Record fine issued for governance and control failings over regulatory reporting

Yesterday, the UK arm of a large international banking group was fined £44 million for prolonged and pervasive shortcomings in its internal controls and governance arrangements around capital and liquidity adequacy and regulatory reporting. The record fine highlights the importance of regulated firms designing, implementing and operating appropriate internal controls and governance arrangements in this area and the importance placed on it by regulators.

What this means for firms

A regulator has again emphasised that it needs to see timely, complete and accurate regulatory reports to ensure effective supervision, and that it expects firms to have an accurate picture of their capital and liquidity positions at all times. What’s particularly interesting in this case, is that no breaches of liquidity or capital requirements were identified, yet the firm was still found wanting. With this in mind, all regulated firms – not just those with a thin capital surplus – should review the effectiveness of their prudential governance framework and controls.

How firms can do this

Firms can address this challenge by partnering with a provider that is able to assist with the design and implementation of internal controls and governance arrangements in respect of capital and liquidity adequacy, including:

• Quantifying risk appetite and identifying major sources of risks
• Assessing and documenting risk mitigation and the associated control environment
• Quantifying capital requirements associated with identified risks
• Forecasting prudential resources and robust capital planning
• Developing and simulating stress testing scenarios
• Wind-down planning and associated calculations/costings

They should also seek out managed services providers to discharge firms' regulatory reporting obligations, including:

• Preparation of the annual Internal Capital Adequacy Assessment Process (ICAAP) report
• Preparing and filing GABRIEL and COREP returns to the FCA and Annex IV returns to the FCA and other European regulators.