Board members, Executives, Chief Financial Officers and Heads of Regulatory Reporting have plenty to fear as
regulatory reporting by financial institutions comes under
increasing scrutiny from regulatory bodies.
On the 5th January 2020, the Financial Times reported that
“Goldman Sachs and Morgan Stanley are among international banks facing probes by the Bank of England over the quality of their regulatory reporting in the wake of wider concern over bank governance and reporting issues.”
The FT goes on to say that the UK’s Prudential Regulation Authority (PRA) has commissioned Section 166 reports, also known as skilled person reviews, into the two banks. The action follows the watchdog’s pledge, in a
‘Dear CEO letter’ issued at the end of October 2019, to scrutinise large financial institutions. This comes just months after the BofE handed a record fine to Citi Group for
‘serious’ reporting failures.
It’s part of a broader industry-wide crackdown by regulatory bodies in the UK. In September 2019, the UK’s financial watchdog began an investigation into Senior Managers at Metro Bank for their part in the misreporting scandal that led to the emergency share issue and subsequent 80% collapse of the bank’s share price.
The initial investigation in February 2019 did not include individuals from the management team. However, in August, the Financial Conduct Authority extended its investigation to include
“certain senior members of management.”
Metro Bank Share Price for the past 12 months showing the dramatic collapse from its 2,216GBX 52-week high
The scrutiny does not end there. In the UK, repeated regulatory issues led to an independent review of The Prudential’s supervision of the Co-Operative bank. On the matter of regulatory reporting, the author notes that
“[e]ven if banks do not seek to overtly circumvent regulatory requirements, the growing complexity of these requirements may give rise to a greater frequency of data reporting errors as banks strive to collect and produce regulatory data in accordance with the new regulatory requirements. That led to [the] final recommendation that the PRA should consider introducing more formal third-party reviews of key prudential information supplied by banking groups through their regulatory data returns.”
As noted above, the PRA acted on this recommendation and issued a
‘Dear CEO Letter’ in October 2019. In the Letter, Executive Directors Sarah Breeden and David Bailey opened with,
“[w]e expect firms to submit complete, timely and accurate regulatory returns. These expectations have not changed; the integrity of regulatory reporting is the foundation of effective supervision.”
This underpins the UK regulators’ commitment to strict reporting.
Banks in the Eurozone do not fare much better.
The European Central Bank (ECB) issued a list of controls that it recommends banks implement. This includes more than 250 ‘checks’ in addition to the already-built-in controls with the supervisory reporting templates (e.g., COREP, LIQREP, LEVREP). [Source
However, at the end of Q2/2018, the ECB still noted that less than 5 of the largest 118 Eurozone banks were fully compliant with regulatory reporting requirements. That means 96% of the largest Eurozone banks have left themselves open to scrutiny. [Source
The fact is this: this is a key issue whether you look at it from a Shareholder, Director, Executive, CFO or Head of Regulatory Reporting perspective.
Reply, we believe it is the Board’s and Executive Management Team’s duty to look into this and ensure that
“firms [are in a position] to submit complete, timely and accurate regulatory returns.” We are making available a comprehensive
White Paper to share with you our insights regarding typical root causes for the issues raised by the ECB, the FCA and the PRA, and possible ways to address these issues.
Last but not least, three
breakfast events have already been scheduled in
Brussels [26 March, 2020],
London [10 March, 2020] and
Luxembourg [30 April, 2020] to shine a brighter light on the challenge at hand — and the most appropriate solutions. Please feel free to contact