The Reporting Revolution
31 October 2016
Sam Woods, CEO of the Prudential Regulation Authority (PRA), delivered a starkly titled speech last week."The revolution is over. Long live the revolution!" hailed the revolution in bank regulation while declaring it to be over. Nothing truly radical there you might think. Not many revolutions have lasted as long as the eight years that have passed by since the financial crisis started. But veterans of the banking industry may be far from reassured. In keeping with the incendiary style of the speech, Woods dropped a bombshell towards the end when he revealed his preference for firms to publish their regulatory returns. This would mean firms making their regulatory reporting available to the public at large - not just the regulators, representing a radical shift from the status quo. While confidentiality is the most obvious bone of contention that could result, firms are currently plagued by the more mundane difficulty of reporting the right information – a problem that could intensify if Sam Woods' preference is put into practice.
But the PRA’s focus on reporting is not new. We noted the beginning of this shift in focus in a blog back in June when the PRA first sent letters to a group of firms announcing its intention to launch a thematic review of the completeness and accuracy of their Common Reporting (COREP) returns. Then in September the PRA upped the ante, sending letters to more firms and so widening the scope of its review. Many firms are already conducting reviews in response to these letters and a large number of issues relating to governance and controls, matters of judgement and interpretation and detailed calculation and disclosure errors have been identified - many of which have been reported to the PRA. Taking these events together, it seems unlikely the recently appointed PRA CEO who describes himself as a 'guerrilla' in the revolution, will fail to act.
Far from being alone in the battle on reporting, the PRA’s drive is being reinforced by other parts of the regulatory framework such as the The Senior Managers Regime, which requires senior managers to take the necessary steps to ensure the completeness and accuracy of regulatory reports. And the evolving Pillar 3 is also likely to contain future attestation requirements. Outside of formal regulation but still adding to the momentum, the ICAEW will shortly issue an Exposure Draft of Guidance on an assurance framework for banking regulatory ratios.
So how should firms respond? In his address, Woods announced that the PRA would issue a discussion paper next summer on a framework for the disclosure of banks and insurers' regulatory data. This should have the industry’s full attention. We recommend that firms take the time to reflect on their responses as the implications of greater disclosure requires some serious thought. Firms already struggling with their COREP reporting have one more reason to act. And while other firms may feel, strictly speaking, that they are complying with reporting requirements, the rising stakes should lead them to consider if further steps to ensure the completeness and accuracy of their reporting is now a greater imperative. Because customers, shareholders and rating agencies are a larger audience who will be scrutinising firms data in ways that the regulator had no reason to.
The post-crisis revolution in banking regulation may be nearing a close, but it would seem that a revolution in reporting has only just begun.