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Benchmarking of regulatory reporting in Czech banks May 2019
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Benchmarking of regulatory reportingin Czech banks
May 2019
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Summary
The last 10 years have brought an unprecedented boom of regulatory reporting – one of many consequences of the 2008 financial crisis. Czech financial institutions have had a steady supply of new requirements from local and European regulators ever since. The reports’ focus on data requirements is growing, with more data areas being included in the reports in more detail and with increasing frequency. We have seen a 351% increase in the amount of regulatory reports just over the past three years, but only an average increase of 0.9% FTE in the capacity of reporting teams.
As the requirements related to the form of reports change, the demands placed on employees in the field of regulatory reporting do too, causing a 43% turnover in regulatory teams over the last few years.
There is a long-term shortage of reporting experts on the job market, mainly because their job duties are unattractive and the salaries are not competitive when compared to other positions in reporting. Therefore, filling a new position is hard, and training and keeping the employee is even harder. When it comes to human resources, the situation is a time-bomb.
At the same time, investment in report creation and automation, IT systems, and data warehouses is growing exponentially.
Regulatory teams are perceived as a necessary evil that doesn’t bring any business to the company. In financial institutions, management is constantly grappling with the issue of distributing investment between the regulatory sector and the banking business.
KPMG gathered information on the current situation of regulatory reporting teams in Czech banks. We approached 31 institutions either directly or through a company who is responsible for regulatory reporting within their group. Out of these, 29 institutions provided us with data, while 2 refused to participate.
Half of the approached banking institutions are also in charge of reporting for other members of the group (e.g. subsidiaries or sister companies). The questionnaire included 64 questions. Answers were partially predefined while also leaving enough space for the respondents to express their own thoughts as well. All answers were given voluntarily and anonymously.
The questions covered the following topics:– regulatory teams– internal cooperation with other teams– data and data quality– routine operations– new regulations
To improve the information value and comparability, we divided respondents into two groups:– large banking institutions (top 5 in size)– small and medium banking institutions
Current Situation on the Czech Regulatory Market
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31 institutions approached 11 companies outsource their regulatory services
18 companies have their own team 2 companies did not react
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In total, regulatory teams contain 103 FTE allocated to processing regulatory reporting, which is a very small expert group in the context of the Czech market.
78% of the approached institutions also use other inter-nal teams to prepare specific reports or their parts. This mostly applies to ALM (interest rate shock) and market risk (liquidity) departments. These FTEs are not included in the total number because regulatory reporting only makes up a small part of their FTE.
FTEs allocated from IT to support and develop data warehouses and source systems providing regulatory reporting with data are not included either.
On average, regulatory teams of large banking institu-tions are made up of 12 internal FTEs, while smaller and medium banking institutions have an average of 4 FTEs.
Over the past three years, large banking institutions have increased the number of their employees by an aver-age of 1 FTE, with an average increase of 0.9 FTE in small and medium banking institutions.
Regulatory Reporting Teams
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Total103 FTE
Large banks 49 FTE
Small and medium banks 54 FTE
Reporting Agenda
In total, 77% of banking institutions have a centralized regulatory reporting department, though some agendas are processed by other departments.
Only one of the approached institutions has a regula-tory reporting team which is responsible for all relevant agenda.
An increase in competences of the department of regulatory reporting related to the AnaCredit system (replacing CCR, the Central Credit Register, which used to be handled by Credit Risk) is also worth mentioning. The increase was caused by AnaCredit’s strong links to other regulatory reports.
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0%
20%
10%
50%
11%6%
28%
50%
66% 66%
83%
44%
17%
30%
40%
50%
60%
70%
80%
90%
100%
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Employees, Experience and Requirements
An average team member has 8 years of experience.
Large banks (team’s experience)– average: 10.5 years– shortest: 8 years– longest: 14 years
Small and medium banks (team’s experience)– average: 7.3 years– shortest: 1 year– longest: 15 years
The requirements placed on the employees in regulatory reporting have changed over the past few years. Experi-ence in accounting and a perfect command of Excel are no longer enough. Current trends demand that analysts possess a great command of English in order to be able to read the newest regulations, have experience in data, data storage, and data transformation, knowledge of reporting methodology and, last but not least, under-standing of SQL.
