2024 Supervisory Agenda: The PRA Sets Expectations for International Banks
The Prudential Regulation Authority (PRA) has recently released its priorities for international banks and designated investment firms operating in the United Kingdom for 2024 through its “Dear CEO” letter, emphasising the need for strong governance, risk management, and controls to identify, assess, and successfully minimise risks in a competitive operational environment. And PRA’s primary priorities in 2024 are as follows:
Risk Management and Controls
PRA advised non-bank financial institutions (NBFI) to address equity financing difficulties raised in the 2021 and the subsequent “Dear CEO” letters on fixed income financing. Additionally, the following were underscored as its primary concerns:
- Recommends firms avoid segregating risk management and instead consider its ramifications for other businesses.
- Places exclusive attention on counterparty credit risks and secured financing, particularly in relation to non-bank financial institutions.
- Encourages firms to improve their abilities in detecting and evaluating correlations among multiple clients’ financing activities.
- Emphasises market depth, as quantitative tightening diminishes financial system reserves.
- Advocates for the adaptation of risk management frameworks to dynamic macroenvironments, encompassing the potential risks posed by distributed ledger technologies and generative AI.
Financial Resilience
The key message of the Prudential Regulation Authority (PRA) to financial institutions is to emphasise the importance of managing financial resilience in the face of challenging and uncertain global economic conditions. This involves:
- Maintaining robust treasury management.
- Effectively managing credit portfolios.
- Anticipating ongoing engagement with the PRA on counterparty and credit risk.
- Urging to prepare for the implementation of Basel 3.1 standards.
- Proactively considering changes in funding and liquidity conditions.
- Addressing climate-related financial risks by developing processes to identify, measure, manage, and mitigate these risks.
Operational Resilience
As per the supervisory statement 1/21, the firms must demonstrate the ability to remain within impact tolerances for all important business services (IBS) by March 2025. The PRA anticipates inclusion of the following in the firms’ operational resilience programmes:
- Should have a clear plan to identify and rectify vulnerabilities affecting IBS delivery.
- Resource identification for each IBS.
- Conduct tests using severe yet plausible scenarios to learn from operational disruptions.
- Scenarios should include cyber-related disruptions to understand recovery needs.
- Boards and senior management should actively oversee the delivery of their firms’ operational resilience programme.
- Engagements with third-party providers should be managed in line with supervisory statement 2/21 and firms should consider the impact of outsourcing and third-party relationships on IBS.
- As the RTGS Core Ledger is scheduled to be replaced in June 2024, RTGS Account Holders are expected to manage changes appropriately, participate in the Bank of England’s testing, and go-live activities.
Data Risks
PRA signifies to the financial institutions that accurate, timely, and comprehensive regulatory returns are the foundation of efficient supervision.
- They demand that firms take remedial actions and maintain a steadfast commitment to regulatory reporting in light of the shortcomings they identify in data, governance, systems, and production controls that are associated with regulatory reporting.
- PRA also specifies that targeted supervisory tools and skilled person evaluations will continue to be utilised in this domain through 2024.
Expected Actions from Financial Institutions
Thus, financial institutions are expected to take compelling actions in response to the “Dear CEO” letter from the Prudential Regulation Authority (PRA) regarding its 2024 priorities:
- PRA encourages firms to incorporate precise information, structures, processes, and capabilities into their risk management and governance frameworks.
- The PRA prioritises the need to sustain a robust risk culture, fostering inclusivity and diversity, and establishing guidelines for succession of board and executives.
- It expects firms to have innovative risk management strategies due to emerging technology threats.
- Be forward-thinking in scenario planning to manage extreme tail events effectively.
Consistent with the enumerated priorities, the PRA will persist in overseeing and requesting confirmation that the governance, risk management, and control frameworks of firms are adjusting to the evolving environment.
How Macro Global Empowers International Banks to Address the PRA's 2024 Dear CEO Letter
Macro Global, with its industry leading SCV Forza and SCV Alliance platforms, can directly address the critical areas outlined by the PRA’s Dear CEO letter, helping international banks achieve FSCS compliance, focus on financial & operational resilience, and data governance, and enhance their overall risk management framework.
Addressing Key PRA Priorities:
- Macro Global’s data cleansing and enrichment processes ensure clean, accurate data for stress testing, scenario planning, and risk management.
- Automated reporting with SCV Forza and SCV Alliance platforms improves data collection, validation, and reporting processes, verifying data accuracy and completeness.
- SCV Forza’s data analytics capabilities help banks prioritise remediation efforts based on risk classification (e.g., High, Medium, Low).
- Macro Global’s consultants provide guidance on implementing effective data governance practices, verifying data accuracy and completeness.
- Enables comprehensive audit trials and data reconciliation, fostering transparency and accountability for regulatory scrutiny.
- Macro Global’s solutions ensure adherence to regulatory reporting requirements, minimising the risk of penalties and regulatory interventions.
- Integration with FCA, Companies House, and other trusted sources enhances data quality and compliance.
- Secure data transmission through encryption and robust access controls minimise cyberattack threats.
Macro Global’s solutions empower banks to achieve demonstrably high data quality, operational resilience, and effective controls, ensuring compliance with the PRA’s latest directives and fostering a solid foundation for long-term success.
Provide utmost accuracy and Complete Peace of mind
We will be able to help you in whatever the stage of your regulatory reporting programs
Customer Pain Points & Solutions – Fully Resolved
The Financial Services Compensation Scheme (FSCS), a UK regulatory agency, protects customers in the unlikely scenario of the failure of financial services firms by compensating the eligible depositors and policyholders of the firm suitably. Financial services firms are obligated to submit a Single Customer View (SCV) report, encompassing personal information, account particulars, and compensation eligibility criteria, within 24 hours of its failure.
SCV reporting is essential for ensuring regulatory compliance, minimising the risk of errors and fraud, and processing claims in a timely and accurate manner. SCV data must be updated regularly by financial services firms. Understanding the FSCS and SCV reporting helps firms comply and protect customers.
Top Challenges faced by financial institutions
Without having a Single Customer View application and real-time insights in place, organisations struggle to deliver renown outcomes and may even result in dissatisfaction and even churn.
Let us look at the top 3 challenges and the resultant bottlenecks faced by the financial institutions.
Relying on Legacy System
This is first and topmost challenge that most of the businesses today have access to an unprecedented amount of customer data.Infrastructure Complexity
The absence of proper infrastructure is preventing banks from effectively managing the situation, in turn seriously affecting the performance of business-critical applications.Operational Effectiveness
IT departments spend 60 to 90% of their budgets managing and maintaining older systems, leaving little left over for new initiatives.
Impacts of Data Quality in SCV reporting
Data quality is of utmost importance within the framework of the Financial Services Compensation Scheme (FSCS) to ensure accurate, consistent, and reliable customer information.
As it determines the efficacy of validating customer data from various sources and connecting customer touchpoints, data quality is critical to maintain a Single Customer View (SCV).
The presence of inaccurate or inconsistent data may hinder the FSCS’s capacity to identify and consolidate customer information, thereby impeding its ability to deliver compliant and efficient services.
Navigating the Customer Data: Common Challenges
Guaranteeing data integrity frequently poses an immense challenge that includes:
Poor data quality
Characterised by inconsistencies, missing information, and obsolete entries.Data Privacy and Protection:
Characterised by improper control of customer data, risk of unauthorised access leading to data breach.Data duplication
Multiple data entries for the same customer, causing confusion and improper analysis.Inaccurate account holder and customer information
Customer’s names, addresses, and contact information that are not accurate can also impede communication and result in lost opportunities.Inaccurate account segregations
Makes it hard to track key metrics and generate insightful reports.Poor data aggregation
Inability to integrate and structure data from multiple sources hamper the development of a comprehensive customer perspective and hinder decision-making.
