Data Gaps: Institution-to-Institution Credit Exposure Reporting

Background

The client is the US branch of a G-SIB (Global Systemically Important Bank) and required to participate in the BIS (Bank for International Settlements) reporting framework capturing the linkages between global systemically important financial institutions and their exposures to different sectors and markets. This reporting requirement is part of the Data Gap Initiative founded by the Financial Stability Board (FSB) in 2009 to identify, monitor and take action to reduce system risks and enhance the resilience of the global financial system. Known as the Institution-to-Institution Credit Exposure report, the requirements cover the firm’s securities financing transaction activity, short term money placements, and listed derivative/future exposure to counterparties and central counterparties (CCPs).

The bank partnered with Delv to produce this report, and develop processes to capture regulatory data not previously stored at the bank.

Challenges and Solutions

The first challenge was understanding the precise regulatory requirements, as there was no precedent at the bank for a single report that covered credit exposure information for every product and all positions. As it stood, the regulation asked for hundreds of specific requirements for each of the firm’s counterparties and central counterparties, resulting in a report with roughly two thousand unique items.

Understanding how the reporting rules differed per financial product from both a counterparty and central counterparty perspective would have to be a trial and error discovery process, in which local SMEs collaborated with the parent bank, who in turn would often require clarification from the BIS itself. Due to the iterative nature of the discovery effort, Delv business analysts determined that the traditional waterfall practice of awaiting finalized BRDs before committing development resources would likely result in a late delivery. In addition, the prospect of having to manually report any of these items was grave, as this maximized the risk of errors and the need to add permanent resources just to manage this report.

Instead, Delv proposed that the iterations occur programmatically, through use of custom, individual SQL stored procedures created by business analysts for each reporting product. The result sets would then be evaluated by SMEs directly, making the feedback loop as efficient as possible. The approach was an Agile means of producing a serviceable, automated tactical solution that would meet the reporting deadline and could be fully productionized later.

The next challenge was identifying and then remediating gaps in data coverage, especially with the CCP (Central Counterparty) reporting requirements. There were multiple CCPs and carrying brokers that the bank had daily exposures to, several of which had no automated data feeds between them. Worse, many of the available CCP statements did not provide the information that the regulation required, raising the possibility that dozens, if not hundreds, of individual data points would have to be reported manually. After some direct correspondence with the CCPs, Delv business analysts determined that in some cases it was possible to “back into” the required figures by aggregating the customer trades that cleared through those CCPs.

Execution and Delivery

Delv business analysts moved forward on several critical tracks simultaneously: Iterating through SQL reporting parameters for each product type with SMEs in collaboration with the bank; coordinating the effort between CCPs and the bank’s IT group to acquire new CCP statements; and using an existing reporting tool to construct and coordinate a process for the Credit, Finance, Treasury, and Operations departments to manually report items that could not be automated. The final step was taking the stored procedures for each product, combining the output with data collected from manual reporting, and rolling all of the steps into a single automated report for weekly production.

Results

The tactical solution delivered by Delv business analysts successfully automated 99% of the report items, minimizing the risk of manual errors and eliminating the need for additional resources. With the reporting deadline met, the analysts documented the solution process and data flows, and drafted the final business requirement documentation for handoff to production engineers. Further, this effort yielded additional reports from the same code for SME use, and reduced the amount of manual reporting for other processes at the bank.

"Delv landed their team of business and systems analysts and hit the ground running. Their deep knowledge in regulatory reporting and ability to spec out data requirements is top notch."

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