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7.3 years in small/medium-sized banks
10.5 years in large banks
8 years of experience
Employees and Experience
70% of employees have sufficient language skills to understand a new regulation.
42% of employees are analysts familiar with SQL who are able to deal with data problems and perform data analysis.
33% of employees are the so called “methodists”.
There are almost no developers or programmers among the employees. Since production of regulatory reports is a complex, difficult task, it is outsourced to IT depart-ments or external providers.
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0%
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10%
30%
40%
50%
60%
70%
80%
90%
100%
71%
42%
33%
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0%
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30%
40%
50%
60%
70%
80%
90%
100%
71%
42%
33%
Turnover in Regulatory Teams
There has been a significant turnover in regulatory teams over the past three years, with an average of 43% out of total FTE.– In large banks, the turnover rate is 51%.– In small and medium banks, the turnover rate is 35%.
In 30% of cases, there were also changes in management of the regulatory teams. Most often, banks deal with fluctuation by hiring junior-level workers without any regulatory experience who need more time to be trained. And even then, some new employees don’t stay with the company for more than a year.
The main reason behind increased turnover is that the requirements related to skills and abilities of the regula-tory team members have changed significantly over the past few years. Other reasons that employees leave to work elsewhere are stress and a lower salary than com-pared to what they could make working in other reporting positions.
One respondent was particularly affected by the turn-over – in one bank, all 11 members of the team have left over a period of three years.
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in small banks 35%in large banks 51%
Turnover rate 43%
Comparison of Number of Reports
The reports now cover more data requirements than ever before, with more data areas being included in the reports, in more detail and with increasing frequency.
In the observed period, the number of reports saw an increase of over 351% per year.
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Reports for the Czech National Bank (CNB)
2016 2018 Increase in %
Type Number of reports
Number of reports/frequency
Number of reports
Number of reports/frequency
Change in the number of reports in %
Change in the number/frequency of reports in %
Banking supervision 51 235 46 234 -9.80% -0.43%
Out of that: EBA (COREP, FINREP etc.)
42 194 38 218 -9.52% 12.37%
Out of that: consolidated reports
21 67 25 107 19.05% 59.70%
Bank statistic 23 203 37 274 60.87% 34.98%
Capital market 8 344 21 3,862 162.50% 1,022.67%
Other CNB 4 277 2 262 -50.00% -5.42%
Total number of CNB reports 86 1,059 106 4,632 23.26% 337.39%
Number of data areas (sub reports)
504 3,649 688 17,757 36.51% 386.63%
Czech Statistical Office 7 32 8 33 14.29% 3.13%
Total 746 6,060 971 27,379 30.16% 351.80%
Decrease in reportsIncrease in reportsSignificant increase in reports
Data Quality
Most banking institutions keep a record of data correc-tions in one form or another, with all large banks keeping a record of both automated and manual corrections.
28% of respondents are actively trying to improve data quality through cooperation with BI and owners of the source systems.
22% of respondents use a central team to manage data quality.
67% of respondents prefer to deal with data quality themselves.
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0%
20%
10%
30%
40%
50%
60%
70%
80%
90%
100%
Technical IT-related issues
Insufficient replaceability
Late provision of data needed to compose regulatory reports
Data quality issuesNon-provision of entry data
Small and medium banksBig banksAverage
11%
72%
39%
56%
28%25%
29%
50%57%
50%
35%
75%71%
14%
0%
Cooperation with BI and Source Systems in Data Quality Management
The regulator demands flawless data quality in the reports, while the respondents have listed data quality among the biggest problems of regulatory reporting. Nevertheless, cooperation between BI departments and source system owners is not sufficient to meet the needs of regulatory teams. 33% of respondents said that the support departments are passive, simply waiting to receive error reports from the reporting team. Out of these departments, just 11% deal with data quality exclu-sively for regulatory teams.
The results also show that large banks put more effort into improving their data quality compared to small and medium-sized banks who, on the other hand, already receive better quality data from their sources.
