Regulatory reporting

With Basel 3.1 and the Strong and Simple Regime being implemented imminently, and IFPR entering its third year of implementation, there are many areas where regulatory interpretations, judgements and assumptions would need to be refined and reviewed.

In addition to this, the FCA’s and PRA’s focus on the matter of regulatory reporting (Dear CEO letters and Public Speeches) and its commitment to commissioning more skilled persons reviews (as detailed in the PRA’s business plan for 2023/2024), requires banks to develop a more structured and targeted attention, to ensure that the end-to-end processes is effective – i.e., set up to prevent errors and meet regulatory expectations. The PRA has clearly stated that this should include sufficient independent testing and validation.

However, many banks face challenges in undertaking high quality assurance activity on their regulatory returns. In many cases, this is due to the lack of specific knowledge required to provide effective assurance in the firm. The second-line function may not have the bandwidth additional assurance work; and the third line may also be stretched or may not have the necessary subject-matter expertise.

How can we help?

We offer a bespoke regulatory reporting assurance service akin to an independent audit of firms’ regulatory returns, which is capable of providing the level of assurance that banks’ and investment firms’ management bodies can rely on in their discussions with the FCA and PRA.

Specifically, our independent review is broadly divided into the following parts:

Identifying a prioritised scope: Unless advised by you, we will use our in-house risk-based approach to determine which regulatory returns should be reviewed, in what order, and how frequently.
Setting Materiality: We will refer to ICAEW guidance (both quantitative and qualitative) to set a materiality threshold. This will be similar to the approach taken for external audit engagements.
Sampling: We will select all individual material line items from within the prioritised scope for regulatory conformance testing. The sample will also include immaterial items in the interest of unpredictability, and also to ensure that the untested population is immaterial in aggregate.
Regulatory Conformance testing: We will verify the reported figures for all sampled line items. This will focus on the application of FCA and PRA rules on raw data, but will also extend to end-to-end testing for completeness, accuracy of this raw data.
Reporting: We will provide a detailed report to management outlining our approach to, and results of our testing. The report will include detailed recommendations that will enable management to remediate areas of weakness to better align with regulatory instructions.

Our subject matter experts have a wealth of experience working with a range of financial institutions to review FINREP, COREP, MIF, Liquidity, and other regulatory requirements. They come from a diverse range of backgrounds, with some who have worked directly for the FCA or PRA, or within the regulatory reporting and risk management functions in other institutions.

Get in touch

For more information about our regulatory reporting assurance service, please contact us.

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Case study

The PRA had highlighted several errors in a bank’s liquidity regulatory returns. The regulator then issued a guidance letter which stated that these issues must be swiftly remediated, and further assurance work must be carried out.

We were requested by the Bank to provide a comprehensive review of all their liquidity returns as well as a holistic gap analysis of their regulatory reporting policies and practices against the Dear CEO Letter and industry best practice.

Our team worked in a hybrid manner directly with the regulatory reporting team. An in-depth review of the liquidity returns was performed, which captured other errors before they were highlighted by the regulator. This involved:

Defining materiality based on quantitative and qualitative factors, sampling material items for testing, as well as some immaterial items from the in-scope returns for “unpredictability”.
Reconciling the sampled rows and cells in each of the regulatory returns back to the supporting spreadsheets.
Reviewing whether computations within these spreadsheets aligned with regulatory rules and expectations.
Undertaking root-cause analysis for any discrepancies.
Making cost-effective and practical recommendations for remediation.

The result of the project was that many other errors were remediated to prevent further scrutiny by the PRA and assurance was provided in order to satisfy the request of the regulator. Our report was voluntarily shared with the regulator to demonstrate the assurance work that had taken place and the extra steps being taken to further improve. The regulator did not take any further steps against the bank, meaning that our review met the PRA’s quality thresholds.

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Reporting assurance for small & medium-sized banks

The Prudential Regulatory Authority (PRA) has outlined its expectations for the preparation of regulatory returns in The Dear CEO Letter (DCEO), which focuses on the “Thematic findings on the reliability of regulatory reporting”. Dated the 10th of September 2021, the letter highlights the PRA’s expectations for banks to submit reliable and accurate regulatory returns, and for the regulatory reporting...

Effective regulatory reporting assurance

Banks are expected to have robust governance and controls processes for the production of their regulatory returns. In particular, the PRA outlined its expectation that banks should perform independent testing and validation of their regulatory returns to ensure they are reliable and accurate. With the PRA’s increasing focus on regulatory reporting demonstrated through SREP reviews and S166s reviews,...

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