Sofia Event Center
14-15 May 2014
Marko TošićConsultant, [email protected]
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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