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Passively waiting to receive error reports from various departments
Not involved in data quality
Actively trying to improve data quality through their own measures
Actively trying to improve data quality through joint measures, in cooperation with regulatory reporting
Small and medium banksBig banksAverage
0% 10% 20% 30% 40% 50%
33%
25%
36%
28%
36%
11%
25%
7%
28 %
50 %
21 %
0%
Data Availability and Source Systems
Calendar day of data delivery for reportingLarge banks:– earliest: 2nd day, latest: 10th day
Small and medium banks:– earliest: 3rd day, latest: 13th day
Number of source systemsLarge banks:– lowest: 5, highest: 30
Small and medium banks:– lowest: 2, highest: 10
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Number of source systems that are used to get data for reporting (DWH not included)
Calendar day when the banks receive data to compose monthly reports
Roles, Competences, and SLA
A third of respondents have either partially defined roles and competences of cooperating departments, or no definitions at all.
Half of the respondents do not have any SLA/OLA with departments providing them with data for regulatory reporting, although late delivery of entry data was often mentioned among routine issues related to the composi-tion of the reports.
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YesNoPartially
Yes, with all data providersNone at allPartially, with some data providers
67%27% 28%22%
50%
6%
Do you have an SLA with departments who provide you with data necessary to compose regulatory reports?
Are there clear definitions of roles and competences of cooperating departments?(e.g. BI data quality, calculation and checking of RWA Risk, etc.)
Data Processing and Transformation Processes
Only 55% of the respondents have a clear, well-docu-mented process of data processing and transformation that allows them to analyze data problems themselves.
In small and medium institutions, the number of documented processes is even lower. 22% of small and medium banks selected “No” as their response.
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YesNoPartially
55%28% 75%25% 50%28%
22%
17%
Big banksAverage – process documentation Small and medium banks
Automation and Automation-Related obstacles in Regulatory Reporting
39% of respondents automate all available regulatory reports (this is not a full automation). The rest of them – 61% – are actively working on improving their automa-tion. On average, large banks automate 48% of their reg-ulatory reports, without any manual adjustments needed (with the lowest number being 3% and the highest 85%). Small and medium banks automate an average of 49% of their regulatory reports, without any manual adjustments needed (with the lowest number being 0% and the high-est 96%).
According to banks, the largest obstacle preventing full automation of regulatory reporting is the total cost when compared to expected benefits of full automation. Low data quality and other priorities within the institution were also mentioned as obstacles.
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Other priorities or insufficient capacity within our agenda
The provider of the reporting solution lacks capacity
Costs are too high compared to expected benefits
Lack of finances in automation
Low quality of data
Unavailability of data in DWH
Small and medium banksBig banksAverage
33%
45%50%
17%
57%
75%
61%
23%
45%50%
43%
25%21%
25%
14%
25%
50%
29%
What are the obstacles preventing full automation of regulatory reporting in your company?
Areas to Automate
All respondents are working on increasing the level of automation in their reporting.
56% are mainly focused on automating the data prepa-ration stage, such as removing the need for manual calculations.
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Small and medium banksBig banksAverage
0%
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50%
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70%
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100%
Report validation and checking
Composing reportsSending reportsData repairsData preparation
67%
28%
50%
21% 22%
50 %55%
28%
50%
21%
50%
57%
14%
50%
71%
Temporary Solutions
83% of banks had to use a workaround to implement certain regulations.– Only 20% of them were able to dispense with all of
these temporary solutions,– while the remaining 80% still use some of the tempo-
rary workarounds as permanent solutions.
All large banks that were approached with the question-naire had to use a workaround to implement a certain regulation at least once. Only a quarter of them were able to remove it later.
In the small and medium banks category, 82% had to use a workaround to implement a certain regulation, with 18% being able to remove the workarounds.
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YesNo
80%20% 75%25% 82%18%
Using workarounds as permanent solutions Big banks Small banks
Involvement in the Preparation of New Products and Change Management
A total of 89% of the respondents said that regulatory reporting is partially or fully involved in the preparation of new products, services, and change management.