Improving data quality impacts various aspects of business operations, such as
- Ensuring timely submission SCV reports
- Achieving compliance with global regulatory privacy standards
- Managing fraud by preventing fake accounts
- Leveraging business intelligence for informed strategies
- Gaining valuable customer insights
- Increasing productivity by streamlining operational processes
Automate your SCV Report Generation
Our FSCS SCV Audit & Automation solution helps you tackle the challenges around gaining a Single Customer View and develop data quality to promote efficiency in operational readiness and improve accuracy in FSCS SCV Regulatory reporting.
We will be able to help you in whatever the stage of your regulatory reporting programs and we are sure you will not be disappointed rather surprised with our offerings and customer success stories. Here is how our all-in-one FSCS SCV Enterprise Solution Suite helps financial institutions to overcome data issues.
Poor Data Quality:
Our SCV Forza – FSCS SCV Automation platform will engage only cleansed data for SCV output generation using Gap study and staging area data.Data Privacy and Protection:
All the SCV related information will be kept in the FSCS SCV server and the SCV output files will only be allowed for authorised users. SCV output files for FSCS submission are highly encrypted and protected with complex password mechanism.Data Duplication:
Data Duplication which is the high-risk issue in SCV files which are managed by the SCV Forza – FSCS SCV Automation platform by using AI based fuzzy logic validations and mechanism.Inaccurate Customer & Account Holder Information:
Customer and Account information are taken from the Core Banking Solutions or staging area in order to comply with the minimum data requirements in SCV files.Poor FSCS standards followed on SCV files generations:
All the FSCS specified standards are strictly followed within our SCV automation platform and the reports are produced with high level accuracy and full compliance.Inaccurate Reporting and Less Informed Decisions:
FSCS SCV Data output at the FSCS SCV report submission will only be carried out after successful validations and mandatory conditional validations demanded by FSCS.Inaccurate Account segregations:
Account segregations are carefully managed using linked accounts and relationship datasets and an accurate reporting is carried out ensuring utmost data integration.Poor Data Aggregation:
Data aggregations will be managed by our SCV Forza – FSCS SCV Automation intelligent platform and an accurate reporting to the satisfaction of FSCS will be ensured.
Our Competitive Advantages
Scalable
You can access customer data of any size.Optimised
Highly customisable API and the single customer view reporting application is well optimised for your data environmentInsights
Our consultant’s combined Subject Matter Expertise is 70 plus years and you can fully rely on the quality and integrity.Screen Data
We help you to screen data with FCA, Royal Mail, Company house, ISO, Charity Register.Classified Risks
Well classified SCV audit risks – High, medium, low risk flags for prioritising remediation efforts.Compare
You can easily compare past single customer view audit reports into benchmark actionable items.Analytics
Dozens of reports which ticks every box for FSCS regulatory compliance requirements.Data Orchestration
Generic Plug-in API’s to any core banking system or data pointsFulfilment
We engage start to finish of your FSCS journey with complete handholding.
Provide utmost accuracy and Complete Peace of mind
We will be able to help you in whatever the stage of your regulatory reporting programs
FSCS SCV Reporting Gets Smarter with AI
AI has transformed the way businesses handle intricate and dynamic compliance issues. They automate and streamline labor-intensive compliance operations, assist financial institutions to process massive volumes of data, generate predictive insights, and get through the complicated regulatory world more quickly, accurately, and easily.
Let us explore the significant influence of AI on FSCS SCV reporting in this article.
Exploring the Role of AI in FSCS Operations
FSCS (Financial Services Compensation Scheme) embraced artificial intelligence (AI) to help process claims, specifically in the London Capital & Finance plc (LCF) case. The sheer volume of evidence and claims required a more efficient solution, leading FSCS to work with partners like Capita, Capgemini, and Microsoft to develop a system using voice-to-text technology to analyse phone recordings.
This AI-driven approach allowed claim handlers to search for specific keywords and phrases in the text, saving time and effort compared to manually listening to each call recording.
By utilising AI, FSCS could start paying compensation to LCF customers earlier than anticipated, halve processing costs, and save customers time and effort in making claims. Despite initial challenges with accuracy, FSCS improved the AI system through machine learning, ensuring more precise outcomes.
The success of AI in the LCF case has led FSCS to consider its future applications in handling high volumes of claims efficiently and cost-effectively. FSCS continues to review and enhance the accuracy of AI results, aiming to leverage this technology further in claims processing.
How should Banks and FIs update themselves with AI for FSCS reporting?
Educate Staff:
Banks and FIs should educate and teach risk managers, technical teams, and senior management about AI in financial services. This training should encompass an examination of both Predictive and Generative AI, in addition to the risks and mitigation strategies associated with both.
Establish AI Governance and Risk Frameworks:
Banks and FIs must create robust AI governance and risk frameworks to meet financial industry AI adoption issues. These frameworks ought to cover consumer results, data privacy, security, accountability, and openness.
Collaborate with Regulators:
Banks and FIs should work with regulators to comply with changing AI legislation. This partnership can foster an environment that is seamless and effective in the implementation of AI.
Adopt Vendor Governance Processes:
Banks and FIs must implement strong mechanisms to mitigate risks associated with acquiring and integrating third-party Generative AI systems. This applies to the management of data, models, and the risk of misuse associated with third parties.
Incorporate AI into Entire Strategy:
Instead of considering AI as a set of discrete solutions, banks and FIs should use it as a ‘system solution’ to improve analysis and decision-making.
Financial institutions should recognise that AI’s value creation will occur in stages and invest in foundational systems that are in line with the potential value creation across these phases.
AI's Impact on Customer Data: Addressing Inaccuracy, Segregation, Duplication, and Cleaning
Customer data is an invaluable resource for organisations in the era of huge amounts of data. However, upholding precise, clean and structured data can present an immense challenge. AI has become a powerful tool for dealing with prevalent issues such as
Inaccurate Customer & Account Holder Information:
Typos, outdated information, and inconsistent formats can lead to errors and inefficiencies.Account Segregations:
Multiple accounts might exist for the same customer due to different branches, products, or historical mergers.Data Duplication:
Redundant entries can inflate customer counts and skew data analysis.Data Cleaning:
Finding and fixing these issues manually takes time and is prone to error.
Addressing Inaccurate Customer & Account Holder Information
Data Matching and Enrichment:
To find and fix inconsistencies, AI algorithms can compare customer data against a wide range of data sources, including internal databases, social media sites (with permission), credit bureaus, and social media platforms.Anomaly Detection:
AI can analyse data trends and identify anomalies such as strange addresses, phone numbers, or email addresses, urging further inquiry and possible data correction.Natural Language Processing (NLP):
By utilising NLP to comprehend and extract pertinent information from unstructured data sources such as legacy onboarding forms used on various applications, and emails, it is possible to augment customer profiles with supplementary particulars.
Identifying and Addressing Account Segregations
Customer 360 View:
By analysing customer behaviour, transaction patterns, and account information, AI is capable of identifying potential connections between accounts that appear to be unrelated. This process aids in the integration of consumer data into a unified profile, thereby furnishing an extensive view of their connection with the organisation.Clustering Algorithms:
AI can classify clients based on shared traits, purchasing habits, or geographical areas. This could help identify instances where a single person has many accounts and facilitate the merging of segregated accounts.Machine Learning:
The past information can be used to train machine learning models to recognise account segregation patterns and merge duplicate accounts.
Eliminating Data Duplication
Techniques for Deduplication:
AI-driven algorithms can detect and remove duplicate items from several data sets using a range of techniques, such as fuzzy matching and probabilistic record linking.Data Profiling:
AI can create typical client profiles via analysing data attributes. Disparities between these profiles could indicate duplicates needing additional study.Entity Resolution:
AI-based entity resolution can find and merge records for the same entity (e.g., customer) even if reported differently.
