Master data management facilitates regulatory compliance

Accounting, risk controlling and reporting are currently causing a lot of work for banks. The implementation of IFRS 9, BCBS 239 and AnaCredit, major topics that have been adopted at European level and discussed for a long time, do not only affect the large, systemically important institutions. In its cover letter on the MaRisk amendment, the supervisory authority is also encouraging other credit institutions - e.g. with regard to BCBS 239 - to address both the rules in the special section of MaRisk (BT 3, risk aggregation) and the "actually" irrelevant topics in the general section (AT 4.3.4, data management, data quality and aggregation of risk data).

The background and cause for this are, on the one hand, the interdepartmental principles for the processing of transactional, granular data, which are to be interpreted on a bank-specific basis and are being pursued increasingly stringently by the European Central Bank (ECB) and national central banks and the respective supervisory authorities, as well as the frequently necessary restructuring of the IT and data architecture. In order to create further added value in addition to the costs of complying with regulation, many banks are beginning to realize business and technical opportunities at the same time. In particular, the reduction of manual effort for internal reporting is an example of this: this leads to a significant acceleration of reporting, combined with better analysis and forecasting capabilities as well as a simplified transition between data pools. In addition, some banks are beginning to apply the BCBS 239 standards to areas closer to the market, such as customer data.

Master data management optimizes the effort involved and brings further benefits.

CURRENT APPLICATION EXAMPLE ANACREDIT

With the so-called Analytical Credit Datasets, AnaCredit for short, the European Central Bank and the national central banks and supervisory authorities are pursuing the goal of creating an internationally harmonized database for the use and granting of loans. The database is standardized and collected regularly and is available to the central banking system for statistical and monetary policy evaluations. Analyses can be carried out on the type, amount, term, borrower and risk information of loans granted. In addition, the AnaCredit database is to be used for regulatory purposes, in particular to identify risks within the European financial system at an early stage.

Credit institutions domiciled in Germany and branches domiciled in Germany of credit institutions domiciled abroad are obliged to report AnaCredit to the Deutsche Bundesbank (Art. 3 (1) of Regulation (EU) 2016/867). The companies listed in Art. 4 (1) No. 1 of Regulation (EU) No. 575/2013 are deemed to be credit institutions. They are required to report regardless of whether they are supervised institutions in accordance with Directive 2013/36/EU.

This means that although credit institutions are subject to reporting requirements in Germany, financial services institutions such as pure leasing companies are not. Credit institutions that are not CRR credit institutions are not required to report.

The Deutsche Bundesbank has specified the requirements of Regulation (EU) 2016/867 of the European Central Bank of 18 May 2016 on the collection of granular credit data and credit risk data (ECB/2016/13; "AnaCredit Regulation") in the statistical arrangement of credit data statistics (AnaCredit) of 28 July 2016 and adapted them to the circumstances of the German legal framework or designed them accordingly.

Only isolated changes were made to the 2015 draft. Instead of 94, only 89 attributes are now queried and "only" six identifiers instead of seven. The most important change is a postponement of the timetable by six months. The first reporting of master data and credit data is now mandatory for September 2018.

Credit institutions subject to reporting requirements in Germany must report all types of loans (not derivatives) to borrowers who are not natural persons, i.e. legal entities, with a total loan exposure of EUR 25,000 or more per borrower. Only one master data record per reporting entity must be submitted for a contracting party, regardless of how many different roles (e.g. debtor, guarantor, etc.) the contracting party assumes.

Scope of reporting for AnaCredit

According to Article 16 (1) of Regulation (EU) 2016/867, national central banks may grant reporting relief for "small" reporting agents, provided that their combined share does not exceed two percent of the total amount of outstanding loans according to Regulation (EU) No. 1071/2013 of the European Central Bank (ECB/2013/33) of all reporting agents resident in the reporting Member State.

In order to determine which institutions are below the limit, a ranking of the credit institutions according to the size of the BSI loan volume must therefore first be drawn up. The cumulative share of the total credit volume in the ranking must then be calculated. This calculation can only be carried out by the respective national central bank because only they have the necessary data.

The last known evaluation for Germany showed that the average of the five largest "small" institutions - i.e. the five institutions that are still below the 2% limit - is EUR 332 million in terms of the total outstanding loan amount.

Around 750 smaller banks are to benefit from some relief. Instead of 89 individual attributes, they only have to report 25 individual loan details.

