Regulatory Reporting: Requirements, Benefits, Challenges, and Future Possibilities

Financial firms that do not fulfil the required regulatory reporting requirements face consequences that can damage their growth, performance, and reputation. Any non-compliance can also invite economic loss (in fines) and litigation.

Just as proper regulatory reporting can make a business grow, improper reporting can break it too. Among the various consequences, flawed regulatory reporting can cause reputational harm in the public perception, as buyers and investors lose confidence in the firm, along with the prospect of exorbitant legal costs.

What is regulatory reporting?

Regulatory reporting is about analyzing, managing, and submitting regulatory data to the relevant authorities to demonstrate compliance with regulatory rules. It’s a critical activity for all banks that involve Risk, Finance, and IT teams.

A regulatory report conveys how a financial firm demonstrates that they have met the relevant compliance requirements.

Why is regulatory reporting important for financial institutions?

Proper regulatory compliance reporting is vital to help ensure business transparency and win customers' trust. These reports establish mutual trust between financial competitors that their rivals are also adhering to all the required compliance-related standards and rules.

It is critical for investment banks that financial reporting is regulated properly, with complete data and within the stipulated timelines. This helps them get rid of the possibility for unscrupulous corporations to benefit from any unfair gains by breaking or circumventing rules.

Key benefits of regulatory reporting

1.    Saves the bank’s reputation

Regulatory reporting is important in ensuring business transparency to regulators. It also builds a company's recognition in the public eye. An investment bank's success is based on its public image as people expect companies to adhere to moral enterprise practices in preference to simply focusing completely on their profits. Customers feel safer with banks that can handle their money and information.

2.    Assures investors and maintains their trust

Reassuring investors is integral to the success of any business. Every business needs investor capital to grow their business and build the brand.

It can also assist in reassuring the largest investor of all – the people who are trying to find ways to buy the company. The last thing any potential buyer would want is to purchase a firm without checking its accountability.

3.    Avoids legal and economic repercussions

With these reporting regulations in place, financial institutions are safe from getting into legal issues which are very costly and time-consuming. Along with economic loss, there is reputation loss as well. This can even lead to the investors pulling their resources out of the business, leading to its collapse.

Challenges in Regulatory Reporting

The typical challenges in regulatory reporting can be categorized as follows:

1.    Data management challenges

Regulatory compliance for financial companies has always been at the forefront of data residency because the sheer amount of money in the banking sector requires a prominent level of cybersecurity for data management and storage. However, with the overpowering virtual shift of retail, compliance requirements have increased dramatically over the past half-decade to save cyber-attacks on banks' digital systems.

2.    The complexity of regulatory requirements

Banks have started moving from manual to automated systems. This can remove human error that can contribute to regulatory risks. Automated reporting helps with faster reviews and allows submitting reports to regulators on time and with accuracy.

3.    Hackers and cybercriminals

With the growing misuse of technology, hackers and cybercriminals can easily extract sensitive information from an underdefended banking system. This has made governments to step up and mandate cybersecurity checks. This has redefined not only effective compliance but has also helped in risk and data management.

4.    Cost of compliance

The cost of compliance reporting and regulation has increased over the last 8 years. Compared to the pre-financial crisis, the working prices of technology and reporting have increased by more than 50% for retail and investment banks. Policymakers, regulators, and shareholders are looking out for banks to not only keep adding new requirements but to also keep the existing solution effective and consistent.

Managing the impact of Regulatory changes

With changing times and myriad external factors, regulatory reporting has also witnessed many changes, which makes it harder for firms to escape the repercussions of harmful business practices. Regulators faces challenges of collecting, processing, and reporting data accurately. Keeping up with the ever-expanding regulatory changes enables the firms to adopt them in well planned manner, instead of struggling at the last moment to implement them.

This prevents unethical actions and ensures that businesses guarantee that their practices are fit for the modern market. These businesses may uncover potential blind spots in their reporting procedures that had not been noticed till now by regulators and legal firms.

Regulatory reporting bodies and regulations

After the global financial crisis in 2007-08, there was a need to bring changes in the regulatory systems. The financial, food and beverage and retail regulatory structure in one country may be similar but can vary in another country due to changing objectives and requirements.

Some of the Regulatory compliance adopted across globe by different Financial Institutions as follow:

ASIC is an independent commission governed by the Australian Government. Their function is to modify corporations and financial offerings with the aid of using imposing legal guidelines that purpose to shield Australian consumers, investors, and creditors.

EMIR is a European law that was proposed and implemented to increase supervision, enhance visibility and transparency, and decrease normal reporting dangers related to the derivatives market. The advent and enactment of EMIR apply to all companies, funding firms, banks, and exchange repositories in the European derivatives market.

MIFID was adopted in 2007 to help increase transparency across the financial markets across the European Union as well as standardize the regulatory disclosures required for markets. Like EMIR, the scope of MiFID is focused on OTC (Over Counter) transactions.

FATCA guidelines were laid by the US in 2010 with the objective of enforcing tax compliance and avoiding tax evasion. It enables financial institutions to withhold tax if US persons refuse to meet the documentation requirements. For this, all financial institutions registered under this act should immediately notify the US tax department when they come across US persons attempting to evade tax.

CRS is an international version of FATCA. While FATCA is only for US citizens, CRS applies to citizens of every registered country. CRS mandates financial institutions across countries to provide respective tax authorities with information about their citizens and their wealth overseas. This can assist governments acquire records approximately the monetary belongings held with the aid of using their residents internationally – for tax reasons.

MAS establishes rules for financial establishments which can be applied through legislations, regulations, directions, as well as notices. Many guidelines have also been formed to encourage best practices among financial institutions.

Future of Regulatory Reporting scrutiny

Regulatory Reporting scrutiny is expected to continue its growth in future too, with special focus on the concerned bank's data quality, integrity, system integration and reporting capabilities. This will ensure accurate and timely filings, which facilitate enhanced decision-making capabilities and keep the banks ahead of their rivals.

Focusing on data management and investing in preparing a flexible solution will be imperative for the long-term success of any investment firm in the regulatory reporting landscape. Banks that will implement solutions in a way that helps them remain adaptable to fundamental shifts in the regulators' approaches will eventually emerge as the most successful ones in the financial world.

Concluding thoughts

Every business strives for growth and expansion, be it geographically, operationally, or otherwise. However, for any investment bank that does not have the necessary compliance preparedness, its journey to success would be difficult due to regulatory obstacles. Understanding the complexity of regulatory compliance, defining a customized strategy to suit the needs of their business, and creating awareness across the organization are the stepping stones towards effective compliance regulation and management.