Regulatory Dictionaries Symetria white paper

REGTECH | WHITE PAPER FINANCIAL SERVICES | NOVABASE.COM
REGULATORY DICTIONARIES
AND THE FUTURE OF REPORTING
How Regulatory Dictionaries
Can Improve Compliance
NOVABASE 2019 ©
Strictly Confidential Information.
All Rights Reserved.

• Regulators are increasing the reporting obligations for banks and financial institu-
tions in general. Expectations are that regulations become even more detailed and
complex in the future.
• National Competent Authorities (NCAs) and commercial banks are uniting efforts
to create regulatory dictionaries.
• While these frameworks can help to mitigate the burden of regulatory compliance,
there is still opportunity to make the reporting process more automated and less
human dependent.
• CCO
• CRO
• CIRO
KEY TAKEAWAYS
WHO SHOULD READ THIS DOCUMENT

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Reading this document constitutes an undertaking to observe the confiden-
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.
PROPRIETARY NOTE

CONTENTS
ABSTRACT
CONCLUSION
APPENDIX
THE RISE OF REPORTING DICTIONARIES
FROM AUTOMATION TO INTELLIGENCE:
THE ROAD AHEAD
CREATING EXECUTABLE REGULATIONS
FROM DICTIONARIES
07
08
10
12
14
15
04
03
02
01
05
06

6
A good function of the financial system is critical for the country’s economy and eco-
nomic development. To function properly, financial systems need to operate under a
regulatory framework that ensures transparency and efficiency while boosting overall
player confidence. The financial crisis that started with subprime mortgages in U.S.A.,
in 2008, had a considerable impact on the global and European financial systems and
demonstrated the need to update the regulation that financial institutions work with.
New regulations address not only capital and liquidity, but also consumer protection,
money laundering and countering terrorist finance, data access, privacy, cyber-crime,
systemic risk and macroprudential policy. The spectrum of institutions that must re-
port data under the new regulations is not limited to banks and include insurance com-
panies, investment firms and the whole financial market infrastructure. Some regula-
tory frameworks that are statistical by nature are to be reported even by non-financial
institutions (e.g.: statistical regulations like the balance of payments must be reported
by any organisation with economic activities involving foreign countries).
However, Financial Institutions are often left to their own interpretation of regulation
requirements. It is common to have frameworks that arise doubts on which source data
should be used and how to process it or even on the exact definition of the set of con-
cepts to be used. Eventually, as any institution is left to interpret and extract the data
needed to comply with regulations, a consistent data quality is becoming more difficult
to achieve.
Regulatory requirements will not cease to be implemented anytime soon. In reality,
it’s expected that they become even more detailed and complex. In its report named
“Banking in 2030: Invisible Bank”, KPMG predicts that, in the future, banking regula-
tion will become real-time and even present at the point of sale . For these regulations
frameworks to work, Financial Institutions need more agile ways to answer require-
ments, either in speed of delivery as in quality and accuracy of the output data. It is also
urgent to have compliance systems more easily integrated with other internal systems
to guarantee accurate, non-duplicated data.
ABSTRACT
01

7
CRD IV
2013 2014 2015 2016 2017 2018 2019
FinRep - Financial Reporting
CoRep - Common Reporting - Own Funds and Leverage
CoRep - Liquidity Coverage Requirement
CoRep - Large Exposures
Asset Encumbrance
Funding Plan
Inicial Market Valuation for Supervisory Benchmarking Portfolios
CoRep - Net Stable Funding Ratio
CoRep - Additional Liquidity Monitoring
CoRep - Liquidity Coverage Requirement Delegated Acts
Supervisory Benchmarking Portfolios
Graph 1: Evolution of CRD IV from 2013 to 2019

