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The Aptitude Blog

Continued regulatory challenges for Banks

June 8, 2015
Posted by Sarah Werner

While the dust has somewhat settled following the global financial crisis, it leaves in its wake a significant increase in the number of banking regulations. From capital and liquidity requirements to changes in accounting standards – including a new expected loss impairment model – banks are addressing these challenges with varying degrees of success.

Here’s a look at what’s new regarding some of the key current banking regulations:

Capital and Liquidity Rules (CCAR Post-stress Capital Analysis & Basel III)

The CCAR regulation was put in place by the US Federal Reserve to establish a common set of capital ratios for the largest banks (consolidated assets of $50 billion or more.) After a few years of execution, regulators are now shifting more focus to the processes and controls surrounding the metrics – not just whether banks are meeting the ratios. In their recent paper on the CCAR & DFAST 2015 results, Deloitte remarked, “The Fed is maintaining its pressure on firms to continue to make steady progress in improving their capital planning processes even if there was no objection in the prior year.” (source)

Similar legislation exists for European banks under the Basel III regulation. Like CCAR, the goal of Basel III is a strengthened framework for bank capital adequacy and liquidity. The measure was released in 2010 with phased in requirements commencing in 2013 and ending in 2019.  The impact and consequences are expected to be far reaching from a financial and a business perspective and involve similar operational challenges as CCAR; including data acquisition and the development of clear and auditable processes and calculations.

The enhanced focus on business controls required by both CCAR and Basel III means organizations will need to ensure they can easily illustrate the defined models and calculations being used – and trace data back to source systems.


In July 2014, the International Accounting Standards Board (IASB) published IFRS 9, a package of improvements, which introduces a new approach for the classification of financial assets driven by cash flow characteristics and the business model in which an asset is held. It also introduces a new, expected loss impairment model that will require more timely recognition of expected credit losses. IFRS 9 will be effective for annual periods beginning on or after Jan 1, 2018. Most believe FASB will pass similar guidance in the near future.

Banks and consultants have begun to assess the implications of implementing IFRS 9 and the effort is expected to be significant. This month Deloitte released a study that showed IFRS 9 budgets have doubled in size over the last year and lack of technical resources required for implementation projects is a concern for banks

Mike Lloyd, Deloitte bank audit partner, commented: “This is a big change for banks and there are a number of implementation challenges. Banks’ internal teams – including finance, credit, risk and IT – will need to work closely together to ensure these projects can get off the ground in time for the implementation deadline given the complexity involved and wider business pressures.”

IFRS 9 compliance will require companies to bridge the gap between risk and finance, both from a systems perspective and from a process perspective. Once the requisite data is brought together, calculation rules will need to be defined to generate impairment values and then the appropriate accounting entries must be generated. Organizations believe risk models will need to be very transparent to meet auditor requirements.

Tax Reporting Regulation

Over the last few years, there has been an increase in the number of tax share classes that are subject to regulatory reporting and responding to these new requirements can be a significant constraining factor in relation to growth.

This area is challenging due to the complexity and variation in the tax jurisdictions of individual countries and an increasing scope of tax audits requiring more transparency. Global banks must comply with the regulations in each country of business – a process that, if done manually, can result in significant time and cost for the organization. For investment banks, calculating the tax positions of their investments can be an important part of the service they provide clients. With the acceptable reporting window continuing to shrink – clients now expect reports in hours, not months – manually calculating and generating jurisdiction-specific tax filings is neither efficient nor scalable.

In order to comply in a timely manner with tax regulations, organizations are looking at process automation that will reduce operational risk, significantly increase capacity, and maintain flexibility to meet stringent and evolving tax requirements and reporting deadlines.

The Financial Engine Approach

Many of these regulations will require a change in data identification and collection. Given the variety of legacy source, risk and accounting systems found in many banks, this will be a challenge. New regulations also require the ability to process high volumes of complex calculations, often with speed and transparency not required before the new laws. Manual solutions, like the spreadsheets still prevalent in many banks, are not going to meet the transparency requirements of auditors and regulators who will expect to see into the ‘black box’ of financial calculations, processes, controls and data trails.

By using configurable, financial engines, banking organizations can address current and future regulations without disrupting their core financial architecture. Aptitude Software has a long history of providing client banks, both in Capital Markets and Retail sectors, with a range of specialist finance applications used to address statutory, financial and regulatory reporting requirements. For more information, please contact us at

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This blog post was written by:

Sarah Werner
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