TRILLIUM SOFTWARE INSIGHTS

Regulatory Data Management – The Gift that Keeps on Giving

Michael Hutnyan, EVP Sales & Solution Strategy, Harte-Hanks Trillium Software

After reflecting on the recent holiday season, now that many of us have recovered from some extensive gift-giving (and are now paying the resulting bills), it occurs to me that my financial services clients are receiving a more troubling gift – one that only promises on-going costs and a possible deviation from growth and service - new and ever-changing regulatory requirements.

I’m referring primarily to those government-sponsored, mandated regulatory demands that involve a significant data management component. Newly defined regulations such as FATCA and the yet-to–be-unveiled LEI (legal entity identifier), will require an extensive and proactive data management strategy by banks. They’ll need to clearly demonstrate knowledge and control over data and its quality in order to achieve compliance.

The Impact of Basel III Readiness & Data Challenges on your Bank

By Shameka Simmons, Banking Attorney, Financial Solutions, Harte-HanksTrillium Software

Banking firms expect that the Basel III framework will be published and implemented in the United States by the end of first quarter 2012. Basel III imposes additional capital surcharges, and mandates liquidity standards, both of which trigger data elements that deserve your attention. Although some US banks have expressed opposition to Basel III capital requirements, the banks are in fact overcapitalized and are trying to prepare for the new capital thresholds demonstrated by the positions on their call reports. 

But, the unspoken question remains…”are banks really ready for Basel III?”

Some banks have already begun internal preparation for implementation of Basel III by participating in qualitative impact studies (QIS) that analyze and measure the affect the new framework may have on a bank’s business model, balance sheet, and product mix. Project setup and working groups will assist with the technical realization and data preparation/data quality management of the new framework relevant to the liquidity ratios. Yet, banks are facing many challenges including the treatment of missing data, comprehensive data consistency, extensive data warehouses, and numerous data sources. 

In particular, the liquidity coverage ratio (LCR) will require banks to have sufficient high-quality liquid assets to withstand a 30-day stressed funding scenario that is specified by regulators. The net stable funding ratio is a longer-term structural ratio designed to address liquidity mismatches. It covers the entire balance sheet and provides incentives for banks to use reliable sources of funding. This liquidity framework mandates consistency in data based on manual or automated calculation of the ratios or different evaluations (book value vs. market value) of assets.

The liquidity framework may introduce a significant challenge to financial services firms because banks will have to integrate their existing liquidity risk systems into their Basel frameworks, which is likely not yet done as U.S. banks, for example, are still anticipating implementation of Basel II

In addition, adoption of a new framework will require a substantial budget for banks to transition and remain in compliance. So, banks may believe they are addressing their financial data issues in advance of Basel III, but they may not be working out the right problems to ensure compliance. A deeper and more specific data assessment may be needed to find the data inaccuracies you may not know about yet. The consequences of mistakes will be costly. 

Is your data ready for Basel III?

Shameka Simmons is a Banking Attorney with Harte-Hanks Trillium Software.  She offers a wealth of knowledge about the inner workings and processes of financial institutions, retail/commercial lending, and complex loan transactions.  She gained this expertise through her experience at GMAC (now Ally Bank), the Legal Division of the FDIC Enforcement division, and her active role in the Illinois Attorney General subpoena/investigation of Countrywide at the height of the foreclosure crisis.