On the other hand, 11% of them are not involved in the preparation of new products, services, and change man-agement and only learn about these things later. This was not the case in any of the large banks.
Large vs. small and medium banksIn 75% of big and 28% of small and medium banks, the regulatory team is a standard member of the change management.
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YesNoPartially
39%
11%
50%
Is the regulatory reporting team involved in the preparation of new products, services, and the change management?
Internal Auditing, Compliance and Regulatory Reporting
The scope of cooperation with internal auditing in the area of regulatory reporting was described in the same manner by all banking institutions:– The banks carry out their usual auditing activities.– From the internal auditing point of view, none of the
respondents had any monitoring mechanisms related to the implementation of new regulatory reports.
– None of the banks mentioned any form of cooperation with the internal audit in the area of the implementa-tion of new regulatory reports.
On average, up to 61% of banks said that the compliance department is in charge of monitoring the new regulation and informing other concerned departments.
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0%
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70%
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100%
Not involved at allFollow-up verification of the regulation adherence
Active participation in the implementation of new regulations
Cooperation in the solving of methodology-related issues
Monitoring of new regulations, informing concerned departments
Small and medium banksBig banksAverage
61%
25%
71%
11%17%
25%
14%
28%25%
29% 28%
50%
21%25%
7%
Compliance involvement
Involvement of External Providers
83% of respondents use external consultants to help them implement new regulations.
Most often, they need help in understanding methodol-ogy, preparing IT tasks, and data quality.
17% of banks temporarily use external providers to pro-cess the reports because of the lack of internal capacity.
72% of respondents have to deal with insufficient capacity when implementing new regulatory requirements.
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YesNo
17%83%
83%17%
28%72%
Use of external consultants when implementing new regulation
Use of external support to help with routine processing of the reports
Insufficient capacity to implement new regulations
Suppliers and External Software
All respondents use third-party software to compose regulatory reports.
56% of them have either switched to different third-party reporting software in the past five years, or have considered switching.
Reasons behind the change:– low quality of the software– insufficient support, insufficient methodological
experience– general dissatisfaction with the supplier
The main reason why some banks kept the same supplier is the limited selection of good suppliers on the Czech market.
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56%44%
YesNo
Did you switch to another provider of a third-party tool used in the process of regulatory reporting in the last 5 years, or did you consider a change of provider?
Perceived Concerns Related to the Development of Regulatory Reporting Teams
The number one concern is a further increase in regula-tion and the regulator’s possible demand to receive daily data on transactions.
Large banks are also concerned about a potential increase of issues related to data quality, while the lead-ers of regulatory teams are concerned about the lack of qualified workers.
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0%
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30%
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50%
60%
70%
80%
90%
100%
Data qualityFrequent changes in organization
Regulators demanding daily data on transactions
Large increase in regulation
Experienced employees leaving often
Lack of experienced workers on the market
Low budget allocated to the team and its development
Small and medium banksBig banksAverage
22%
50%
61%
50%
64%
50%
100%
67%
6%
25%
61%
100%
50%
0%
75%
64%
7%
17%14%
Current Options to Improve Regulatory Reporting
According to banks, automation and better data quality have the highest potential to improve the functioning of regulatory reporting teams.
Stabilization of human resources-related issues would help, too (team capacity, level of experience, lower turnover).
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0%
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10%
30%
40%
50%
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70%
80%
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Team stabilization
Making the data available sooner
Improving data quality
Decreasing dependency on SW providers
Increasing the level of automation
Improving skills and knowledge of current employees
Supplementing missing capacity
Small and medium banksBig banksAverage
50%
33%
25%
36%
67%
17%
61%
33%
25%
36%
17%
25%
14%
75%
57%
50%
7%
50%
72%
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.© 2019 KPMG Česká republika, s. r. o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The reference to KPMG Czech Republic includes all companies associated with KPMG in the Czech Republic. Designed and produced by KPMG Česká republika, s. r. o.
David SlánskýPartner+420 724 242 [email protected]
Marta KelnerováSenior Manager+420 222 123 287 +420 603 484 [email protected]