8
Regulators are acutely aware of these challenges and their impact on the Financial
Services industry. Initiatives have been arising to increase the efficiency of reporting,
reduce the burden for Financial Institutions and, ultimately, standardise the reported
data. These initiatives come frequently in the form of reporting dictionaries that aim to
provide banks with a clear definition of what and how to report.
In the UK, reporting was brought to the spotlight by a Proof of Concept (dubbed
TechSprint) held by the Financial Conduct Authority (FCA) and the Bank of England. To
tackle the inconsistency of the reported data, FCA and the Bank of England are running
a project called Digital Regulatory Reporting to explore how technology can relieve the
burden of reporting and reduce human misinterpretation of reporting rules.
Another relevant initiative that have
been developed is the one that resulted
from the European Central Bank (ECB)
effort to harmonise reporting frame-
works across countries. To increase the
efficiency of reporting and to promote the
use of high-quality data, the ECB created
the Banks’ Integrated Reporting Dictio-
nary (BIRD) to help Financial Institutions
efficiently use and manage their internal
systems’ data to fulfil reporting require-
ments.
The initiative was launched in 2015 and it
is focused on a methodological perspec-
tive. BIRD activities involve a group of
various national central banks and com-
mercial banks. This work group is coordi-
nated by the ECB and has as main goal to
analyse reporting requirements to deter-
mine the data and transformational rules
to be performed. Once a year, a steering
group is organised to discuss the roadmap
for the following two years, focusing on
which new frameworks should be covered
or other important endeavours.
02
THE RISE OF REPORTING DICTIONARIES

9
Since BIRD launch, ECB have been providing Financial Institutions with up-to-date ma-
terial to respond to the regulatory reports. All the materials are freely available, and
they provide precise descriptions of the data that should be extracted, as well as clearly
defined rules for data transformation for reporting purposes.
As mentioned, BIRD’s documentation contains precise descriptions of the data that
Financial Institutions must extract from their systems to respond to the required reg-
ulatory reporting, as well as the associated transformation rules. Although it provides
Financial Institutions with a clearer and accurate description of data to be used, it still
doesn’t alleviate the burden of reporting as the banks still have to manipulate data to
produce final reports. At its site, ECB states that “The BIRD is made available for public
purposes only. It does not constitute any type of professional advice to users, nor any
official interpretation of any reporting requirement. The information it provides must
not be understood as binding, or otherwise legally relevant concerning compliance
with reporting obligations.”. That is, although it provides banks with guidelines, it can’t
be taken as binding, once again reinforcing the uncertainty of reporting quality and the
added value in change management.

10
BIRD
ACCESS
DATABASE
BIRD
CONVERSION
To fully understand the effort behind regulatory reporting, we must understand what
is in a regulatory reporting framework. The picture below illustrates the three main
pillars of a report: the models (by which data is transformed through formulas and cal-
culations), rules (the guidance and the policies previously stablished by regulators) and
processes (how reporting impacts people and their workflows).
As useful as a regulatory dictionary can be, it only
assures that every Financial Institutions within the
same jurisdiction talk about data and reporting with
the same depth, terminology and understanding. It
does not provide banks with any IT system to further
simplify reporting and it it does not enforce the data
granularity needed.
03
CREATING EXECUTABLE REGULATIONS
FROM DICTIONARIES
Graph 2: The three main pillars of a report: models,
rules and processes

11
Additionally, although electronic dictionaries typically cover the steps associated with
data transformation flows required to create the reporting data, they fall short of pro-
viding the actual generation of the physical data transmission format (XML, XBRL or
any other). Since formats and transmission channels tend to vary from NCA to NCA,
further customization is needed to fully cover the information lifecycle associated with
a regulatory report.
The key is to use the information and documentation generated by these initiatives in
a way that streamlines regulatory reporting, so the Financial Institutions can gain back
their competitiveness and teams can focus on strategical decision, rather than put all
the efforts in compliance.
An integrated and automated reporting platform can transform the compliance bur-
den into a competitive advantage. It can change the entire compliance process moving
focus from the end report to the data and its usage. By simply translating an electronic
dictionary framework into a framework designer, such a platform can help minimise the
compliance burden, streamline processes and support business decisions with data.
Reporting platforms create effective value. At the same time regulatory requirements
are met, key risks and opportunities become clearer, thus enforcing a medium and long-
term impact of compliance. Those solutions add value inside and outside the business,
ranging from investors and employees to regulators and customers.
REGULATION
ENGINE
FRAMEWORK
DESIGNER
Graph 3: How an automated reporting platform
like Symetria®
can make compliance easier

