Sofia Event Center

14-15 May 2014

Marko TošićConsultant, Microsoftmarko.tosic@microsoft.com

Architecture and ALM of regulatory reporting solution for banks

Financial regulationRequirements, restrictions and guidelines imposed upon financial institutions, aiming to maintain the integrity of the financial system.

Protect consumers (depositors), reduce the level of riskAvoid misuse of banksProtect banking confidentialityCredit allocationIncrease overall financial stabilityIntroduce transparency

Reasons behind financial regulation

Minimum capital requirements / ratiosReserve requirementCredit rating requirementLarge exposure restrictionSupervisory reviewPublic information disclosure

General principles and requirements

Financial regulator structureEuropean Banking Authority (EBA)European Central Bank (ECB)National Central BanksBanks (local, international)

Basel accordsBasel IIBasel III

Mapping to US regulationDodd-Frank

EU regulatory requirements

Financial reporting (FINREP)Standardised EU-wide framework for reporting financial (accounting) dataBased on IFRS standardsDetailed balance sheet view, profit and loss, various breakdownsOver 40 reportsOver 3,500 data fieldsReporting daily, every ten days, monthly, quarterlyIndividual (solo) and consolidated reportsXBRL format

Reporting frameworks

Common regulatory reporting (COREP)EU-wide consistency in the reporting of capital informationInformation covering capital adequacy, risk type (credit, market, operational), securitisations, large exposures, etc.Complex, around 20 reportsRevised in 2011XBRL format

Money market reportsPayment systems reports

Reporting frameworks (continued)

Financial report examplesBalance sheetReportReporting

DateCounterparty Type

Counterparty ID

State

Owner Type

Owner Shares

Instrument

Currency

Maturity Indexation Type

Indexation Currency

PortfolioRisk Group

Amount Type

Sign Amount

AA 20131231 MB 00123609 HR N 0000 P0201 HRK 000000 XXX 01 + 0.27000

AA 20131231 MB 00123609 HR N 0000 A0603 HRK 000000 N 000 KIP CC 02 +1341.55000

AA 20131231 MB 00123609 HR N 0000 A0603 HRK 000000 N 000 KIP CC 05 +1341.55000

AA 20131231 MB 00123714 HR N 0000 A0213 HRK 000024 N 000 KIP AA 01 +54000.00000

AA 20131231 MB 00123714 HR N 0000 A0213 HRK 000024 N 000 KIP AA 03 + 376.66000

Money marketsReport Reporting

DateReport Type

Counterparty Type

Counterparty ID

Instrument

Currency

Amount Type

Mediation

Insurance

Settlement Currency

Settlement Date

Return Date

Deadline

Direction

Sign

Amount

NT 20111206 ST MB 00131920 A1 EUR I03 EUR ON P + 300000.00000

NT 20111206 PR MB 03337367 A1 HRK I01 N000 N00 HRK 2011052420120524 D7 D +

20000000.00000

NT 20111206 ST MB 00131920 A1 USD I03 USD ON P + 505000.00000

NT 20111206 PR MB 01260405 A1 HRK I01 N000 N00 HRK 2011072120120117 D7 D +

20000000.00000

NT 20111206 ST MB 00189189 A1 EUR I03 EUR D7 P +4500000.00000

Financial report examples (continued)Payment systemsReportReporting

DateCountry Code

Currency Code

Category Description

Schema Settlement Place

Ordering Place

Ordering Type

Payment Description

Payment Funds

Transaction Type

Amount Type1

Amount 1 Amount Type2

Amount 2

NP 20131231 HR HRK K04 REDOVITO MN01 IZ07 118278 IZ08 26945788NP 20131231 HR HRK K04 REDOVITO MN03 IZ07 190 IZ08 10549NP 20131231 HR HRK K04 MZ01 NZ01 ONP07 ISP01 IZ07 6 IZ08 397NP 20131231 HR HRK K04 MZ02 NZ01 ONP05 ISP04 IZ07 104496 IZ08 23835502NP 20131231 HR HRK K04 MZ02 NZ01 ONP07 ISP04 IZ07 13933 IZ08 3118695NP 20131231 HR HRK K04 MZ01 NZ02 ONP03 ISP01 IZ07 33 IZ08 1743IT 20131231 K05 TT01 IZ09 271591IT 20131231 HR AUD K05 REDOVITO IZ12 12 IZ13 364IT 20131231 HR CAD K05 REDOVITO IZ12 40 IZ13 978IT 20131231 HR CHF K05 REDOVITO IZ12 304 IZ13 12722

Credit risk COREP CREDIT RISK STANDARDIZED APPROACH

ORIGINAL EXPOSURE (-) VALUE ADJUSTMENTS AND PROVISIONS ASSOCIATED WITH THE ORIGINAL EXPOSURE

EXPOSURE NET OF VALUE ADJUSTMENTS AND PROVISIONS

  OF WHICH: ARISING FROM DEFAULT FUND

  20120630 010 020 030 040=010-030-020

010 Total Exposure $19.622.366.581,11

  -$3.612.818.145,16$16.009.548.435,9

5BREAKDOWN OF TOTAL EXPOSURES BY EXPOSURE TYPES:    

020 On balance sheet exposures subject to credit risk

$17.262.417.277,65

  -$3.599.198.621,44$13.663.218.656,2

1

030 Off balance sheet exposures subject to credit risk

$255.831.718,77 $0,00 -$13.619.523,72 $242.212.195,05

Common requirements and challenges

Regulator requirementsInformation on reports needs to be trueThe reports must not be lateThe reports need to conform to published specifications and formatsEvery report position must be „provable”Financial penaltiesPotential audit

