The PRA emphasises their expectations for reliable regulatory reporting, once again

On 10 September 2021, the PRA issued a Dear CEO Letter expressing their disappointment over significant gaps that still remain in banks and building societies’ regulatory returns. This followed on from the PRA’s October 2019 Dear CEO Letter where they re-iterated their expectations for reliable regulatory reporting, as it forms the foundation for their effective supervision.

In this recent letter, the PRA sets out the most material findings from their wider supervisory work and skilled person reviews commissioned into credit and market risk returns of larger firms. It also outlined actions they expect firms to take to ensure regulatory reporting expectations are met.

Improvement areas identified

Governance and ownership

Senior accountability and ownership are key in maintaining the integrity of regulatory reporting. However complex and fragmented end-to-end processes can result in limited oversight, undue reliance on certain teams, and poor understanding of what it takes to produce regulatory reports. Roles and responsibilities across all stages of the regulatory reporting process should therefore be clearly defined, documented and allocated to individuals with appropriate levels of seniority. Key regulatory interpretations and judgements used in regulatory reports should also be subject to strong governance and validation to ensure they are accurate and consistent with changing regulatory requirements.

Controls

The need for a comprehensive and well-documented control framework throughout the reporting process was re-emphasised. The PRA highlighted the below areas where controls must improve:

• Models: Maintain detailed documentation around the original design, approval, testing and changes to models used for regulatory reporting.
• Spreadsheets: Strengthen the control environment around spreadsheets (documentation risk assessment, ongoing review, EUC registration) to effectively mitigate the inherent risk of errors.
• Reconciliations: Establish strong procedures to reconcile regulatory reports with other records such as General Ledger.

Data and investment

The regulator repeatedly underlined the disparity in firms’ investment in regulatory reporting and financial reporting, the latter often being prioritised. Firms need to strategically invest in their regulatory reporting capabilities to avoid outdated reporting infrastructure or heavy reliance on manual intervention. The PRA further expects firms to procure complete data from robust sources to support improved data usage and accuracy in the long term.

Next steps

Given the importance and focus on reliable regulatory reporting, the PRA will consider using the full range of enforcement powers at their disposal to firms who fail to meet their expectations on this.

As firms are expected to be able to demonstrate how the design and effectiveness of their regulatory reporting framework will consistently deliver high-quality reporting, they should commission comprehensive independent assessments to identify, and subsequently remediate, any gaps that exist in their governance, controls, data and processes related to regulatory reporting.