Enhancing the Process of Data Cleaning
Automated Data Cleansing:
Repetitive duties such as correcting typographical errors, formatting inconsistencies, and standardising data formats can be automated by AI algorithms.Rule-Based Cleaning:
AI can be programmed with precise rules that detect and rectify prevalent data quality concerns, including invalid entries or missing values.Active Learning:
AI models can evolve by identifying data quality issues and recommending the right cleaning methods.
Optimising the FSCS Single Customer View: A Look at Macro Global's AI-powered Approach
The AI-based algorithms incorporated into Macro Global’s FSCS SCV (Single Customer View) products such as SCV Alliance and SCV Forza play a crucial role in enhancing the efficacy and functionality of the FSCS SCV reporting solutions provided to financial institutions.
Here are some key aspects where AI algorithms are prominently utilised:
Data Accuracy and Validation:
Identify and rectify inaccuracies in customer and account information, ensuring that the FSCS SCV reports are accurate and compliant with regulatory standards.
Data Enrichment and Cleansing:
Help in enriching and reconciling data, thereby improving the overall quality of the FSCS SCV reports.
Automated Compliance:
Validates data against various external databases such as FCA DB, Royal Mail DB, Companies House, and more, streamlines the reporting process, reduces manual efforts and ensures adherence to regulatory standards.
Risk Management:
Identify potential risks and issues within the data through the classification of 170+ SCV audit checkpoints. Helps in addressing high and medium-risk data issues promptly.
Operational Efficiency:
Automate processes like data validation, enrichment, and reconciliation, enhancing the speed and accuracy of FSCS SCV reporting.
AI-based algorithms within Macro Global’s SCV Alliance and SCV Forza serve as a foundational technology that underpins aforementioned critical functions, ultimately empowering financial institutions to meet their regulatory obligations effectively and efficiently.
Provide utmost accuracy and Complete Peace of mind
We will be able to help you in whatever the stage of your regulatory reporting programs
Third-Party Integrations for Enhanced Data Validation in FSCS SCV Reporting
Inaccurate data in FSCS SCV reports presents potential risks for the financial institution and its customers. Hence, FSCS SCV has a standard that classifies and considers risks as high, medium, or low. To ensure FSCS compliance, the financial institution must address the high and medium risks associated with the reporting data.
High Risk
FSCS considers the following high-risk items in the customer data that should be corrected to mitigate compliance risks and maintain “Green Status Adherence” with PRA.
Example:
- Missing Customer Name
- Missing/Invalid Customer Title
- Missing UK Address Line-1
- Incorrect Account Hold Indicator
- Invalid/Missing UK Postcode
- Duplicate Customer exist in Customer information output file
- First Forename only exist
- Exclusion Type value exist in SCV file
- Data Format issue
- Invalid Account Status Code
- Duplicate Passport Number
- Companies with entries in FCA register
- Field Missing in SCV/Exclusion file
Medium Risk
FSCS categorises the following data points within Single Customer View (SCV) reports as medium risk factors, which must be fixed to ensure smoother and more efficient SCV reporting.
Example:
- Missing Customer Date of Birth
- Customer Name in Address Fields
- Special Character Exist in Customer Details
- Invalid Postcode in Non-UK Customer address
- Missing/Invalid National Insurance Number
- Duplicate/Invalid Email address
- Duplicate/Invalid Main phone number
- Missing IBAN
- Invalid IBAN
- Missing/Invalid BIC
- Missing/Invalid UK Company Registration Number
- Missing or Invalid Product Type
- Unusual Characters in Customer name
- Address Lines Duplicated
Low Risk
The following items have been categorised as low risk by FSCS. Organisations must address those to maintain data integrity and ensure comprehensive SCV reporting.
Example:
- Missing Sort code
- Missing or Invalid “Recent Transactions” status
- Missing or Invalid “Structured deposit account” flag
- Unusual Characters in Product Name
- Address Line 2 Too Short
- Unusual Characters in Account Title
Third-Party Integrations for Enhanced Data Validation
Third-party integrations of trusted databases maintained by independent organisations such as FCA, Loqate, Companies House, IBAN database, Charities Register, and many other databases provide dependable and effective solutions for the verification of diverse data points against multiple sources. Ensuring the accuracy of data, mitigating the risk of fraud, and optimising business operations are all its critical objectives.
The selection of optimal integration for your needs depends on the data sources, volume of data, integration complexity, cost, data privacy regulations, and security measures of the platform.
Third-party platforms offer various integration options, including APIs for automating data validation, web services for user-friendly interfaces, bulk upload tools for efficient one-time uploads of large datasets, and batch processing for offline verification and later results.
Here’s a breakdown of few of the extensive array of trusted sources against which the customer data is validated by third party integrations:
FCA (Financial Conduct Authority) Register
Companies with Entries in Register:
The information contained in the “FCA Register” database pertaining to non-individual customers (companies) is returned by this validation. A match between a company number or name and the “FCA Register” database will provide additional details. The company details must be evaluated by the bank and subsequently transferred to an ineligible pot, contingent upon factors such as the firm type, firm legal status, firm authorisation status, or firm permission status.
Companies House/ Charities Register
Invalid UK Company Registration Number
When a company’s registration number does not exist or does not match the “UK Companies House Registry” or “UK Charity Registry,” this validation returns non-individual customer details for residents of the UK. The bank will conduct a comprehensive analysis to identify any irregularities to facilitate data cleansing on the company name/number, ensuring that it corresponds to the registered legal name.
Invalid UK Company Registration Number but Possible Match Found in Companies House Registry
The validation process returns non-individual customer details with invalid company numbers, but whose company name matches the company’s house database. Special characters are removed, and a partial search is performed with a tolerance level above 80%. The bank checks the accuracy of the partially matched company name with address details.
Possible Multiple Entities under One SCVRN Number
The FSCS guidelines require multiple customers not to be reported in a single SCVRN. The validation process extracts company names with joining terms, matches them with the company’s house registry, and reports any matching part names in the exception report.
BFPO Dataset
Incorrect Positioning of BFPO Address
According to the FSCS, the BFPO number must be in the final line of the address, the country field must be blank, and the postcode must be reported if the address has one. By examining the postcode format (BF) and determining whether any of the address lines contains the text BFPO, this validation determines whether the customer has a BFPO address. This validation verifies the BFPO number reporting position and country field emptiness if the customer’s address is BFPO. If the BFPO address fails to meet the FSCS requirements, this information is logged in the exception report.Loqate Dataset
Invalid UK Postcode
The postcode is required for customers residing in the United Kingdom, as per FSCS guidelines. It returns UK customer addresses without postcodes, invalid postcodes, or incorrect postcode formats.UK Postcode exists in NON-UK Address
Also, this validation returns customer details from non-UK countries with valid UK postcodes.UK and OFAC Sanction Dataset
Possible Sanction Customers
This validation compares the customer’s name to the sanction lists of the United Kingdom and OFAC. If a customer’s name matches, the exception report will include that customer’s information.Unlocking the Power of Third-Party Integrations
Greater Data Accuracy and Consistency
- Safeguard against the potential for human error.
- Auto-synchronise data across platforms to avoid discrepancies.
- Improve the credibility of data by gaining access to recent and reliable information from trusted sources.
Deter Fraudulent Activities
- Verify real-time data against reliable databases to identify suspicious activity.
- Secure your resources and reputation from fraudulent claims and transactions.
- Strengthen your capacity to satisfy regulatory mandates pertaining to KYC responsibilities.
Improve Operational Efficiencies
- Automate repetitive data tasks.
- Redirect your team’s attention to higher-value tasks.
- Reduce manual intervention and delays by seamlessly integrating data from multiple sources.
