Statistical Reporting By Financial Institutions (FIs . - Deloitte
Statistical Reporting byFinancial Institutions (FIs)Improving data qualityfor reporting1
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Background of Statistical ReportingOverviewApril 2016 Bank Negara Malaysia(“BNM”), JabatanPerkhidmatan Statistiks(“JPS”) department initiateda dialogue session with theHead of Reporting (“HOR”)from all the FIs on theexpectations of StatisticalReporting to BNM. BNM has taken theapproach of enforcingthe Statistical ReportingEnforcement Framework(“SREF”) with imposition ofadministrative monetarypolicy (“AMP”) on noncompliances with StatisticalReporting.July 2017September 2018Audit request to beconducted on all StatisticalReportingAudit request to beconducted on allStatistical Reporting Scope of audit:––Compliance to the reportingrequirements for allstatistical reports.––Roles and responsibilities ofthe HOR.––Status of remedial action onITIS and CCRIS following thecompliance audit on 22 July2015 and 5 September 2016.––A total of 59 types ofstatistics covering numeroussubmission systems. September 2018 was thedeadline for all FIs to submitinternal audit report forStatistical Reporting. All FIs are required to trackthe action plan and provideprogressive updates to BNMon a quarterly basis.03
Objectives of Statistical ReportingStatistics are critical for effective surveillance and policy formulation:Promote and Provide monetary stability, research support and growthrelated issues to the government.Manage Investment and Operations on domestic liquidity, exchangerates, external reserves and providing advice and assistance in the area ofdebt and fund management to the government.Regulation - FIs are regulated to promote, provide and enhance thefinancial stability of the country, competitive environment and financialcapability of consumers.Effective Supervision by developing and implementing an effectivesurveillance framework for enforcement purposes.Promote a Robust Payment System to promote reliable, secure andefficient clearing, settlement and payment systems in the country.04
Scope of Statistical ReportingThe following is the audit scope requirement by the JPS:Source: BNM’s Circular - Internal Audit on Statistical Reportingby FIs dated 12 July 2017ationGovean rndcPresence ofstrict data accesscontrol andprocedures.the a n dof nsiin veformAvailability of processes andprocedures to ensure accuracy andcomprehensiveness in statisticalcerr ereporting to JPS. These can includeCo pr onmco issibut are not limited to the following:mbsu Correct submission of all statisticsand in accordance with reportingrequirements specified in the relevantPolicy Documents/Guidelines; Justifications on amendments to datasubmitted are true and supported byrelevant evidences; and Performance of data quality checks priorto submission of statistical informationto JPS.Scope of AuditUsfo agerm ofationEstablishment of reportingframework to ensure compliancewith reporting requirementsspecified in the respective PolicyDocuments/Guidelines.Rerequi portirem ngentsseck, chce trolsna onin Availability of resources(human and IT) andcompetencies of resourcesto manage reporting andsubmission. Structured governanceprocess as well asestablishment ofchecks and controls toprevent or mitigate risksof errors and omissions inreporting/submission. Cross checking ofinformation against otherStatistical Reporting(whichever applicable)to ensure reportingconsistency.05
Overview of areas of Statistical ReportingSnapshot of statistical reports by typesFinancial InstitutionSubmission System (FISS) (4)BASEL III (11)Other Non-SREFreports (31)Ultimate BeneficiaryOwners (UBO) (2)International TransactionsInformation System (ITIS) (9)BASEL II (6)Statistical Mart for Analysis andReporting (STATSMART) (34)06Central Credit InformationReference System (CCRIS) (40)External Assets and LiabilitiesInformation System (EALIS) (5)
CCRISSubmission of credit information to the Credit Bureau via CCRIS for the following information:(a) Customer identity and credit application information;(b) Update of credit application;(c) Submission of other details of customer, credit account details and collateral information (fornewly approved applications);(d) Submission of month-end balances of all credit accounts;(e) Submission of month-end provisions for impaired and declassified impaired accounts; and(f) Updates of customer details, credit account, collateral information, legal action information,month-end balances and provisions (for previously submitted records).ITISPayments and receipts between Residents and Non-residents and all transactions that affect theExternal Accounts and Foreign Currency Accounts/Cash Holdings affected through the bankingsystem.UBOStatistics on Ringgit Assets held by Non-Resident ultimate beneficial owners (UBO). Theinformation gathered would also facilitate further development of the financial market by BNM.07
EALISEALIS reports are a record of the stock and transaction flows of Malaysia’s external financialassets and liabilities with the rest of the world, including income accrued from holding of theexternal financial assets and liabilities. Data from an EAL Report shall be used for compilation ofMalaysia’s International Investment Position (IIP), Balance of Payments (BOP) and External DebtStatistics (EDS).FISSSubmission of loans/financing extended by FIs classified according to one or any combination ofthe following dimensions, i.e. by type, by customer, by maturity, by sector/purpose and by state.STATSMARTCollation of statistical information for purposes related to the regulatory objectives of the FSA andIFSA in promoting financial stability to foster the safety and soundness of financial institutions.There are 3 broad categories of reporting, i.e. Financial Reporting, Compliance Reporting,Industry Specific Reporting. There are 28 types of reports on financial condition and results of itsoperations to BNM via STATsmart portal.08
