BearingPoint Institute study: In its current form, the regulatory reporting model in Europe is unlikely to prevent another financial crisis
In the wake of the financial crisis, regulators have overwhelmed banks and insurance companies with compliance. The objective is to make absolutely sure that taxpayers will never again be called upon to bail out “too-big-to-fail” banks. Reporting timeframes have been squeezed to weeks instead of months, and data requests have become more granular as the crisis exposed the need for high-quality, comparable and timely data on the global financial network.
According to a current BearingPoint Institute paper, the pursuit of restoring trust and confidence in the financial system could all be a wasted effort if the historic model of reporting – through prescriptive templates - is not scrapped and replaced with a modern, digital approach to supervision. While the process has moved online over the past few years, the methodology is still template-based, which the paper’s authors say is inefficient and impedes regulatory objectives to reinforce the soundness of banks. The current methodology does not enable the speed that is needed for accurate and prudential supervision.
Austria is trailblazing a new approach based on data input rather than output using a software platform that bridges the gap between the IT systems of the country’s central bank, the Oesterreichische Nationalbank (OeNB), and the main banks of the country. This software platform operates as a buffer that can automatically “grab” the data from Austria’s banks and house it for inspection by the regulator when the need arises. At the same time, it enables banks to maintain control over their commercially sensitive information.
The BearingPoint Institute interviewed Dr Johannes Turner, Director, Directorate General of Statistics at the Oesterreichische Nationalbank (OeNB), to find out more about the new model, which was developed as a result of close collaboration between the country’s banks and the OeNB.
"It ensures more consistent, higher quality data. The big win for the banks is that they are not burdened with the problem of completing templates on many different topics, many different times. They also save costs by sharing and centralising the process."
Dr Johannes Turner, Director, Directorate General of Statistics at the Oesterreichische Nationalbank (OeNB)
The BearingPoint Institute also spoke to Patrick Hoedjes, Head of Oversight and Operations, European Insurance and Occupational Pensions Authority (EIOPA), on changing the entire European reporting system for insurers and banks to an input-based data model similar to the one that is being trialled in Austria.
"I think there is a middleroad. The Austrian model goes further because it is integrated into a single institution. Industry is always free to take such an initiative but you risk losing some of the governance. Eventually, I believe reporting requirements will be like a datacube, though how that works remains to be seen."
Patrick Hoedjes, Head of Oversight and Operations, European Insurance and Occupational Pensions Authority (EIOPA)
The paper’s authors argue that while greater harmonization and standardization of supervision in Europe’s financial services sector is a significant step in the right direction, a micro-regulated environment based on old-style methodology is overwhelming the industry.
"It is right that supervisors should be able to demand data more frequently and with more granularity from organizations that could represent systemic risk, but the current framework of reporting is becoming increasingly too costly and time-consuming for banks and insurers."
Jürgen Lux, Partner Financial Services at BearingPoint and co-author of the study
"Going forward, regulators and industry must agree on a sensible ‘demarcation line’ in the supervisory and statistical data exchange, to reduce the reporting burden for industry whilst improving the transparency of the data in question."
Dr Maciej Piechocki, Partner Financial Services at BearingPoint and co-author of the study
Please find the press release here.