How Vendors Price Regulatory Reporting Solutions

The contents of this blog are for general information purposes only and do not constitute legal advice. Association of Foreign Banks disclaims liability for actions taken based on the materials. Readers should consult their legal advisers.

When I talk to financial institutions who are looking to assess Regulatory Reporting solutions, one of the first questions raised, quite understandably, is that of price.

Software vendors of all flavours will try to avoid addressing this early on in a process, not out of any desire to be evasive (although I guess there are exceptions) but because of the range and combination of factors that can impact pricing that need to be considered.

So, at the risk of being sent to Coventry by my associates in the vendor community, I thought I’d pull back the curtain on factors, some obvious, others may be less so, that will impact the cost of the Reg solution that you buy and mention some areas where it’s worth paying particular attention.

Source Data

Having been speaking to banks and building societies about regulatory reporting for over 12 years now, the biggest and most common issue faced is that of quality and completeness of data. The ideal of a single ‘golden’ source is still something beyond the practical means of most financial institutions meaning that data will be needed direct from source solutions or spreadsheets.

As a consequence, a major contributory factor to project duration is whether an organisation can undertake ETL (Extract, Transform, Load) work to collate, standardise and validate data or whether the vendor’s capability will be used (assuming that they’re able to do this).

The more comprehensive a vendor exercise is around data processing (integration, repair, validation, reconciliation) the more a project will cost. However, if the vendor is actually any good in this particular area it might be considered money well spent, as an effective data processing layer means reduced manual intervention, increased levels of automation and creates a repository of information that can be used for analysis and internal reporting, as well as possible input to external risk-based solutions.

Reporting Scope

Probably the most obvious factor influencing pricing of a licence or subscription is simply the amount and frequency of reporting that an institution requires. The requirements of a branch bank with a fairly vanilla business model will clearly only need a pretty modest set of reports compared to, for example, a locally incorporated bank with a more extensive set of services offered to clients or broader range of market activities.

As well as impacting licence/subscription of a vendor solution, the scope of reporting can be an influencing variable when it comes to implementation. The range of reports needed will always be a consideration when it comes to project planning, but the architecture of some vendor platforms means that a greater scope of reporting will have a significant impact on the time taken to deliver.

Complexity of Business Lines

The other biggest contributory factor, directly tied, as it usually is, to the point above, is the range of product lines offered by an institution. Complexity of offerings, increased number of accounts and transactions increase need for a combination of sophistication and scalability which will impact cost. These factors also potentially increase the need for more enhanced user experience to monitor scale and complexity which, of course, comes at a cost greater than more basic solutions.

……and, of course, volume and complexity will not only be a consideration when it comes to licence but will also impact implementation time.

Organisational Complexity

As well as complexity and diversity of business lines, the size and structure of the organisation itself will be a factor when pricing a solution. To use an extreme comparison, the branch bank I gave as an example at the beginning of this article will be a very different proposition to a multinational organisation with a range of subsidiaries, branches and affiliates.

A direct consequence of the size of an organisation will usually be an increased number of users of the system – another key variable in pricing.

Licence restrictions

A bit of an oddity as it doesn’t really fall under a specific classification, but some suppliers impose restrictions on some specific areas of use of a solution. For example, the number of environments needed can impact licence cost rather than simply the cost of set up even though they may simply be copies for the purposes of testing, development, preproduction etc.

Additionally, use of the platform outside of the regulatory reporting cycle can involve additional licence cost, for example if a firm wants to generate data for internal reporting.

I’ve even heard cases where the licence restricts the physical relocation of a server to another part of the same room – these are the kind of people who give vendors a bad name.

Support and Maintenance

Availability of a support team can also be a factor. Does your supplier provide 24/7 support as standard or is this an ad hoc arrangement with extra cost associated? Does out of hours support involve a real person or an irritatingly cheerful but ultimately useless chatbot.

Another thing to watch out for is how maintenance is priced – particularly when it comes to regulatory updates. This is obviously one of the key benefits of a vendor solution, but some providers will only cover an organisation up to a certain level of change before they come knocking for “additional investment”. This is another part of a contract that’s definitely worth checking to ensure that there are no possible commercial surprises lurking in the future.

Solution Deployment

Historically on prem has been the deployment method of choice for a reg system but, as confidence in the security and reliability of cloud platforms has established itself, this is increasingly becoming the deployment method of choice –  with some vendors deploying exclusively on the cloud. Something which may actually be an issue for some institutions but that’s another discussion.

Factors that impact cost in this area are: whether the cloud platform is that of the vendor or the client involved? If a vendor is providing a Managed Service rather than simply hosting the level – IT housekeeping, process monitoring, that kind of thing – this will bump up the cost.

There have also been attempts to offer a Regulatory Ops service, in other words standing in for the regulatory user – but this is difficult to offer in any meaningful way as problem resolution, when it comes to things such as addressing validation errors, needs detailed knowledge of the firm’s business and possible access to source systems. It’s tough to see how a third party could successfully emulate an in-situ user.

Summary

Of course, the big question is what an institution can do to impact pricing – beyond commercial negotiations of course. Some things you just can’t change – the reporting scope is fixed, as is the structure and complexity of your organisation and business. But when it comes to things such as implementation, its always worth a conversation to see if there’s any work that can be done in house, e.g. data transformation, if you have the capability and resources.

Cheaper doesn’t always mean less expensive in the longer term, which is why due diligence, references and even informal conversations with market peers are such a key part of assessing suppliers. Pay close attention to what’s covered and where a vendor might have the ability to come looking for more money during the course of a contract.

Anyway, I fear I may have revealed too much. If you have any thoughts on this subject, let me know.

Contact Andrew Kesbey on LinkedIn

Focusync is a provider of Regulatory Reporting solutions to the UK Banking community. We offer a full scope (Bank of England, PRA, FCA etc), end to end platform on cloud or on premise with a focus on quality of both product and projects (for which we have a 100% record for delivering on time and on budget).

Our reporting solution supports an integrated ‘No Touch’ workflow minimising operational risk, combined with innovation such as AI driven predictive liquidity to provide the most reliable, forward looking solution possible.

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