- Prioritise strategic tasks to optimise resource allocation.
Enhanced Compliance with Regulatory Requirements
- Built-in compliance features in third-party integrations simplify regulatory compliance.
- Centralised and automated data management simplifies audit trials and reporting.
- Data practices are in accordance with the ever-changing regulatory demands.
Simplifying SCV Reporting with Macro Global’s Solution
It can be difficult and time-consuming to administer Single Customer View (SCV) reporting. Macro Global is cognizant of these challenges and provides all-encompassing solutions to optimise your SCV reporting procedure, thereby guaranteeing accuracy as well as efficiency.
Presenting SCV Alliance and SCV Forza
- SCV Alliance enables your organisation of any size to effortlessly comply with FSCS SCV reporting requirements owing to its customisable design, intuitive user interface, and seamless integration with existing infrastructure.
- SCV Forza is a sophisticated solution that enhances the efficiency of the SCV reporting by leveraging advanced automation and artificial intelligence (AI) technologies to streamline processes such as data extraction, cleaning, and validation, thereby reducing the need for human intervention and increasing efficiency.
At the core of both SCV Alliance and SCV Forza lies the power of robust third-party integrations. These integrations connect your systems to various trusted databases, enabling automated data validation against
- FCA Database
- Loqate Database
- Companies House
- Charities Register
- OFAC Database and many other databases.
These integrations significantly enhance data accuracy and consistency of customer / account holder information, & account segregations, minimising the risk of errors & data duplications, and ensuring your SCV reports are reliable and compliant.
Embrace Efficiency, Reduce Risk
By leveraging Macro Global’s SCV audit and automation solutions, you can:
- Customise best fitting solutions.
- Reduce manual effort and human error.
- Improve data accuracy and consistency.
- Streamline workflows.
- Allows users to drill down data to any level.
- Track, monitor, remediate, and scale up data with minimal man-hours.
- Promote compliance with regulatory requirements.
- Reliable and trustworthy reporting.
Contact Macro Global today to learn more about how our SCV solutions can help you navigate the complexities of FSCS reporting with confidence.
Provide utmost accuracy and Complete Peace of mind
We will be able to help you in whatever the stage of your regulatory reporting programs
SCV Reporting Data Automation for FSCS Compliance
The Prudential Regulation Authority has levied a fine of £57.4 million against a significant financial institution for non-compliance with depositor protection regulations. The fine was primarily due to mismarking eligible deposits and poor audit-control. This emphasises the extent of scrutiny that the FSCS and FCA provided.
Banks & FIs must strengthen their data audit and management practices to increase operational efficiency, protect against regulatory noncompliance, ensure robustness, and boost customer satisfaction.
The Single Customer View (SCV) arises as a solution to this issue. The term “Single Customer View” (SCV) represents a unified and consolidated perspective of all customer information, including personal information, behaviour, and transaction history, spanning various organisational systems and departments.
It assists financial institutions by facilitating fraud prevention, expediting compensation payout processes in the event of a bank failure, and providing a reliable view of customer deposits.
Importance of Automated SCV Reporting Solution
An automated SCV Reporting Solution, or Single Customer View Reporting Solution, holds immense importance for banks and financial institutions regarding FSCS compliance in the UK. Here’s why:
Ensuring FSCS Compliance
Regulatory Requirement:
FSCS mandates regulated firms to submit accurate and timely SCV reports, containing comprehensive data on all eligible deposits held by each customer. Failure to comply can lead to penalties and reputational damage.
Accurate Data & Timely Reporting:
An SCV solution automates data gathering, validation, and consolidation, minimising errors and ensuring adherence to reporting deadlines.
Additional Benefits
Improved Efficiency:
Manual data handling is time-consuming and prone to errors. Automation streamlines the process, freeing up resources for other tasks.Enhanced Risk Management:
A holistic view of customer relationships enables better identification and mitigation of potential risks, safeguarding both institution and depositors.Transparency & Accountability:
Accurate reporting fosters trust with regulators and reinforces stakeholder confidence in the financial system.Operational Savings:
Reduced manual effort and improved data quality lead to cost savings over time.
How is Customer Data is Validated effectively through an automated SCV reporting solution?
Customer data validation provides real-time validation, rectification, and enhancement of customer information, thereby furnishing an all-encompassing customer profile that can be leveraged to prevent fraudulent endeavours, optimise operational efficiencies, guarantee adherence to worldwide privacy regulations, increase customer communications, and more.
Customers can have their name, address, phone, email, and account information validated and updated against hundreds of reliable data sources in under a second. In addition to quality and confidence scores, which are valuable for making informed decisions, the following four-layered process incorporates additional crucial customer information.
- Data Mining
- Data Cleaning
- Data Enrichment
- Reconciliation
Data Mining
- This is the first step of Customer Data Validation which verifies and updates the accuracy of the customer’s primary data such as name, address, phone, email, and account number.
- Each aspect of the customer’s identity is instantaneously validated against legitimate global data sources to ensure that you are commencing with precise particulars prior to executing the subsequent phase of data cleansing.
- The goal is to guarantee complete, accurate, and consistent data from various sources and repositories to prevent errors during convergence.
- Following the dissection of data quality, data issues and solutions are identified and categorised according to risk-based factors.
Data Cleansing
- It involves removing inaccurate, outdated, and corrupt entries from the dataset.
- Deduplication logic efficiently eliminates duplicate data through the identification and linking of strings that contain dissimilar words.
- By streamlining disorganised data and minimising reporting errors, this method improves the value, consistency, and dependability of data held by an organisation.
- Ensures that the refined data set is free from errors and inconsistencies.
Data Enrichment
- Data enrichment is the process of augmenting missing or insufficient data points to improve the quality of the existing information.
- Ensuring adherence to regulatory requirements, the enrichment process places significant emphasis on compliance with standards established by the Financial Services Compensation Scheme (FSCS).
- The utilisation of the refined data to enhance reporting outcomes and adhere to regulatory requirements establishes a feedback mechanism that promotes ongoing progress.
- Clients review and approve data enrichment methods to ensure transparency and ownership of the enriched dataset.
Data Reconciliation
- Reconciliation is performed by comparing and validating data from different sources, such as the Core Banking Solution (CBS) and automation platforms like FSCS SCV Automation Platform, to ensure consistency and accuracy.
- This involves gathering relevant account transaction data, comparing the datasets, verifying those records from different sources match, addressing any discrepancies found, and producing reports to document the process and findings.
- Automation tools streamline this comparison process, reducing manual effort and the potential for errors, ultimately ensuring the accuracy and integrity of financial records.
Macro Global's SCV Powerhouse: Forza & Alliance Tackle Your Toughest Challenges
Achieving complete compliance with the Financial Services Compensation Scheme (FSCS) encompass the following:
- Conducting regular and up-to-date data audits to ensure compliance with strict data governance principles.
- Automating data cleansing and standardisation processes to eliminate inaccuracies.
- Enriching data to enhance customer understanding.
- Ensuring long-term compliance with regulatory guidelines.
Macro Global’s SCV Forza and SCV Alliance are specifically designed to address the above challenges and offer requisite solutions. Here is how they can tackle each of the mentioned challenges:
Balancing Legacy with Agility
Macro Global’s SCV solutions offer a well-architected and out-of-the-box data model and business service layer with improved loading capabilities and data integration. This addresses the challenges related to legacy system limitations, operational inefficiencies, and infrastructure complexities.
Transforming Fragmented Data to Seamless Insights
The SCV solutions include data remediation and enrichment processes that identify issues to reduce the risk of financial penalties, ensuring consistency and accuracy in data.
Overcoming Data Privacy & Protection Roadblocks
Macro Global’s FSCS SCV reporting solutions provide secured data handling and high-level data protection, addressing challenges related to protecting consumer data privacy and adhering to regulatory requirements for data security.
