December 3, 2021

Volume XI, Number 337

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PRA Increases Pressure on Firms to Improve Regulatory Reporting Processes

The Prudential Regulation Authority (PRA) recently a Dear CEO letter titled “Thematic Findings on the reliability of the regulatory reporting“, outlining the current inadequacy of finance firms’ regulatory reporting procedures and the importance of comprehensive processes. The letter summarizes the PRA’s findings following its investigations carried out since October 2019, and a number of s.166 skilled person reviews on the topic. The investigation focused on governance arrangements, systems and controls to produce returns, schedules of key interpretations and assessing the accuracy of firms’ reporting returns. Overall, the PRA said it was disappointed with firms’ regulatory reporting processes. Whilst the PRA recognises potential historical reasons for the gap between the quality of financial reporting and regulatory reporting, it does not consider that an excuse for inaccurate regulatory reporting.

Governance arrangements

According to the review, many firms delegate the regulatory reporting obligations down the organisational structure and across multiple individuals and teams, resulting in little real oversight over the process. The PRA reminds firms of the “fundamental” importance of senior management’s oversight of regulatory reporting. Firms should ensure appropriate governance arrangements to the effect that senior managers are responsible for the process. This can be achieved by producing basic documentation, periodical reviews and a manager’s sign-off at the end. Satisfactory governance arrangements should also include robust independent testing and validation, and internal auditing of processes, to ensure reliable and accurate regulatory returns.

System and controls

The review flagged a lack of end-to-end controls in regulatory reporting. As with governance arrangements, the PRA advises firms to document effective controls at each stage of the process, particularly around use of models, End User Computing and error spotting. The regulator warns against relying on spreadsheets to generate reports due to the risks of over-writing data. Firms should consider using appropriate programmes to ensure a robust control environment.

Accuracy of the reporting returns

The letter comments that the unsatisfactory standards of regulatory reporting are partly caused by the out-dated systems some firms use, which increase the likelihood of errors and the need for unreliable manual interventions. The PRA suggests that firms have not prioritised investment in regulatory reporting as they have done in financial reporting.

Comment

The letter makes it clear that the quality of regulatory reporting is a PRA focus. It not only plans to continue with further skilled person reviews and follow up to the skilled person reviews that have already been carried out, but also warns about using its other supervisory and enforcement powers to ensure firms’ compliance. It is therefore important that affected firms now focus on identifying gaps in their regulatory reporting procedures, remedying such gaps and investing in new software and systems where necessary to achieve greater accuracy in regulatory reporting.

© Copyright 2021 Squire Patton Boggs (US) LLPNational Law Review, Volume XI, Number 294
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About this Author

Partner

Chris Webber specializes in resolving financial services disputes and regulatory investigations. He represents clients including banks, broker dealers, corporate trustees, bondholders, issuers, mortgage servicers, borrowers, insolvency office-holders, regulatory bodies, investment funds, and individuals. He also acts for corporate clients in contractual, investment, and shareholder disputes.

+44 20 7655 1655
Rose Chaudry, Squire Patton, Commercial Litigation Lawyer, Tortious Contracts Attorney
Associate

Rose Chaudry is an associate in the Litigation team with expertise in general commercial litigation. Rose qualified in September 2015 after completing her training contract with the firm.

Rose regularly acts for a diverse client base, including individuals and companies, from SMEs to PLCs. Rose has experience advising on a wide-range of matters of both a contractual and tortious nature, including breach of contract, breach of warranty, debt recovery, professional negligence and insurance.

44 121 222 3146
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