Adapting to the New IRRBB Reporting Requirements – Experts Weigh In

In recent years, the banking industry has been subject to substantial regulatory reporting revisions, including the European Banking Authority's (EBA) proposed changes to the Interest Rate Risk in the Banking Book (IRRBB). Announced in July 2023, these updates aim to enhance risk management practices and safeguard financial stability in the face of interest rate fluctuations, imposing significant increases in volume and complexity. Small and non-complex institutions (SNCIs) are now responsible for 4,000+ quantitative and qualitative datapoints, while non-SNCIs are responsible for approximately 6,000.

Recently, SS&C Algorithmics participated in a webinar with our partner, Regnology, that explored industry firms' evolving management of regulatory compliance regarding IRRBB. Our subject matter experts discussed the steps banks will need to take to adapt to their new data obligations and the complexity of the new reporting frameworks.

During the webinar, attendees were polled to better understand how firms are grappling with the change surrounding IRRBB regulations. This article summarizes the results of the poll, along with perspectives from our SMEs on what they mean.

Industry Understanding & Adaptability

Attendees were asked how confident their organization is understanding the revised requirements and ability to make the necessary changes.

The results:

• 17% were Very Confident
• 33% were Moderately Confident
• 33% were Slightly Confident
• 17% were Not Confident at All

Our take:

"The mix of responses to this question can likely be attributed to the various sizes of the organizations that participated in the poll. Larger banks with established IRRBB policies will need to report on additional metrics, but these efforts will not be as substantial as those required of smaller organizations, which may have never experienced this level of scrutiny and rigor when it comes to field population and detailed calculations. Regardless, proper adaptation will require substantial thought and analysis, so seeing that half of the respondents expressed lower confidence isn't too surprising."

- Steven Good, Director, ALM & Liquidity Risk, Product Management, SS&C Algorithmics

Managing Interconnected Regulatory Reporting

Attendees were polled on how they will manage IRRBB alongside other interconnected reporting requirements.

The results:

• 36% use a completely in-house method with a siloed approach
• 36% use a combination of in-house and tooling providers
• 7% use only reporting tooling providers
• 14% are not doing any reporting at present
• 7% selected "None of the above"
  

Our take:

"We were surprised by how much of the respondents' reporting seems to be done in-house, versus outsourcing to reporting tools. Looking at the significant percentage of firms who are tackling this regulatory update without the help of an outside vendor, coupled with the relatively high rates of confidence from the previous poll question, I think it's safe to say firms may be underestimating the complexity of interconnection between IRRBB and other reporting requirements, such as Basel and liquidity risk calculations for LCR.

The risk of a siloed approach is that it can lead to reconciliation differences, even within a bank that has well-established systems. Discrepancies in underlying cash flows can negatively impact efficiency and be costly to correct. It's apparent that, despite the approaching September deadline, organizations have more work to do to achieve compliance, so some firms could begin making a gradual march toward outsourcing as they reckon with the complexity of IRRBB."

- Anh Chu (Product Director, Regnology)

Top Challenges of IRRBB

When asked to share their biggest challenge in adapting to the new IRRBB reporting requirements, the responses were:

• 32% said understanding all the regulatory changes and implications
• 24% said managing data complexities and ensuring data accuracy
• 20% said integrating and aligning IRRBB reporting with other regulatory requirements
• 16% said adapting internal systems and processes to meet the new reporting standards
  

Our take:

"It's unsurprising that data accuracy is a primary concern for firms, with nearly a quarter of attendees selecting this as their top implementation challenge. We predict data challenges will continue to be a major adjustment hurdle down the line, especially for larger organizations that are dealing with vast amounts of data.

What is surprising to us, however, is the low number of attendees who voted for adapting their internal systems and processes, given the reliance on in-house systems we saw in Question 2. It's important for banks to ask themselves a few key questions as they prepare to make this shift. How much of their current internal system involves manual processing versus automated capabilities? How confident are they in IRRBB versus other submissions? How can current approaches be supplemented based on not just what the EBA will be asking, but local regulators as well?

- Anh Chu

Key Benefits of IRRBB

Finally, attendees were asked to share what they see as the primary benefit of implementing the EBA's new IRRBB requirements.

The results:

• 50% said improving decision-making processes and risk management practices within their organization and industry
• 30% said strengthening financial stability and resilience to their organization and market
• 20% said enhanced regulatory compliance and reputation within the industry
  

Our take:

"Given these results, it seems as though the industry is embracing the IRRBB requirements because they can see the direct correlation to market improvement. There seems to be an understanding among banks that compliance with the updated requirements will not only have a positive impact on their risk management efforts, but also enable the industry to navigate interest rate fluctuations and prevent future banking crises. I believe the 'strengthening financial stability' response may have been even more popular had this poll been conducted a year ago, when the downfall of SVB and other similar banking collapses were top of mind."

- Steven Good

View the full webinar recording to hear more of our insights, or read our original IRRBB Highlights article.

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