Mastering Data & Staying Compliant
The solutions support de-duplication and cleansing of records and can be integrated with a wide range of scenarios run against a rule set, thereby addressing challenges related to duplicate data and meeting regulatory compliance requirements.
Building a Foundation of Reliable Data
The SCV solutions offer risk-based reporting to understand and analyse data-related business risks, enabling informed decisions and accurate reporting.
Charting Your Course
Macro Global’s SCV solutions unify customer data across internal systems and capture each customer’s activities across all channels, thus addressing challenges related to operational readiness and customer engagement.
Want to know more about our SCV solutions? Contact us now
Regulatory Reporting in the Financial Sector: A Comprehensive Analysis and Recommendations
The Financial Sector has experienced heightened scrutiny and importance has been placed on the accuracy, reliability, and promptness of data submitted for regulatory reporting. The quality of regulatory returns submitted by designated investment firms, banks, and building societies has become a key area of concern considering recent regulatory supervision and thematic findings.
Let us discuss in detail the further steps for firms to address deficiencies in their SCV regulatory reporting processes.
Challenges Faced by UK FIs in Regulatory Reporting
The following are the important challenges highlighted by PRA.
- An increased risk of material misstatements from firms that did not meet expectations, with historical lack of focus, prioritisation, and investment in this area.
- Governance and ownership issues include dispersed responsibilities, fragmented end-to-end processes, poor understanding and documentation, lack of oversight, and poor governance around key regulatory interpretations.
- Expectation for clear responsibilities, robust processes, independent testing and validation, and corrective action for key interpretations and judgments. And the use of Internal Audit where appropriate, to ensure reliability and accuracy of regulatory returns
- Identified gaps in end-to-end processes for regulatory returns, insufficient controls around models, End User Computing (EUC), lack of reconciliation checks for errors, and high degree of manual intervention.
- Disappointment in poor record-keeping of original model documentation, deficiencies in control environment around models, and inherent risks in document controls due to vulnerability to overwriting.
- Expectation for clear documentation, robust processes and controls, formal and comprehensive reconciliations, and prioritised investment in regulatory reporting in banking to reduce data errors and misstatements.
- Need for strategic investment, focus on robust sourcing of data, clear governance and sign-off for incomplete data, and simpler and more efficient infrastructure.
Overcoming Regulatory Reporting & Compliance Challenges
- Embrace Automation and Technology
- To overcome regulatory reporting issues and satisfy regulatory reporting requirements, banks must harness the power of automation and modern technology. By implementing advanced reporting systems, banks can streamline their reporting processes and ensure data accuracy. Banks can enhance operational efficiency, minimise costs, and mitigate the likelihood of errors by automating data entry, aggregation, and validation through the integration of sophisticated regulatory reporting systems and artificial intelligence technologies.
- Enhance Data Governance and Integration
- Data governance plays a vital role in generating new regulatory reporting standards. Banks need to establish robust data governance frameworks to ensure data quality, integrity, and consistency across various systems and departments. This approach facilitates effective integration of data, enabling banks to obtain a comprehensive view of their operations, enhance reporting accuracy, and minimise regulatory reporting risks.
- Emphasise Regulatory Compliance
- Banks should adopt reporting approaches that align with the regulatory frameworks such as Basel III, IFRS 9, FSCS, AEOI, and GDPR. By adhering to these standards, banks can effectively manage risks, maintain legal and ethical compliance, and reinforce trust among stakeholders.
- Foster Cross-Functional Collaboration
- Effective reporting requires collaboration among different teams within a bank. Collaboration between finance, risk, and IT departments ensures that SCV regulatory reporting processes are aligned, data is accurate, and insights are actionable. By fostering cross-functional collaboration, banks can break down silos, optimise reporting workflows, and enhance their reporting capabilities.
- Collaboration and Knowledge Sharing
- Another effective way to overcome reporting issues is through collaboration and knowledge sharing among financial institutions. By leveraging industry networks and participating in regulatory working groups, firms can exchange best practices, discuss common challenges, and collectively find solutions. This collaborative approach promotes standardisation, consistency, and efficiency in reporting.
- Efficient Data Orchestration
- It requires data from multiple data sources to be orchestrated to prepare the regulatory reporting as per the compliance standards. Data orchestration process that helps them to achieve full compliance by leveraging existing data infrastructure, consolidating and validating data from various sources, enriching data with missing information, automating manual processes, ensuring data governance and auditability, and providing scalability and security. Such solutions streamline compliance processes, improve data accuracy and reporting quality, reduce costs and operational risks, enhance data governance and transparency, and instil greater compliance confidence.
- Continuously Monitor and Adapt
- To generate new regulatory reporting standards, banks must stay agile and adapt to changing business dynamics. It is crucial to continuously monitor and assess reporting processes, identify areas of improvement, and embrace emerging technologies and industry best practices. By staying proactive and adaptable, banks can overcome reporting challenges and drive innovation in their regulatory reporting standards.
- Reporting and Escalation
- Establish robust reporting capabilities to report on changes and issues identified during the monitoring process. Develop clear escalation pathways to an Enterprise Governance, Risk, and Compliance (GRC) platform when issues require further risk management and oversight.
- Role of RegTech in Banks’s Regulatory Reporting
- Financial Institutions (FIs) are increasingly relying on regulatory technologies (RegTech) to streamline processes, optimise workflows, and minimise compliance risks. Financial reporting products offered by RegTech companies automate manual tasks, provide real-time compliance monitoring, streamlines the regulatory reporting obligations, and improves data quality. It also standardises and transforms data from diverse sources, ensuring accuracy and reliability. Benefits of relying on RegTech include reduced compliance costs, improved risk management, enhanced business agility, and stronger investor and regulator relationships. By embracing automation, data cleaning, and intelligent ETL capabilities, FIs can ensure efficient regulatory reporting & compliance, mitigate risks, and achieve greater operational agility in a constantly evolving regulatory landscape.
SCV Forza: A Force for Integrity in Regulatory Reporting in Banking & FIs
Ensuring accurate, reliable regulatory reporting is the cornerstone of a healthy financial sector. Yet, fragmented data, manual processes, and legacy systems often lead to errors, inconsistencies, and compliance failures.
Nevertheless, financial institutions can achieve enhanced efficiency, transparency, and risk management while simultaneously guaranteeing compliance by adopting the recommendations and insights outlined in our analysis with respect to PRA’s guidance.
Besides, Macro Global’s SCV Forza shines as a beacon of integrity in promoting regulatory reporting. SCV Forza is a solution that addresses various challenges related to data management and compliance in the financial industry. It provides a comprehensive view of each customer across all accounts and products, eliminating duplicate reporting and ensuring accurate identification of reportable entities.
The solution utilizes AI technology to automate data extraction and cleaning processes, reducing manual errors and improving reporting efficiency. It also includes a built-in rule engine for data validation against regulatory requirements and integrates with various third-party databases for additional validation.
SCV Forza is built on a secure Azure Cloud architecture with strong data protection measures. It can adapt to evolving regulations swiftly and offers granular reporting and audit trials for transparency and accountability. Additionally, SCV Forza offers business consulting services to help businesses manage data and implement operational best practices.
Thus, by placing strong emphasis on effective data governance, adopting cutting-edge technologies, and cultivating a culture of compliance, the trajectory of regulatory reporting could be noted for proactive involvement and sustained growth. Please do reach out to us to know the latest updates and insights into regulatory reporting landscape and stay resilient.
How Does the PRA’s New Guidance Protect Consumer Trust in UK Bank Deposits?
