Automated Product Control Adjustment Platform
The client is the US affiliate of a Foreign Banking Organization (FBO) subject to the Enhanced Prudential Standards (EPS) regulations adopted by the Federal Reserve Board in 2014. These standards became effective on July 1, 2016, imposing US capital and liquidity rules by requiring FBO’s to establish an Intermediate Holding Company (IHC). The holding company is composed of the aggregate financial data of its subsidiaries, and is the source of consolidated regulatory reporting for US regulators.
Delv was selected to program manage the data aggregation component of this regulation. Pursuant to an analysis of the processing requirements to achieve IHC compliance, it was determined that a custom solution was necessary to 1) automate what was then a highly manual process to modify GL entries because of booking issues, and 2) to accommodate the new granularity of transaction and position detail required for IHC compliance. Without this capability, the FRB reporting requirements could not be fulfilled. Delv was selected to design and deliver this custom solution.
Challenges and Solutions
The regulation imposed a daily IHC reporting deadline of 2pm on T+1. This required a daily transfer of hundreds of unique data attributes per position into the client’s reporting warehouse by that time. Most of the data was generated by overnight settlement batch processes. Thus, if any trades were booked incorrectly on T+0, it was not possible to rerun the batch in time for the T+1 cutoff at 2pm.
Historically, the client remediated trade errors by making “topside” reversing journal entries into the GL to correct the prior day’s balances and ensuring that the requisite trade or price was corrected in the corresponding source system. This correction would not reflect in the GL until T+2, when the topside entry reversed out and was replaced by an auto-generated entry with the correct trade, position, and price information.
Since the EPS regulation stipulates that GL balances must be fully supported by trade and position data, the old T+2 solution would result in a reporting gap. Accurate transactional data was a critical requirement on T+1 for reporting and capital calculations. To meet this challenge, Delv proposed a twofold solution.
First, Delv business analysts established an inventory of the manual adjustments performed by Product Control and Finance, isolating those which were recurring and rules-based. These “repeatable” adjustments could thus be generated automatically during T+0 overnight batch processing, ensuring that the GL balances and transactional data were accurate at the start of day on T+1. Over 100 entry types were identified, over 60 of which recurred with sufficient frequency that they were prioritized for development, testing, and implementation.
Next, for ad-hoc adjustments that could not be automated, Delv business analysts designed a web-based manual adjustment platform that would allow product controllers to correct trades, positions, prices, pool factors, and trading books. These adjustments, in addition to those generated automatically, would then flow to both the GL and the firm’s central transaction repository. With this solution in place, the correct data could be sent to the regulatory and capital calculation platform.
Execution and Delivery
A blended Delv team consisting of business analysts and near-shore quality assurance expertise in Poland led the initiative from start to finish: Driving the scoping and business analysis; establishing and executing a project management framework; collaborating with the client’s in-house development team on technical design; planning and performing unit testing, system testing, regression testing, and supporting UAT; preparing training manuals and training users and the support team; and providing implementation oversight and post-go-live support.
With the automated adjustment tool implementation, the client was able to meet the daily 2pm deadline for compliant EPS reporting, and had more granular control over its adjustment process than ever before. The tool was also repurposed to enhance the firm’s Volcker regulatory reporting platform.
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