As regulatory reporting becomes increasingly complex, we summarise the key points discussed in our recent webinar: Regulatory Reporting 2023: Regulatory updates, key trends and data challenges. 

AutoRek’s CASS Consultant Murray Campbell and CBS’s Consulting Director Grant McKenzie talked about the major trends for 2023, industry insights, the challenges facing firms and how to overcome them.

They also gave some top tips on how to achieve compliance in 2023 and beyond.

Five key regulatory trends

The five main trends firms should be aware of in 2023 are:

1. Post-Brexit divergence

The UK’s Financial Services and Markets (FSM) bill, currently in its second reading, was introduced in the House of Commons in July 2022. Its goal is to boost international competitiveness and attract the investment and talent needed for growth.

The bill is a positive step for UK firms, but regulatory and reporting obligations might become more complex for firms operating across various jurisdictions.

2. Extending the regulatory perimeter 

New types of firms are being regulated, including crypto and BNPL organisations. These firms will need to identify and interpret the relevant regulatory changes and reporting obligations. This will require specialist expertise and investment – particularly in the back-office. 

3. Ethics and inclusion

The financial services industry is driving the ESG agenda. Consumer Duty will embed a culture and set of ethical practices within firms to make finance fairer.

Financial inclusion is a key feature of the FSM bill, which proposes new obligations for the provision of cash.

4. Proportionality

The FCA is aware that not all firms have the same resources to handle the rising number of obligations. This is a positive step.

5. Regulations are becoming more data-driven

The FCA’s data-driven approach will push firms towards greater automation and reduce reliance on manual processes.

What’s the FCA’s data strategy?

Financial services, data and regulations are becoming increasingly inseparable.

The regulator’s 2022 update puts data at the heart of its work. The FCA used to look at how it gathered data from regulated firms, but its goal is now to invest in tech and data analytics to enhance its own capabilities.

The FCA indicates this focus will continue as it strives to become a digital regulator. Recent communications also concentrate on big tech’s growing involvement in financial services, as well as research into AI and machine learning.

To build or to buy?

While building back-office processes in-house might seem straightforward, IT departments have competing demands. So, any change requests or actions will have to be prioritised. 

Engaging with a third party means firms receive immediate focus and have the use of a best-in-class solution. Third-party automation also frees up internal IT teams so they can focus on enhancing the front end. 

There’s also a perception that self-built systems are more cost-effective, but this depends on the success of the build. IT teams might run into unforeseen challenges, which often leads firms to seek third-party support anyway.

Challenges

The main challenges facing firms are: legacy systems; a need for clarity on golden source; manual, spreadsheet-based processes; and a lack of transparency and clarity in systems.

Firms with legacy systems rely on multiple systems for gathering data, which hinders data collection. It leads to inconsistencies, outdated data and a lack of complete data sets for reporting. Capturing different information from different sources will also result in increased employee workloads and impact governance.

Relying on spreadsheets complicates things further as firms need to transform or clean data. And there are many inherent challenges involved with spreadsheets, including the lack of an audit trail, volume limits, ease of manipulation and file corruption. On the other hand, automation will help capture and manage the data required for reporting.

Often, when data is ingested, it’s unclear what the source data was or what transformation has been performed. Granular data is essential for reporting, so firms using manual processes will need to reverse-engineer the data, which only adds to the complexity. 

Top tips

• Preparation is key. Horizon scan and estimate the impact of regulations, which will be different for every firm. Use trade bodies (e.g. UK Finance) to discuss challenges and engage with regulators early

• Smaller companies: Don’t bury your head in the sand. Speak to your legal advisors about their opinion on which regulations will impact your firm. Engage with professional services support if you don’t have the internal capabilities. And do this as early as possible

• Consider a data strategy. If the FCA is ramping up its data strategy, your firms should consider doing the same

• Keep up with regulatory changes. Stay on top of FCA correspondence and check the FCA Regulatory Initiatives Grid for a two-year look ahead. Check europa.eu for updates on EU regulations and take advantage of free webinars and reports from professional advisors or trade bodies

For more information, you can download our join paper with CBS: The regulatory reporting handbook 2023: Regulatory updates, key trends and data challenges.