Basel IIAs part of Capital Adequacy Framework to quantify the Risk-Weighted Assets (RWA) for credit risk,market risk and operational risk. The requirements set out are intended to improve the overall risksensitivity of the capital adequacy framework.Basel IIIThe submission is in conjuction with BNM’s plan to implement the Basel III reform package whichcomprises measures to further strengthen the existing capital and liquidity standards for bankinginstitutions in Malaysia. The liquidity standards comprise the Liquidity Coverage Ratio (LCR), NetStable Funding Ratio (NSFR) and liquidity risk management standards.OthersCovering 31 types of Non-SREF reports. These reports are ancillary to the other reports forBNM to compile monetary, financial and macro-economic statistics from various sources. Theinformation support BNM in working towards refining the quality of publication to support abetter monetary policies implemented by the central bank that drives the economic growth.09
Summary of root causesDetailedobservationsRootcausesTop 5 key root causesBased on our extensive work done with FIs in Malaysia, we have identified the major root causes asbelow:10Misinterpretation/Lack ofunderstanding of BNMFailure trol1 34%2 27%Inaccurate reportingitems due tomisinterpretation /lack ofunderstanding ofBNM Guidelines /ReportingRequirementsFailure indetectingerrors duringpreparationand review ofreportingAbsence of SOP/ InadequateDocumentationof SOP3 21%Inaccuratereporting dueto absence ofbasis/guidelinein reportingInadequateReconciliation4 11%Reporting Errorsdue toOver-Reliance onManual Approach5 7%Reconciliation isnot performed tosource files/otherstatistical reportingto ensurecompleteness andaccuracy of thereporting figuresInaccuratereportingdue to thepreparer’sover-relianceon manualapproach
Challenges encountered by FIsPeople Incorrect legacy practice of preparation of reports. Preparer of reports lackscepticism to question how things were done in the past and prepare thereport for the sake of preparing. Inadequate understanding of the BNM Guidelines resulted in misinterpretationof BNM guidelines. Inadequate dialogues between FIs and BNM to clarify inconsistent data fieldsbetween guidelines and submission templates.Process Preparation team working in silo resulted in limited knowledge transfer andsharing session between departments (e.g. Group Finance prepares Baselreports, but required inputs provided from Group Risk). Poor maker-checker control in detecting errors during review processes. Lack of training/guidelines in assisting reporting preparation.Technology Lack of automation processes in report preparation, in relation to dataextraction which resulted in incomplete reporting due to manual extractionfrom FI’s system. Manual computation and preparation of the reporting.11
Moving forward: Modernising regulatory reporting inbanking & securitiesApplying Robotics Process Automation (“RPA”) and Cognitive Intelligence (“CI”)Redeployment of skilledresources to more valeadd tasksEnhancements in quality ofdata, documentation andoverall report accuracy12Business benefitsAbility to further streamline theprocess with every cycle byenhancing the bots with additionallogic based on new requirementsand errors identified during anysubmission cycleImprove efficiency,effectiveness and productivityof the whole regulatoryreporting process landscapeExecution of currently manualtasks on a 24x7 schedule withminimal human supervision
Impact of processing errors can bemagnified by high-paced botsBot-related errors can negativelyaffect the integrity of reports andmay generate incorrect resultsChanges to the IT platform will affectcritical element of the workforce,including replacement/ repurposingof the FTEs - and may requireadditional training for the workforceChallengesSustainability and maturity of existingprocesses and systems couldpotentially impact automation,especially if they are constantly evolvingNone of these aredeal breakers andcan be managed by:A well-definedframework and agovernance structure toestablish the IT andbusiness interactionmodel, along with astrong controlenvironment focusedon automationReporting structure siloes andlack of enterprise-widegovernance and accountabilityFragmented data architectureand data quality issues13
Getting startedOrganisations that intend to embarkon RPA or implement CI into itsregulatory reporting landscapeshould consider the following: RPA is not a one-size fits all panacea Complete automation is complex,costly, involves transformation inthe mindset and culture of theorganisation with lengthy multiyear implementationShort term solution bytargeting improvements inareas that typically emphasesefficiency, productivity andprocess enhancement – anapproach that requires arelatively small investmentand a short implementationtimeframeProposed implementation roadmap2 to 3 monthsQuick wins Validate concepts and demonstrate benefits before scaling up An example is automating the data extraction and datacleansing activities, or automating a set of testing activitiesthat have high frequency and volume14