The complexity of the reporting results from a categorization that has already found its way into Wikipedia [1]. According to this, the data to be reported can be divided into the following categories:

• Counterparty Reference Data: Identification of the counterparty, preferably via the Legal Entity Identifier (LEI), address, size, number of employees, total assets, etc.
• Instrument Data: ID for both parties, the transaction and instrument, instrument type, currency, payment frequency, etc.
• Financial Data: Interest rate, cash flows, type of collateral, etc.
• Counterparty-instrument Data: role of the counterparty for the transaction
• Joint liabilities data: Amount of the associated liabilities
• Accounting data: Relevant accounting standard and classification of the instrument, write-downs, rating according to the respective standard
• Protection received Data: Type and amount of protection, IDs of the protection provider
• Instrument-protection received Data: Hedging amount already provided
• Counterparty-risk Data: probability of default of the counterparty
• Counterparty-default Data: Default status of the counterparty

The data must be reported on a monthly or quarterly basis, depending on the category. The schedule is currently as follows:

• Since March 2018, institutions have been obliged to report so-called counterparty reference data.
• From September 2018, all data fields must be covered.
• Test reports to the central banks have been possible since December 2017. They are intended to help both the reporting parties and the central banks to ensure a smooth process for the mandatory start of reporting
• In a second stage, AnaCredit could also be extended to loans from private individuals. A time frame for this is unknown.

The counterparty master data and loan master data must be reported once at the time of conclusion; this is possible on a daily basis, but must be done by the close of business on the 6th business day at the latest for observed entities resident in Germany and by the close of business on the 15th business day after the end of each month at the latest for observed entities resident abroad. If one or more data fields are changed, not only the respective changed data field must be reported, but all data fields of the affected master data record must be transmitted.

Dynamic credit data must also be reported once on completion with the same deadlines. This includes financial data, data on liabilities with joint and several liability, data on instrument collateral received, data on counterparty risk and data on counterparty default. Other dynamic credit data, i.e. accounting data, must be submitted to the Deutsche Bundesbank on a quarterly basis.

The technical XML standard SDMX is to be used as the submission format for mass data. The Deutsche Bundesbank has provided schema files that describe the format to be transmitted, similar to the XBRL taxonomies.

What are the challenges of Anacredit?

First of all, it must be determined whether a credit institution is subject to the reduced or full reporting obligation. Next, the complex business relationships must be analyzed, i.e. it must be determined who is the creditor, originator, servicer or guarantor.

On the one hand, the current requirements must be followed and implemented. However, it can be assumed that they will continue to change over time, possibly becoming even more granular and extending to other transactions (with private customers).

On the other hand, it is just one large construction site that needs to be linked with other activities in such a way that it is possible to respond as flexibly as possible to "all" reporting requirements of the FCA/supervision(s). At the same time, duplication of work must be avoided or data must be prepared in such a way that makes evaluations according to another standard (e.g. BCBS 239) impossible.

IDEAL STATE: DATA CONSISTENCY AND TRANSPARENCY AT ALL TIMES

Good master data management is necessary to achieve regulatory compliance in reporting more easily and quickly. Users of afb-CMS can use the solution's partner management. This is because it offers functions for searching, creating and maintaining all business partner data such as contact, address and master data with supporting plausibility checks. In addition, it is possible to freely define roles and display relationships between business partners, e.g. borrower units, corporate groups or risk groups, including the recording of participations and shares.

The business partner data is supplemented by the required relationships, roles, units and additional data fields for the AnaCredit reporting system.
The individual credit products must be differentiated, especially in their combination with other financial products such as loans, leasing or Wholesale finance as well as collateral.

The afb-CMS contract data management offers functions for searching, creating and maintaining all credit contract data. As part of master data management, the contract data is imported from the relevant contract management systems and synchronized. The contracts continue to be managed in the respective contract management systems independently of the central contract data management of afb-CMS.

The contract data is also supplemented with the necessary additional data fields for the AnaCredit reporting system.

Operational master data management then takes place as follows:

• The common data of the connected business partner administrations are synchronized with each other in dialog or batch mode.
• The data of the connected contract administrations is imported in dialog or batch mode.
• Synchronization, import and export take place via the Enterprise Service Bus (ESB). A large number of interfaces to third-party systems are available.
• The partner and contract data of the MDA is regularly exported for the reporting system in accordance with the specified period. The export generates either SDMX or the data in a desired format for a connected reporting system.
• The service monitors its activities and can also send them by e-mail via the ESB.

Illustration: Master Data Management for AnaCredit via an Enterprise Service Bus

ADVANTAGES OF MASTER DATA MANAGEMENT

Master Data Management consists of a generic and flexible data model. This allows data from the afb-CMS solution as well as from other systems to be merged and used.

Duplicates from different sources can be removed or distributed data merged on the basis of configurable rules.

By using a shared database, companies can benefit from convenient administration functions, versatile analysis options and flexible reporting possibilities.

The effort required in connection with the AnaCredit reporting requirements can therefore lead to further optimizations in master data management and for the analysis of customer and contract data.

Sources

1 de.wikipedia.org/wiki/AnaCredit