Protecting our savings is of utmost importance considering the current unstable financial climate. The maintenance of financial stability requires a foundational trust in the banking system. Consequently, the “Dear CEO” letter from the PRA conveys the regulator’s views on digital money and money-like instruments to chief executive officers of deposit-takers. It provides clear communication, guidance on innovation and risk mitigation, alignment with regulatory initiatives, emphasis on customer protection, expectations for compliance and engagement, and consideration for a proportionate approach to implementation.
These guidelines aim to alleviate concerns regarding potential financial instability, confusion, and contagion and promote efficient FSCS deposit protection. This letter further facilitates understanding and compliance with regulatory expectations in the evolving landscape of digital money. Let us explore the complexities of the guidance intended for enhancing the protection of our deposits in this blog.
Need for Maintaining Bank Deposits
The operations of the financial system and the economy are significantly influenced by the maintenance of bank deposits for several reasons:
- Financial Intermediation:
To promote economic development and growth by directing savings towards productive investments such as loans, credit facilities, etc. - Payment Processing
Facilitating routine business operations, including salary disbursements, expense management, and payment processing for the maintenance of economic liquidity and efficacy. - Interest Revenue
The interest that depositors accrue on their funds serves as a means for businesses and individuals to generate income. - Safety and Security
Banks usually insure deposits in case of failure. This trust and protection encourage depositors to keep their money in the bank. - Monetary Policy Transmission
Deposits allow central banks to control money supply and interest rates by changing reserve requirements and lending rates and help them in managing financial circumstances, inflation, and economic stability. - Financial Stability
Maintaining a strong deposit base is crucial for banks to ensure an uninterrupted lending operation, effective management of liquidity, and resilience in the face of economic disruptions.
Digital E - Money based Tokens for Overcoming Traditional System
Digital E-Money tokens represent an innovative approach with the objective of surmounting conventional payment and settlement systems. To provide a more streamlined, reliable, and adaptable method of carrying out financial transactions, these tokens are often developed using blockchain or distributed ledger technology. The following are several essential features and benefits of digital e-money-based tokens:
- Efficiency
- E-money tokens can minimise banking time and expenses, streamlining payment operations. Decentralised ledger technology can execute and settle transactions in seconds or minutes, unlike the traditional banking system, which might take days for international transactions.
- Accessibility
- The widespread use of digital e-money tokens increases financial inclusion by opening the global economy to people who have no access to conventional banking services. Underprivileged populations in developing nations may benefit most from this.
- Cost Savings
- Digital E-Money based tokens can substantially diminish transaction fees, particularly for cross-border transactions, through the circumvention of intermediaries and utilisation of decentralised systems. This can help organisations and individuals save money on payments.
- Programmable Features
- The integration of smart contracts with digital e-money tokens enables the implementation of programmable features that streamline financial transactions. This programmability allows conditional payments, escrow, and other advanced financial tools. It automates dividend payments, voting rights, and regulatory compliance using smart contracts.
- Security Features
- The implementation of cryptographic methods in digital money tokens reduces the likelihood of fraud and improves security. Additionally, blockchain technology is innately more immune to manipulation and unauthorised access due to its decentralised nature.
- Regulation:
- Many countries, including the UK, regulate security token issuance and trade. Secure digital token providers must comply with legislation, including licences and disclosure obligations.
- Investor Protection:
- As investment products, security tokens must follow investor protection legislation. This entails furnishing precise and transparent information pertaining to the fundamental assets, investment conditions, and associated hazards.
- Fractional Ownership and Accessibility:
- Digital tokens can allow fractional ownership of high-value assets, making investment opportunities more accessible.
- Liquidity and Market Accessibility
- In comparison to conventional securities, digital tokens may provide enhanced liquidity and market accessibility. Nevertheless, this raises additional concerns pertaining to investor education, trading transparency, and market manipulation.
- Despite this, potential risks and obstacles, such as market volatility, cybersecurity concerns, regulatory compliance, and liquidity, must be meticulously evaluated by organisations that offer digital tokens for security purposes. It is imperative to consult legal and regulatory counsel to guarantee that the issuance and trading of security-related digital tokens occurs responsibly and compliantly.
Concerns & Guidance of PRA Regarding innovation in Deposit-Taking Sector
While the Prudential Regulation Authority (PRA) acknowledges the benefits of innovation, it also highlights potential confusion among consumers regarding the level of protection associated with various financial products.
Therefore, the goal of the PRA guidance is to guarantee that deposit-takers successfully manage these risks and to emphasise the importance of transparency, distinct branding, and adequate protections for retail customers, while supporting innovation and competition in the financial sector.
- One specific innovation that the PRA is wary of is the tokenisation of deposits, where savers are issued digital tokens representing their claim against a bank for the money deposited. These tokens can be used for transactions in blockchain systems, offering more flexible uses than traditional deposit products. While these innovations can bring efficiency, gains, and increased accessibility, they also raise concerns about potential consumer confusion regarding the level of FSCS deposit protection associated with such products.
- The PRA is concerned about potential confusion between deposit tokens and other ‘store of value’ financial products, such as e-money and stablecoins. Specifically, the guidance addresses the risk of contagion, where retail customers might mistakenly assume that e-money or regulated stablecoins have the same protections as retail deposits.
- E-money offers pre-paid payment products but lacks the same level of consumer protection as bank deposits. Stablecoins, pegged to a base currency, do not guarantee immediate redemption at par value, and do not benefit from FSCS deposit protection. The PRA guidance emphasises the need for clarity and transparency in financial products and consumer protection.
- To mitigate this risk, deposit-takers are expected to ensure that different forms of digital money are clearly distinguished, and retail customers are fully informed about the protections and risks associated with each type.
- The PRA guidance provides standards for deposit-taking entities that seek to issue E-Money or regulated stablecoins to retail customers. It outlines that such issuance of E-Money or regulated stable coins should be done from separate non-deposit-taking and insolvency-remote entities, with distinct branding to the deposit-taker. This is to ensure that these entities’ failure would not adversely impact the rest of the deposit-taking group and the continuity of its deposit-taking services.
- Furthermore, the guidance addresses situations where firms without a deposit-taking permission have issued e-money or regulated stablecoins to retail customers and later seek to transition these customers to deposits at a deposit-taking entity.
- It also provides standards for deposit-takers intending to innovate in the way they take deposits from retail customers, particularly in the context of transferable ‘tokenised’ deposit claims, ensuring these innovations meet the PRA’s rules for eligibility for depositor protection under the Financial Services Compensation Scheme (FSCS protection limit).
- Additionally, the guidance is relevant for international deposit-takers with UK operations, underlining that the risk of contagion exists independently of the scale of operations, and international deposit-takers are expected to adhere to the same approach as domestic deposit-takers for their UK operations.
- The PRA’s guidance also furnishes deposit-takers with broader objectives regarding wholesale or retail innovations involving digital money or money-like instruments. It delineates potential novel challenges and instructs deposit-takers on how to effectively tackle them to safeguard consumers’ interests and maintain financial stability.
How Deposit-Takers Shape the Financial Landscape
Deposit-takers fulfill an essential function within the financial system through the acceptance and protection of funds contributed by people and businesses. The principal function of deposit-taking institutions, including credit unions, building societies, and banks, is to furnish individuals and organisations with a secure and protected location to deposit their funds.
This function is essential for upholding the “singleness of money” principle, which states that the security of funds should not differ significantly when stored in a bank account or in currency.
The funds entrusted to deposit-takers are employed to deliver credit and lending services to borrowers, including enterprises, individuals, and other borrowers. They contribute to economic expansion by utilising these deposits as collateral for a range of loan purposes, such as mortgage financing, business expansion, and personal financing. By allocating saved funds towards investments, this procedure serves to stimulate economic activity.
In addition, deposit-takers serve a crucial function by offering interest on deposited funds, thereby gradually augmenting the value of the saved capital. With this interest, consumers, and businesses deposit money with these institutions, boosting financial stability and liquidity.