Common implementation challengesBanks face numerous problemsGetting the required data – data warehouse as a prerequisiteData qualityExcel hellData leakage / lossReport generation frequencyReport complexity and granularity (level of detail)Manual adjustmentsLogging of all changes on report positionsTracking data from the report to the source (analytic) dataRunning logical controls

Common challenges (continued)Banks face numerous problemsFrequent regulation changesAd-hoc reporting (self-service BI)Many departments involved – organizational challengeComplex testing processSecurity and archivingMission critical process

Common challenges (continued)IT vendors face problems as wellMapping from the bank’s data martData quality issuesFrequent regulation changesReport calculation complexityDemanding customersIndustry knowledgeReading, interpreting and understanding regulator specificationsSupportProduct package vs. implementation (service)Project and stakeholder coordination

Microsoft regulatory reportingsolutionCodename SIBS

Solution overviewEnd-to-end regulatory reporting solutionWeb-basedSimple and intuitive UI for the end-userEasily configurableBased on well-known technologies – ExcelIntegrated with the bank IT infrastructureIsolated environment for reporting dataMinimum IT support

Solution overview (continued)Transparency and auditabilityRepeatability of the processData quality managementData analysis capabilities (OLAP, drill-down, etc.)Ad-hoc reporting

Features for the end-userUser interfaceControl the process end-to-end (streamlined)Find and browse through different report groups and reportsRole-based access and UIApproval workflowMulti-tenant support, theme support

Reporting capabilitiesEdit each report position with full audit trailBulk edit supportView and change business rules and mappingsDrill-down supportTrend reports

Features (continued)Consistency checksAbility to run data and report consistency checksRun vertical logic controls

Consolidated reportsReporting on solo or consolidated basis

ExportabilitySupport for fixed structure and non-fixed structure reports („running reports”)Support for different file formats (ASCII, XML, Excel, etc.)SWIFT integrationAutomation

PrerequisitesData warehouse with financial dataReporting data model

CUSTOMER DATA (identifier, sector,

risk rating, residency indicator, ...)

FINANCIAL AGREEMENT DATA (originating date, maturity, product

code, interest rates, ...)

AGREEMENT BALANCE

(date, GL account code, currency, debit

amount, credit amount, ...)

OWNERSHIP STRUCTURE

SHARES IN OTHER COMPANIES

CUSTOMER GROUPSRELATED PERSONS

EXPOSURES BY CUSTOMER

COLLATERALS COVERAGE

PAST DUE RECEIVABLES

BALANCE CHANGES GENERAL LEDGER

Prereqs (continued)TRANSACTIONS DEBT HISTORY

PAYMENT SCHEDULES

INTEREST RATES

CHART OF ACCOUNTS

EXCHANGE RATES CURRENCIES PRODUCTS

RISK RATINGS ORG. UNITS CREDIT CARDS

Collaboration with various departmentsRisk, finance, accountingIT department

SUBSIDIARIES

MethodologyDetermine the reporting groups (FINREP, COREP, …)Analyze the local regulation and templatesInfrastructure setupMap the bank’s DWH / data mart to MS solutionETL and calculations MS frameworkTestingDeploymentMSF methodology, iterative

Reporting processData preparation phase

Data extraction from DWH

Data quality checks

Creating analytic

table

Mapping data to report

dimensions

Aggregating data from

analytic table

Report consistency checks

Report correction

Format conversio

n

Importing error files

from regulator

Report data corrections

Presenting data to various audits

Archiving

Report generation phase

Report corrections

Solution architecture

Data mart

Calculations and data

User interface

Report generation control, report browsingData analysisManual adjustmentsData export

Report calculations, analytic tablesParameters, mappings and rulesAudit trailReporting templates

Staging areaCopy of dataCustomers, balances, contracts, cash flows, etc.

Back end

Component architecture

Data warehouse

(Oracle DB2, …)

Web application (IIS, ASP.NET MVC, Entity Framework)

Front end

ETL (SSIS

package)

Staging databas

e

SSIS Package

BizTalk Business

Rules Engine

Analytic tables

ReportsStored

Procedures

Business Rules

DB

Stored Procedures,

ORM

File (Out)

File (In)

BRE API

Business Rules

Composer (Desktop app)

SWIFT interfac

e

Job control engine

Workflow

Excel

OLAP Excel

Central Bank

Business rules editorBased on BizTalk Business Rules EngineSeparates application logic from business logic

Allows the business user to modify the rules

Rules can be easilyinterpreted

No IT support

Enables versioning

Project setupBankProject management(internal and external communication)

Risk departmentAccountingFinance department

IT department

MicrosoftProject managementSolution architecture and methodologyBusiness analysisDevelopmentQA

PartnerDevelopersTesters

HistoryHistorySIBSv1Developed in 2008 by Microsoft/Partner“Identical” solution in 2 banksNot modularHard to maintain

ASP.NET Web PagesUnnecessary code in stored proceduresSpaghetti code

Current stateSIBSv2Front-end built from scratchMigrated and re-architectured back-end for modularityCloud readyModular, testable and maintenableSeparation of concerns

ASP.NET MVCORM (Entity Framework)Dependency injection (Unity)Automapper

Customer referencesFrom 2008 until now, 2-3 parallel work streamsCompete scenarios

80% market share

20%

Demo

Screenshotsof the application

Future versions and potentialSIBSv3 – future versionFocus on the UIRelease management (with TFS)More BI integrationCloud?PDW?Solvency II – EU-wide regulation

DemoArchitectureComponentsBest practicesTechnologies usedStories from the fieldApplication lifecycle managementCommon issues

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