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Getting the data for Basel and Solvency

posted Feb 8, 2015, 7:34 AM by Unknown user   [ updated Feb 22, 2015, 8:13 AM ]

Now (Q1 2015 in Europe) the regulations become more and more clear the banks and insurers face a new challenge. Their reporting lines begin to work and even produce the mandatory XBRL reports... with test data! And even then it is disquieting to see how many manual additions and corrections are needed in the process. The back traceability of reported data is really challenged here! But the real question is, why is this the current situation?
The answer is pretty simple, they don't have the data, at least not on the level of detail and as far back in time as the regulators are asking.
The cause is the same as of why EBA and EIOPA started the regulatory reporting programs in the first place. The focus of banks and insurers was diverted to earning as much money as possible in stead of adding the best value for their clients. So they disregarded risk and compliance a little bit and kept only the data they needed to get the revenue, and threw away the rest.
So early on they were knowing their business, but they lost that to greater revenue. And because of competition they all did. Then a few overstepped it and everone startled, including the national governments and, not to be forgotten, the local and global economies.
Because also in the past decade most paper based administrations of banks and insurers were digitalized much data has become digitally available to automated administration systems. And that's all right. The only thing is... much of the data that is now newly requested stayed in the digitalized documents, in a non retrievable way without very costly efforts. And of course there is data that is now very popular that was used in decision making but never ended in any documents or systems. To date all this data is or will be carefully registered. That's good news. But for today's reports the data will be missing and subject matter experts will be manually filling the gaps.
So there it is. We figure out a way to fill the reports, then produce the reports, ask ourselves and regulator representatives if it is good enough, and with the answer start the next cycle of report filling.

Regulating Authorities act as Service Providers

posted Feb 8, 2015, 2:19 AM by Unknown user   [ updated Feb 22, 2015, 8:44 AM ]

A number of regulators try to offer a helping hand to small and medium sized businesses (SME). They do this because the want to receive digital reports or exchange digital messages that they can automatically process leading to cost reduction, which is fine. For this reason they all embrace XML based document standards, like XBRL or other, as a flexible reporting language and go through a lot of effort to define report definitions, like an XBRL taxonomy, that can be used to format the reports the right way. So far so good. But then they take the next step and develop reporting or message exchange software for the SME or,  even further, develop an exchange platform or reporting portal.

So they find themselves way out of their professional regulatory disciplines, and in the middle of IT business. Now they themselves become competitors in the IT regulatory reporting market fields. Of course they are not starting an IT division that is developing, maintaining and managing the software and the platforms. This work is outsourced right away, but paid for with regulatory budget. And because they always want to be in charge they arrive at hiring small IT companies that next to that will be heavily depending on the regulatory budget.

Now we are there. In this situation there will be no independent decision making, nor will there be enough knowledge and experience to "do it first time right". So eventually the reuse ability will be poor, standardization will be low and cost will be high. The demands of the SME will have received too little attention, needed flexibility will be insufficient, support will be insufficient and SME reporting cost will rise and rise. Think again! 

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