Thus, deposit-takers serve as guardians of funds, contributing to the economic health and stability of the financial system.
SCV Forza: Adding Transparency and Confidence
The PRA’s guidance in promoting customer confidence in UK bank deposits has stirred the pot in the financial sector. While aiming to bolster trust, the new measures have also triggered concerns about increased workload, potential unintended consequences, and the practical effectiveness of the proposed actions.
So, how can banks and FIs navigate this sea of regulatory change while keeping consumer confidence afloat? Macro Global’s SCV Forza emerges as a potential savior, addressing key concerns raised by the PRA’s guidance:
- Acts as a single source of truth, consolidating customer data from diverse sources and ensuring its accuracy through automated validation and reconciliation. Gone are the days of data discrepancies shaking consumer trust.
- Targets compliance with the FSCS SCV reporting requirement and aligns with various PRA and FCA reporting regulations.
- Automates routine reporting tasks, freeing up valuable resources and minimising the risk of human error. Banks can now focus on building rapport with customers, not battling spreadsheets.
- Maintains a meticulous audit trail, leaving a clear path for regulators and customers alike to follow every step of the deposit journey.
By adopting SCV Forza, banks can not only meet the PRA’s expectations but also proactively address the very concerns raised in the industry. In a climate where consumer confidence is paramount, SCV Forza empowers banks to sail through these regulatory changes with confidence, efficiency, and, most importantly, a renewed focus on fostering trust with their customers.
While the PRA lays the foundation, Macro Global’s SCV Forza adds another layer of assurance for financial institutions for FSCS reporting.
Therefore, the PRA’s new guidance and SCV Forza represent a powerful synergy. Together, they represent a collaborative effort to safeguard consumer trust, ensuring financial stability and peace of mind for individuals.
Need for Automation in Financial Regulatory Compliance (SCV) Reporting
Strict regulations govern the financial sector operations to safeguard stakeholders’ interests, promote accountability, and ensure transparency. Ensuring adherence to financial regulations is of paramount importance in order to promote confidence in the sector and protect against fraudulent practises.
There is a rising demand for automation in financial regulatory compliance reporting, particularly within the context of SCV (Single Customer View) reporting, due to the ever-increasing data volume that needs managing and reporting.
Challenges of SCV Reporting
From customers’ transactions, interactions, and personal information, financial institutions gather massive volumes of data. The SCV report compiles this information into a single picture of the customer’s relationship with the bank. It improves regulators’ capacity to detect risks and compliance violations by giving them an in-depth understanding of consumers’ financial activities.
Nevertheless, generating SCV reports manually is an arduous and prone to error endeavour. Compliance teams have an enormous challenge due to the large amount of data, the variety of data sources, and the complexity of reporting obligations. The process of manually extracting, cleansing, and consolidating data may result in reporting delays, inconsistencies, and errors. Institutions are susceptible to penalties and reputational harm due to the substantial risk of human error, which destroys regulatory compliance.
Benefits of SCV Reporting Automation
Automation has the potential to completely transform SCV reporting by making data extraction, cleansing, and consolidation much more efficient. Automation tools can optimise regulatory compliance reporting for precision, effectiveness, and expandability through the utilisation of cutting-edge technologies like machine learning (ML) and artificial intelligence (AI). Among the many advantages of automating SCV reporting are the following:
- Enhanced Accuracy:
Automated solutions ensure data accuracy through sophisticated validation checks and data cleansing mechanisms. This not only improves the quality of reporting but also reduces the likelihood of financial compliance breaches.
- Increased Efficiency:
Manual SCV reporting involves laborious and repetitive tasks that consume valuable time and resources. Automation tools can perform these tasks at a fraction of the time, freeing up compliance teams to focus on more strategic activities. With faster data processing and report generation, financial institutions can meet regulatory deadlines more effectively and respond to ad-hoc requests from regulators efficiently.
- Reduced Human Error:
Manual data entry and processing are prone to human error, which can have severe consequences in the context of regulatory compliance reporting. A simple typo or a misplaced digit can lead to inaccurate reporting, noncompliance, and potential legal repercussions. By automating the reporting process, the risk of human error is significantly minimised.
- Improved Data Quality:
Automated systems can identify and flag data inconsistencies, missing information, or unusual patterns, enabling financial compliance teams to address issues promptly. Improved data quality ensures that the compliance reports reflect a true and accurate picture of the institution’s regulatory compliance status.
- Improved Scalability:
As financial institutions grow and the volume of customer data expands, automation ensures scalability in SCV reporting. By automating data extraction and consolidation from various sources, institutions can handle increasing data volumes without additional manual effort. This scalability allows institutions to comply with expanding regulatory requirements and accommodate future growth seamlessly.
- Enhanced Compliance Tracking and Monitoring:
Compliance reporting automation enables financial institutions to effectively track and monitor compliance activities. Automated systems provide real-time visibility into the status of compliance reports, including submission deadlines, outstanding tasks, and potential bottlenecks. This allows compliance teams to proactively address any issues and take corrective actions to meet regulatory requirements. By enhancing compliance tracking and monitoring, automation ensures a proactive approach towards regulatory compliance, mitigating compliance risks and avoiding penalties.
The Significance of ETL and Data Cleaning in the Offering of SCV Reports
ETL and Data Cleansing are essential processes for producing reliable and precise SCV reports. It permits organisations to collect, cleanse, and standardise data from multiple sources before loading it into the SCV reporting system for additional consolidation and analysis.
Components of ETL Processing
Data Extraction
Data extraction involves the retrieval of information from various sources, including external systems, databases, and spreadsheets, with the aim of encompassing all pertinent data.
Methods of data extraction
- Data extraction from databases is accomplished through the utilisation of specialised extraction tools or SQL queries.
- Data is extracted from applications or software systems using APIs (Application Programming Interfaces) or bespoke integration methods,
- File extraction involves the utilisation of file parsing techniques to extract data from files in formats such as CSV, Excel, or XML.
Data Transformation
Extracted data undergoes transformation processes, which may include data cleansing, standardization, and enrichment. This ensures that the data is consistent, accurate, and ready for reporting.
Data Loading
After transformation, the cleansed data is loaded into the SCV reporting system, where it can be further analysed, validated, and consolidated.
Benefits of using ETL in SCV reporting
Using ETL processes in SCV reporting offers several benefits, including:
- Ensuring data accuracy and consistency
- Reducing the risk of non-compliance and regulatory penalties
- Improving data integrity and quality
- Streamlining the data collection and consolidation processes
- Facilitating efficient report generation and analysis
- Promoting regulatory compliance
SCV Reporting with SCV Forza: Effortless Automation from Start to Finish
With the increasing regulatory compliance requirements imposed upon financial institutions, particularly by the Financial Services Compensation Scheme (FSCS), generating Single Customer View (SCV) reports efficiently has become paramount.
For this purpose, Macro Global’s SCV Forza presents a comprehensive end-to-end automation solution, streamlining the entire SCV reporting process.
SCV Forza is an SSIS-based ETL platform that can automate the FSCS single customer view regulatory reporting process with near-zero error and generate extensive audit reports.
- Data collection and cleansing
- Data structuring and enrichment
- Data validation and transformation
- Audit and screening, and
- Communication and engagement.
Features and Capabilities
SCV Forza’s suite of features and capabilities encompasses everything needed to offer seamless and compliant SCV reporting:
- Ensures the automation of the complete SCV reporting process, encompassing all stages of the workflow, including data capture and validation, report generation, and submission.
- Can handle data up to 50 million records and provides data insights to identify individuals and entities to be reported.
- Offers well-classified 170+ SCV Audit Checkpoints to track and report potential high and medium risk data issues.
- Offers third-party integrations to validate data against various databases, data mining, data cleansing, data enrichment, and reconciliation functionalities.
