How to avoid regulator inquiries: Regulators perspective on submissions

How to avoid regulator inquiries: Regulators perspective on submissions

By Udayan Dekhtawala, Associate Managing Director, Argus Information & Advisory Services.

Can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

My name is Udayan Dekhtawala, and I manage client engagements in our Risk and Regulatory practice. Within the US I have managed engagements with US regulators like FRB, OCC, CFPB for data hosted solutions for bank supervision and also worked directly with FI’s to build a cost-effective, scalable and modular environment to manage their regulatory reporting encompassing data management, modeling, and reporting.

At the Stress Testing USA: CCAR & DFAST Congress, you will be speaking on your insight and advice to avoid regulator inquiries. Why do you believe this is a key talking point and what do you think are the crucial things to consider?

The key point to note is that not only new regulations are impacting the FI industry, but existing regulations are continually evolving. FI’s need to be in complete control of their end to end aspects of regulatory reporting which includes (not limited to) – data assets across multiple portfolio/products, business processes, model methodologies, model validation, model recalibrations, reporting for internal auditors, senior executives and most importantly to regulators.

Why should financial institutions incorporate economic sensitivity in modeling? And in your experience, what are the key considerations that need to be made?

Macroeconomic sensitivity is required to ensure FIs can forecast various economic conditions for CCAR/DFAST FIs. Typically there are three economics scenarios: the first establishes a baseline stress scenario based on consensus forecasts of the economy and an FI’s performance. The next two; adverse and severely adverse stress scenarios a provided by regulators to show slowing economic growth or a recession. The adverse and severely adverse scenarios are designed to see how an institution’s balance sheet would perform through an event similar to or worse than the 2008-09 financial crisis.

What do you believe are the main areas of focus across the industry to enhance data management and quality?

Enforcing effective data quality initiatives and controls are very critical for ensuring smooth and accurate submission to the regulators. One of the main reasons, FI’s get MRI’s is because their data quality issues are repetitive and often identified too late (close to submission date) or mostly by the regulators.

FI’s should streamline their internal processes and below are a few key recommendations from Argus which have helped our clients for their CCAR/DFAST submissions and other regulatory reporting–

  • Controls for validating source data before building submission datasets (most granular dataset – i.e., daily).
  • Leverage off the shelf tools for analytics and data lineage to source systems.
  • Integrated workflow to track all aspects of regulatory reporting from file arrival to results of mandatory edit checks.
  • Build additional validation controls beyond mandated by Fed (regulators).
  • Proactive in documentation of data quality issues for each reporting period for submission.
  • Reconciliation with other regulatory reporting (i.e., a four-way recon between FR Y 14 A, FR Y 14Q, FR Y14M, GL)