12
Regulatory dictionaries like BIRD provide value by harmonising data consistency and
decreasing time and effort spent in the analysis of regulatory requirements. However,
there is still a long way before Financial Institutions can make regulatory reporting a
business opportunity, rather than a burden.
Nowadays, most Financial Institutions are using granular data solely for reporting pur-
poses, thus losing the opportunity to unleash data to support business decisions. The
multiplicity of systems, which are designed for operational purposes, and the multiple
data feeds make difficult to extract insights from data.
The use of Artificial Intelligence can fill this gap by leveraging technologies as natural
language processing to just enter queries in a search box and have business data and
instant visual answers. AI can also be used to manage large amounts of data with no
human interaction need, thus reducing the time spent in data processing and reporting.
It can also assist professionals in the decision making, providing a holistic view of the
company with the granular data required for compliance.
FROM AUTOMATION TO INTELLIGENCE
- THE ROAD AHEAD
Unleashing regulatory intelligence
04
4.1
The key here is to understand
that AI will not replace humans
in compliance, but it will offer them
alternative solutions to the reporting
problem, complementing their tasks with
the right data and allowing them to per-
form more efficiently and accurately.
“John is Patrick’s father.”
“Susan is John’s daughter.”
JOHN PATRICK
SUSAN
FATHER OF
SON OF
FATH
ER
O
F
SIBLIN
G
O
F
D
AU
G
H
TER
O
F
SIBLIN
G
O
F
Graph 4: An example of
how AI can process data
and present inferences
with no human interaction

13
Financial Institutions should be provided with
dictionaries alongside the set of technical
requirements that are available today.
The future is that regulatory reporting dictionaries can empower Financial Institu-
tions to automate reporting. With a clear framework for data reporting, organisations
can rely on Artificial Intelligence to perform reporting and risk assessment almost on
their own.
One characteristic that traditionally has set humans apart from machines is the abili-
ty to read text documents and generate knowledge from its contents. This fact is be-
coming less evident over time, with current AI algorithms capable of reading text and
providing understanding at human levels (a year ago, both Microsoft’s and Alibaba’s AI
have tied for first place on the Stanford Question Answering Dataset, beating humans
at reading comprehension for the first time).
Real synergies are only leveraged when electronic dictionaries provide formal defini-
tions for regulatory frameworks before they come into force. In practical terms, this
means Financial Institutions should be provided with dictionaries alongside the set of
technical requirements that are available today. This would allow Financial Institutions
to deal with regulatory change with ease and face the future of regulatory demand
with the correct level of confidence.
This means that if we can somehow devise a machine that understands real-world enti-
ties and their relationships to one another – the most common definition of knowledge
graphs -, it would be possible to have the machine “digesting” technical requirements
for regulatory reporting and accurately producing the its electronic dictionary repre-
sentation. Formal definitions for a regulatory framework would be obtained automati-
cally from its technical requirements in the form of the input datasets, transformation
and validation rules as well as the output datasets.
We may not be there yet, but the potential driven from this brave new world
is enormous, both in terms of cost cutting and enhancing the overall quality of
reported data.
Automating regulatory reporting4.2

14
CONCLUSION
05
Banks must change the way they view regulation. It cannot be looked at as a single de-
partment responsibility; it has to be considered at a strategic level and viewed as a val-
ue-based investment.
To address the multiple challenges regulation, banks need to establish a scalable, flexi-
ble, sustainable and integrated platform with proven capabilities in data management,
reporting and automation.
Based on its past experiences delivering similar solutions, this event challenged Nov-
abase to upgrade its regulatory reporting platform (Symetria®
) to provide a fully inte-
grated solution, which manages the entire information lifecycle from the banks’ inter-
nal systems up to the actual delivered report, while increasing the process efficiency
and reducing compliance costs along the way.

15
APPENDIX
06
BIRD is an initiative from ECB, national banks and commercial
banks to foster cooperation in the field of regulatory
reporting, improving the quality of data and alleviating the
reporting burden.
To know more, go to https://banks-integrated-reporting-
dictionary.eu/whatisbird
The Financial Conduct Authority (FCA), together with the
Bank of England and TechSprint, is conducting efforts to
explore on how technology can be used to link regulation,
compliance procedures and firms’ policies and standards to-
gether with firms’ transactional applications and databases.
To know more, go to https://www.fca.org.uk/digital-regulato-
ry-reporting

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