Selecting a Regulatory Reporting Solution – 6 Key Questions to Ask!

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.

Over the past decade or so I’ve been involved in so many RFIs, RFPs, procurement processes, I’ve lost count. Most have been effective in assessing the best solution for their bank, but some haven’t.

I’ve experienced plenty of processes run by people who are on top of what’s required from their various stakeholders and have constructed an effective assessment process. Equally, I’ve seen situations where, despite best efforts and good intentions, what’s resulted has been suboptimal to say the least and with the bank choosing an option that is not the best for them.

My old statistics professor used to say always remember that you’re not measuring the world, you’re measuring the data (he may have been quoting Daniel Kahneman actually). In other words, be aware of your methodology before you start drawing conclusions.

So, what are the key considerations to look at when you’re assessing regulatory reporting vendors and their solutions? Clearly there are a whole range of factors that you could look at and data you could collect to make sure that your chosen solution is the right one – and the relative importance of these will vary from case to case. I’ve left out some of the obvious checkbox criteria – reporting scope, on premise vs cloud deployment – but focussed on some of those areas where devils may lurk amongst the detail.

Inhouse vs Vendor Platform?

The most fundamental question of all. Build vs Buy?

The primary determining factor here is how much control you want over a platform – an inhouse solution means you can develop functionality precisely as and when you want, with no reliance on a vendor roadmap. The flipside of this approach though, development costs aside, is the responsibility that comes with it. Regulatory Reporting platforms are different from most other software solutions in that a good deal of development is driven by the regulators. This requires a team that is responsible for regulatory horizon scanning – monitoring websites and publications of applicable regulators to keep an eye out for upcoming changes that will affect your firm. Then, of course, you’ll need someone to interpret these changes and produce technical specs for your IT department.

This might be okay if you’re an extremely small firm with a handful of reporting obligations or have a substantial budget to maintain a dedicated team to take care of horizon scanning, interpretation and development but, for most institutions, this kind of update service is one of the biggest advantages adopting a vendor solution.

Track Record/References

Due diligence can sometimes be a tick box exercise after the RFP and demos – particularly where references are concerned, yet this is possibly the most important part of an assessment process.

You may well have seen an impressive demo that covers all of your functional requirements and then some. You may have been presented with a compelling commercial proposition with assurances around project timelines. However, it still pays to establish credibility around all of these.

An extensive network of contacts in the industry to conduct informal references can be key to this rather than relying on the vendor to cherry pick. That’s not to say that you shouldn’t go through a formal reference process but, without wishing to impugn anyone’s integrity, no solution provider is going to put you in touch with anyone who’s remotely unhappy with their platform. The ability to provide multiple references quickly is usually a good indication – whereas delay often indicates a lack of satisfied customers.

Regulatory Expertise

It should be a given that a regulatory vendor will use a team of consultants with regulatory expertise to implement their solutions but, unbelievable though it may seem, there are those whose implementation team, while technically competent, don’t have any real knowledge of the regulations that their solution covers. I’ve spoken to regulatory reporting teams who tell tales of having to hand hold project consultants through the correct way to implement rather than the process being a partnership where the vendor representatives can provide guidance and offer the benefit of their experience where needed.

Another situation where having a network among fellow reg solution users can be invaluable.

Data Integration

The importance of a solution’s ability to integrate directly with a firm’s source systems will clearly depend on your approach to data processing. In other words, some institutions will want to take complete control over any manipulation of data, may have a central data warehouse and will be happy for a vendor to provide a fixed data format. This approach means that all data repair and transformation will need to be taken care of by the firm itself. This will reduce external costs and potentially lessen vendor dependence, however, most banks that I speak to see the benefit in a solution that is able to ingest raw data from multiple sources and execute repair, validation and reconciliation, ideally creating a repository of data for use in MIS and potentially ALM, Stress Testing and other risk based solutions.

Pricing Model

A consideration so obvious I was tempted not to include it. Of course, the commercial model and overall total cost of ownership needs to be looked at (licence/subscription, project costs, training, support) to ensure it’s aligned with the firm’s budget and ongoing financial plans.

But it’s also crucial to make sure that the contract doesn’t allow for a vendor to sneak in any surprises when it comes to additional costs. As an example, most vendors will provide an update service to cover regulator driven changes, but some will leave room for them to claim additional, ad hoc licence if they see that a change will require significant development effort.

Implementation Timeframe

Something to be confirmed when references are taken up. All banks want a solution delivered in as quick a time as possible, but a vendor’s credibility can vary when it comes to project estimates. I still talk to banks who are a couple of years into a project and still only partially automated. There can, of course, be many reasons for this, but track record of project delivery should be a key factor in solution assessment.

Summary

To return to a point I made at the very beginning, it’s crucial to make sure that you’re measuring the right things.

I’ve been in situations where a prospect has set an assessment exercise of some kind – a piece of configuration or an integration exercise – to be conducted during the presentation. This may seem like a good way of testing ease of use of the solution but care needs to be taken that ‘on the spot’ tests aren’t just measuring the skill – or otherwise – of the presenters.

What’s intended as a measure of solution efficacy may turn out to be a confounding variable, interfering with rather than contributing to the assessment of the main target of your interest.

It’s not all doom and gloom though. As I mentioned at the beginning, these observations have been collected over the course of more than a decade and most assessments are conducted with the requisite level of care – but it’s always worth reminding ourselves of where the pitfalls are.

Author

Andrew Kesbey

Chief Growth Officer, Focusync

Andrew been working in Banking and Software Solutions for the past 40 years in a variety of roles

Working in consultancy and pre-sales roles for solution providers in the areas of post-trade processing, SWIFT messaging, reconciliation, Andrew has focussed on the Regulatory Reporting domain for the past 11 years with Lombard Risk/VERMEG and Regnology. Andrew currently holds the position of Chief Growth Officer at Focusync.

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Supported by

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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