4 to 8 monthsIntermediate opportunities Medium-term (4-8 months)initiatives around processoptimisation, standardisationefforts that can acceleratestrategic solutions8 to 18 monthsStrategic solutions Initiatives that aremore ambitious inscale and impactFirms should considerpursuing a twopronged strategyfocusing on activitieswhere automation andCI can deliver tangiblebenefits in the shorttime-frame. Startingwith quick wins helpbuild momentum andsupport.15
Deloitte’s value propositionOur team can assist in better interpretation of the reporting guideline due to:1. Multi-disciplinary team experienceOur team is made up of experienced internal and external auditors,risk managers, Basel specialists, ex-regulators and data analyticsspecialists with strong credentials that have successfully delivered similarexercises to various financial institutions in Malaysia.2. Proven track record and assets in financial servicesOur team is able to leverage on our existing experience andmethodologies to customise the review approach and efficiently conductthe review for compliance with BNM guidelines.3. Effective knowledge transferOur internal review approach involves structured on-the-job training byhaving one or more FTE in-house Internal Audit team members shadowingour team from the audit planning stage until final reporting.During the review, we can help to develop FI’s in-house capabilities onthe statistical reporting subject matter and analytics-driven audit approach.16
Methodology and Proposed ApproachesOur team is familiar with the challenges commonly faced in the process of statisticalreporting reviewInterpretation of reporting guidelinesOur team has knowledge of the reporting practices in the industry andwe are ready to assist FIs to interpret and apply such reporting guidelinesprudently.Range of statistical reports for reviewWe adopt a structured approach in our review which will minimiseinterferences to process owners.Analytics-driven sampling & testingWe adopt an analytics-driven approach that supports 100% review of thepopulation and assesses the pervasiveness of any observations in ourreview.17
Analytics-driven sampling approachAn illustrative summary of the typical approach used for performing analytics is being illustrated here,from data extraction from client’s database, data preparation, execute analysis and risk evaluationculminating in an interactive dashboard creation:Data onboarding andpreparationVisualisation andreportingDiscussions andsamplingClient DataEntities TransactionsRule-based analysisEntity risk scoresAnalyticsdashboardsData ModelStandard Custom TestScriptsDashboardSamplesExternal data sources(where applicable)Customised testscriptsUnderlying flaggedtransactionsUnderlying flaggedtransactionsInterviews,walkthroughswith client ITand research18Perform analyticsSelectionof riskierentities andtransactions for furtherreview
Analytics-driven sampling and testingWhere data is available and usable, our Analytic-driven approach supports 100% review of thepopulation and assesses the pervasiveness of any observations.AspectWork flowTypical controls testingUnderstand the businessControls testing with analyticsUnderstand the businessUnderstand the dataRandom samplingTest samplesPerform data analysisFocused samplingTest samplesIdentify findingsIdentify potentialanalyticsExtract, transformand load dataIdentify findingsTestingRandom sampling100% analysis and focusedsamplingCorrelatingdataData correlation from differentsources is manually-intensive,almost impossibleEnsures data from differentsources are correlated andsupports conclusionFindingsHigher possibility of being arbitrary, Fact-based and data drivenambiguous and subjective(incontestable) resulting in moreinsightful recommendationsTestingerrorsHigher risk of human errorsReduces risk of human errorsAnalyse data:Compare, profile,visualiseDevelop testinghypothesis andenhance test script19
ContactJustin OngPartnerFinancial Services Industry 60 3 7610 8895keaong@deloitte.comDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their relatedentities. DTTL (also referred to as “Deloitte Global”) and each of its member firms and their affiliated entities are legally separate andindependent entities. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more.Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. Ournetwork of member firms in more than 150 countries and territories serves four out of five Fortune Global 500 companies. Learn howDeloitte’s approximately 286,000 people make an impact that matters at www.deloitte.com.Deloitte Asia Pacific Limited is a company limited by guarantee and a member firm of DTTL. Members of Deloitte Asia Pacific Limited andtheir related entities provide services in Australia, Brunei Darussalam, Cambodia, East Timor, Federated States of Micronesia, Guam,Indonesia, Japan, Laos, Malaysia, Mongolia, Myanmar, New Zealand, Palau, Papua New Guinea, Singapore, Thailand, The Marshall Islands,The Northern Mariana Islands, The People’s Republic of China (incl. Hong Kong SAR and Macau SAR), The Philippines and Vietnam. Ineach of these, operations are conducted by separate and independent legal entities.About Deloitte MalaysiaIn Malaysia, services are provided by Deloitte Risk Advisory Sdn Bhd and its affiliates. 2019 Deloitte Risk Advisory Sdn Bhd
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