Given that many data managers (and vendors) in the UK are counting on tying their upcoming data projects to new regulatory requirements, the Financial Services Authority’s (FSA) recently published milestones for the next nine months could prove useful in setting the agenda for the next three quarters. The list of regulatory papers, research projects and policy statements on the horizon include those relating to: Solvency II, the Capital Requirements Directives (CRDs), Guidelines on Common Reporting (Corep) and the Prospectus Directive.
The milestones also detail the work that has gone on thus far this year such as the consultation on the CRDs that began in May, the April FSA conference on Solvency II, the hedge fund survey that was kicked off in June (the results of which are due over the next month or so), the publication of the Prudential Risk Outlook in March and the June publication of a consultation paper on financial crime.
In terms of imminent deadlines, the UK regulator is due to publish a policy statement on amendments to the CRDs, following the industry feedback received during the recent consultation period, as well as a consultation paper on Corep and the findings of the hedge fund survey.
The CRD amendments are likely to include key data quality considerations, ahead of the implementation of Basel III, which will herald new levels of transparency for risk data (see commentary on which here). Accordingly, there is a focus within the CRDs on the ability of firms to provide consistent data across their organisation, track data flows and usage, leverage consistent identifiers and provide an auditable chain of custody for data as it traverses the enterprise (see the EU level discussion on the subject from December here). Thus the CRD includes an update to the internal risk modelling requirements that specifies that “minimum data standards” must be met and that this data must be “objective and up to date.”
The introduction of regular stress testing in particular will force firms to invest in the data architectures supporting their risk function. The CRD revisions introduce a new “stressed value at risk” calculation that is to be based on the “10 day, 99th percentile, one-tailed confidence interval value at risk measure of the current portfolio, with value at risk model inputs calibrated to historical data from a continuous 12 month period of significant financial stress relevant to the institution’s portfolio”. Hence reference data will need to be well integrated with the real-time risk modelling environment, putting pressure on the data workflows currently in place, given that these calculations must be done “at least weekly”.
At this point, all of these requirements are not definitive, however, and data and risk managers will have to wait until the final consultation paper is published in the coming weeks or months before any degree of certainty is provided on the amendments. Moreover, the FSA states on the subject of a CRD4 consultation paper, which has been pencilled in for the first quarter of next year: “At the time of writing the European Commission has yet to issue its formal proposals on CRD4 to implement the Basel III agreement and so the timings of any FSA publications on CRD4 are only indicative and subject to change.”
However, there is much more certainty about the publication of the Corep consultation paper, which is a UK follow up to the Committee of European Banking Supervisors’ (CEBS) recommendations on the subject last year and is due to be published next month. Much like the CEBS consultation, the FSA will likely ask firms to provide feedback on its recommendations around the formats, frequencies and dates of new capital requirements reports, including the potential of using XBRL formatting for this risk data. Once this feedback has been received and processed by the regulator, a policy statement will then be issued in the fourth quarter of this year.
Another thing to look out for during this quarter (until September) is any data and reporting related elements within the findings of the FSA’s hedge fund survey. All of these findings will, no doubt, feed into the regulatory crackdown on the hedge funds sector as part of the Alternative Investment Fund Managers Directive (AIFMD), which is due to come into force over the next couple of years and includes key data related requirements such as increased transparency into valuations and new fund registration processes (see more on which here).
As for the fourth quarter of this year and the first quarter of next, the Markets Risk Outlook and the amendments to the Prospectus Directive consultation paper could also potentially contain some interesting recommendations regarding reference data.