Preparing for automation in South Africa

South Africa’s regulatory authorities are taking a proactive approach to the local implementation of new global requirements, such as the changing Basel liquidity and capital rules. This commitment to best practice is increasing pressure on banks in the country, which must also comply with numerous domestic requirements, and is leading many firms to reconsider the role that technology should play in their compliance processes.

Most large foreign banks in South Africa have automated their regulatory reporting. However, many domestic institutions rely on manual processes to generate their regulatory reports. This applies to everything from the Foreign Account Tax Compliance Act (FATCA) to the IT 3 tax returns and the various BA reports (BA 900, BA 200, BA 100 etc.) that banks must submit to the South African Reserve Bank.

Until now, domestic firms have often responded to the introduction of new regulations by taking on more staff or hiring consultants. However, with a growing pipeline of requirements set to come into force over the coming years, they realize this approach is unsustainable. The increasing complexity of new requirements (such as IFRS 9 and the BA 900 returns, which both require a combination of risk and financial data) is also leading banks to rethink their strategies. Many have concluded that now is the time to embrace technology and automate their regulatory reporting.

As banks in South Africa look for a technology solution for their regulatory reporting, there are a number of important points they should bear in mind.

A single, integrated infrastructure

Many regulatory products on the market today are the result of vendor acquisitions and mergers. Although sold as a single package, they are amalgamations of discrete tools. As a result, banks must implement complex integration layers between the different components, increasing their capital and operational costs, and making reconciliations extremely complex.

Banks can avoid these issues by ensuring their chosen regulatory product has been developed organically, rather than through acquisition, and by ensuring all of the component parts are built on the same infrastructure. In particular, banks should check the regulatory calculation and reporting functionality is supported by a single, integrated infrastructure.

Flexibility and time to market

Not only should the infrastructure of the product be integrated, it should also be highly flexible and should give banks the ability to quickly deploy additional data sets to support new regulatory requirements in the future.

Many banks are prevented from doing this because their chosen regulatory tool requires the use of a fixed data model, which must be remodeled when they want to add a new data source. By choosing a reporting tool with a flexible data model, banks can reduce regression testing and respond more quickly to changing requirements without losing any of their existing logic.

Banks can also secure a quick time to market by choosing a regulatory platform that separates the regulatory-specific functionality from the core platform functionality. This will mean that if a new reporting requirement is introduced or if an existing requirement is changed, a bank will be able to accommodate this without having to update the entire infrastructure, impacting other functionality and users in the process.

International coverage

The immediate reason for many banks’ interest in deploying a regulatory reporting solution may be the changes that are taking place in the South African market. However, banks should think more strategically than this by working with a provider that can support regulatory reporting not only in South Africa, but also in other countries.

Banks will benefit greatly from the experience of a provider that has international coverage. They will also have the ability to quickly extend their use of the provider’s technology to support their subsidiaries and branches in other countries, avoiding the need to find a new provider in each jurisdiction.

The platform approach

Many banks discover they need to deploy a separate point solution to comply with each regulatory requirement individually (e.g. one solution for their liquidity calculations and another for their capital calculations). This is an extremely costly and inefficient approach.

To maximize their return on investment, South African banks should choose a regulatory platform that can be used to support multiple requirements from a single instance. As well as massively reducing their capital and operational costs, this will ensure consistency between the data submitted to different regulators as it will all originate from the same platform.

Banks in South Africa face some big decisions about the type of technology they use to automate their regulatory reporting. By considering the above points, they can ensure they are in a strong position to tackle the regulatory changes that are to come.