Regulatory reporting assurance for small and medium-sized banks

The PRA continues to focus on this and has commissioned a number of skilled person reviews on regulatory reporting since the issuance of the letter. The PRA has also issued a number of fines, a key tool the PRA has adopted to ensure that banks act with skill, care, and diligence in their overall regulatory reporting process.

Implications for Banks

The ongoing focus on regulatory reporting by the PRA, as well as the changes and updates to the regulatory judgements to be occasioned by Basel 3.1, makes it necessary for banks to implement a robust regulatory reporting framework. This is in line with the complexities of their business, while operating with the same governance and oversight as the financial reporting process. Specifically, banks should focus on:

1. Enhancing existing processes and procedures.
2.  Developing programs for independent review and validation of the regulatory reporting process.
3. Enhancing the documentation of governance and control processes.
4. Designing processes for more formalised review processes by senior management.
5. Formulating a regulatory reporting policy.
6. Formalising the process of interpreting assumptions and providing judgements to regulatory expectations/requirements.

Potential challenges for small and medium-sized banks

Small and medium-sized banks often face difficulties allocating time and resources to perform additional assurance work on their regulatory reporting. There are several potential reasons for this:

1. Due to the specificity of knowledge required to provide effective assurance work on regulatory reporting, the second line and/or third line function may not have the requisite subject matter expertise to perform additional assurance work.
2.  Due to larger banks also expanding their regulatory reporting functions, it is often difficult for smaller banks to hire and retain staff with sufficient knowledge on the breadth of regulatory returns and industry best practices.
3. Smaller banks may not have sufficient financial resources to hire an additional member of staff to perform assurance work on their regulatory reporting.

In the face of these difficulties, banks may need to rely heavily on the relevant senior manager as they develop their assurance programmes. However, this also raises its own issues in that the effectiveness of the independent review by the relevant senior manager may be compromised if they are too involved in the production of the returns.

We have also observed banks embedding the additional assurance work within their existing regulatory reporting teams. Often such regulatory reporting teams are small, working with tight timelines, and with the primary focus of ensuring the timely submission of regulatory returns. This can result in such enhancements being delayed indefinitely, or performed in a manner that does not effectively manage the risks or address the concerns of the regulator.

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

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