reporting

Regulatory reporting operating model – A new paradigm

Heightened regulatory expectations for regulatory reporting requires institutions to focus on preparing high-quality reports. One key element of this focus should be a governance structure that enforces accountability, measures data quality, mitigates reporting and operational risks, and allocates resources to address data and financial reporting challenges.

An “optimized” regulatory operating model involves managing and measuring regulatory reporting risk as a firm-wide activity. As such, the regulatory reporting operating model should follow a centralized framework, where corporate finance, risk, and business line executives create an equal partnership. Current regulatory expectations reflect that the historical operating models, such as projects with little accountability at the business line, are too often ineffective.  That is, the historical model cannot support the demand for high quality, fit-for-purpose data at a granular level with ever increasing complexity.

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Navigating “Year Two”: Regulatory landscape and challenges for foreign banks and their IHCs

After the July 1, 2016 compliance deadline for foreign banking organizations (FBOs) to establish US intermediate holding companies (IHCs) and implement the enhanced prudential standards,1 we noted that, although the effective date marked a key milestone on the journey toward effective compliance, the “long road to operationalizing run-the-bank (RtB) functions has just begun.”2 Heading into Year Two, FBOs with their US IHCs and broader combined US operations (CUSO) contend with the reality that there is a significant road yet to be traveled in a regulatory environment focused on local/jurisdictional implementation that challenges the global model.

Four key focus areas underpinning the supervisory strategy

Although FBOs have made notable progress leading up to and after last year’s “go-live” date under Regulation YY, they continue to face substantial challenges across aspects of the Federal Reserve Board’s (FRB) four key supervisory focus areas:

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A new ratings framework aligned to regulatory reform priorities

On August 3, 2017, the Federal Reserve Board (Fed) released a notice of proposed rulemaking that would establish a new rating system for large financial institutions (LFIs). Specifically, the new rating system would apply to bank holding companies (BHCs) and non-insurance, non-commercial savings and loan holding companies (SLHCs) with more than $50 billion in total assets, as well as intermediate holding companies (IHCs) of foreign banking organizations.

The proposal includes a new rating scale under which component ratings would be assigned for:

  1. Capital planning and positions,
  2. Liquidity risk management and positions, and
  3. Governance and controls.

In essence, the Fed is revamping its rating system for LFIs to catch up with the Fed’s post-crisis heightened supervisory expectations and approach to LFI supervision.  The Fed proposes to assign initial ratings under the new rating system during 2018.

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A new age for governance

On August 3, 2017, the Federal Reserve Board (Fed) proposed guidance that would significantly revise its expectations for boards of directors by laying out its view of the five key attributes that describe an effective board.  The proposal would also set in motion efforts to better delineate the roles, responsibilities, and accountabilities among senior management and the board by rescinding or revising past guidance and rules.  The proposed guidance on board effectiveness would apply to US bank holding companies (BHCs), savings and loan holding companies (SLHCs), and nonbank financial companies designated by the Financial Stability Oversight Council (FSOC) as systemically important.  The proposed guidance would not apply to intermediate holding companies (IHCs) of foreign banking organizations or state member banks, but the Fed noted that it anticipates proposing guidance on board effectiveness for IHCs at a later date, and requested feedback on how the guidance should be adapted to apply to IHCs and state member banks. The proposed guidance would also be used as part of the Fed’s supervisory assessment of board effectiveness outlined in a companion proposal on a new rating system for large financial institutions (LFIs).1

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Preparing for FDA Social Media Guideline Implementation

Preparing for FDA Social Media Guideline Implementation

The FDA has released new guidance regarding utilization of social media for advertising and promotion of pharmaceuticals and medical devices. This long-awaited guidance is the start of numerous specific guidance documents addressing defined issues in social media.

As companies search for new and effective ways to reach healthcare professionals through non-personal channels, the emergence of short-form media options is increasingly becoming a meaningful marketing and information dissemination platform. However, the legal, regulatory and safety professionals need to begin conversations with the commercial and marketing teams to take full advantage of the new communication channels, while remaining compliant. Effective processes and controls will need to be put into place to enable companies to leverage these platforms; and, in order to use these platforms, companies will need to have modified review and approval pathways to facilitate expedited approvals to keep pace with the speed of social media posting.

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Fed FAQs for FBOs

The Securities and Exchange Commission Reforms Money Market Rules

On June 26, 2014, the Federal Reserve (Fed) published answers to a list of frequently asked questions (FAQs) from foreign banking organizations (FBOs) that face enhanced prudential standards — including formation of an intermediate holding company (IHC) for non-branch U.S. operations and submission of an Implementation Plan. Many of the questions were generated from a town hall meeting the Fed conducted in May 2014 to help selected FBOs understand the planning requirements and timing associated with the enhanced standards.

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Dodd-Frank Four Years Later

Dodd-Frank Four Years Later

The fourth anniversary of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) is a perfect opportunity to reflect on the progress that has been made since the Act’s passage in 2010 and to look forward to the required regulations that have to be implemented. The law was a direct response to the financial downturn, and was specifically designed to prevent a similar crisis from happening again. So how are things going so far?

Overall, it’s a mixed bag. Considerable progress toward implementation and reform has been made in some areas, while others are just getting warmed up.

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