- Provides a full audit history and facility to compare previous audits to benchmarks and track metrics for data remediation.
- Identify inaccurate customer and account holder information and account segregations via AI-based algorithms.
- Data governance and operational best practises in FSCS reporting are also provided through business consulting.
- Integrates effortlessly with pre-existing banking systems and data sources, thereby reducing the necessity for manual data submission and the associated error risk.
- Customises the report to meet the requirements of specific users and comply with regulations thanks to the solution’s customisable reporting templates.
- Offers real-time compliance monitoring and alerts, enabling organisations to maintain constant awareness of their compliance status and promptly implement necessary remedial measures.
Experience the power of SCV Forza and witness a new era of efficiency and accuracy in your SCV reporting process. Reach us now!
Provide utmost accuracy and Complete Peace of mind
We will be able to help you in whatever the stage of your regulatory reporting programs
Guide to FSCS Single Customer View – Key best practices that every FIs should follow
The US Department of the Treasury, the Federal Reserve Board (FRB), and the Federal Deposit Insurance Corporation (FDIC) announced steps to protect all deposits under an emergency lending programme and for the FDIC to finish the resolutions for Silicon Valley Bank (SVB) and Signature Bank. The US government is now taking steps to keep the banking system strong. US Federal Reserve will further investigate and write a report on the failure of SVB from a regulatory perspective.
Even though bank failures are rare, recent events at SVB, Signature Bank, and Silvergate Bank are likely to put pressure on banks to look at and improve their corporate governance and risk measuring and monitoring systems, as well as test their capital levels, complexity, and business models under stress. It’s a reminder of how important it is for the bank to have a good risk management programme to keep its operations safe and sound.
Since this is the scenario in the US, Financial Conduct Authority (FCA) in the UK is expected to give a full report and analysis of why the banks failed. As a result, changes to regulations are likely, and bank management needs to ask the right questions to be ready.
The Financial Services Compensation Scheme (FSCS) in the UK provides protection and compensation to customers of financial services firms. FSCS compensates the eligible customers within 7 days of failure. To do this, a standardised Single Customer View (SCV) should be in place which supports resolution options, such as a transfer of deposits or a bail-in, as well as a payout. You can find the SCV requirements for deposit takers regarding in the Depositor Protection Part of the Prudential Regulation Authority (PRA) Rulebook. You can also find the PRA’s expectations for deposit takers here.
Moreover, FSCS updated its “Single Customer View (SCV) Guide” which aims to provide a detailed overview of the Single Customer View (SCV) initiative, covering a range of topics to improve the data quality and governance keeping in mind the deposit takers, insolvency practitioners, SCV system auditors and SCV system vendors.
Good Data ensures Better Compliance. First and foremost, business and product development competencies are the foundation of successful competition in today’s market, and effective development necessitates fundamentally enhanced methods for organising the development process. Financial institutions are ramping up their capabilities, products, and services to be more competitive with their peers. It involves an increase in risk as well. Investments in governance, risk management, and compliance should be taken in parallel to their upgrading to avoid paying big to fail.
MG with its 20+ years of RegTech industry and being a leader in delivering regulatory products for banks and FIs, we list out the best practices that every FIs should follow to stay up to date with their data and daily operations to comply with FSCS requirements. Read on!
- Stay up-to-date on FSCS regulations and requirements: The FSCS provides guidelines and rules for firms to follow to be eligible for protection and compensation. FIs need to stay informed about any changes or updates to these regulations.
- FIs have to maintain status codes at the CBS level to identify the reporting eligibility of the customers. FI has to update the customers on at regular basis and update status codes for the customer/account where required.
- At regular intervals, FI must review the customer and accounts details and update the customer details if the data does not comply with FSCS requirements. It is recommended the FI can have an auditing platform that should audit the generated SCV/Exclusion and report any issue in the files. So, FIs can make use of the exception report and make necessary corrections at the data level or file level.
- If the customer details are unable to meet the FSCS requirement and FIs not able to correct the details then they have to allocate a separate status code for the particular issue and report the customer in the NFFSTP category.
- To categorise and report the customer details based on the status codes in SCV/Exclusion, the FIs have to have an SCV system that must have the capability to generate the SCV, Exclusion and ineligible report based on the customer/account status codes. Also, it must have the capability to generate the report within 24 hours.
- At regular intervals, FIs must conduct internal/external auditing to ensure that the SCV system satisfies the PRA-DP 11.1 and 11.2 and that PRA SCV and marking requirements are met.
- FIs have to maintain a risk register to record the issues that arise during the SCV report generation process.
- FI should communicate to the customer during the onboarding process about the eligibility of the customer for the protection provided by the FSCS.
- The FIs must, at least annually, take reasonable steps to confirm that a depositor that it has classified as a micro, small and medium-sized enterprise continues to be a micro, small and medium-sized enterprise using the exchange rate prevailing on the 3 July immediately preceding the date on which any confirmation is undertaken.
- At regular intervals, FIs have to reconcile the balance reported in the SCV file with the balance in their GL report generated in the CBS and ensure the accounts balance is tallied.
- FIs have to keep the following SCV documents up-to-date.
- a. SCV Effectiveness document
- b. Account Status Codes
- c. Product Codes
- d. SCV Policy Statement
- e. AML and CTF Manual
- f. SCV System procedure document
- g. SCV System process flow document
- h. SCV System Diagram
- i. Risk Registry
- It is recommended by FSCS to implement PGP encryption for encrypting the generated SCV files to prevent any manual corrections/tampering with the SCV files.
Banks must reconcile and fix existing data gaps and take the right stepsto make sure that accurate and complete records are kept at the time a newclient is added or an account is opened. Also, it might be important to make aneffort to learn more about the concentrations of current deposits in order toreduce liquidity risk and allow accounts to be spread out.
Regulators are more stringent to cope with the advancements in the BFSI sector. The goalpost is changing every day, and banks should prepare themselves for the increasing regulatory demands. Adopting a single customer view is all about making the most of an organization’s most valuable assets, which are its customers. In short, implementing a solution for the single customer view is a journey, not a one-time project. Putting it to use in your business is an ongoing process that takes time and effort. The journey starts with good data and accurate information about customers, and then everything else builds on that.
With our constant pursuit to bring newer tools and innovations, Macro Global is on the quest for more solutions and services that bring revolution in fintech. To partner with Macro Global, and to leverage more benefits, please reach out to salesdesk@macroglobal.co.uk or call us at +44 (0)204 574 2433.
Provide utmost accuracy and Complete Peace of mind
We will be able to help you in whatever the stage of your regulatory reporting programs
PRA Consultation Paper CP9/22 – Depositor Protection Updates
As you may be aware, the Bank of England released a few important updates to depositor protection following PRA Consultation Paper (CP9/22) which has been published in Q3 2022. Our SCV experts have done an extensive impact analysis on the proposed changes by PRA, both from the Technical and business perspective. The major effect and relief is the COA (Continuity of Access) & Dormant Account Scheme rule been removed for the immediate term thus removing the ambiguity around these two rules.
We have covered all the items and necessary remediation or action required from a financial Institution (FI’s) standpoint in this article. Please read on further to learn more about each item in detail and see if you need to proactively plan to bring the changes either to your internal reporting platform or functional/operations level change to address these regulatory “must have” implementations at the earliest and stay fully compliant. Through our quarterly and seasonal patch upgrades, we automatically take care of our customers who currently use our solution.
As a result of the aforementioned changes, we anticipate that all FI’s may soon experience a new round of FSCS drills to reaffirm assurance on their readiness by PRA. Hence, it would be an excellent opportunity to make pro-active plans to implement these changes ahead and conduct stress tests on your internal systems and processes to prepare to withstand the storm.
Updates to the depositor protection following the PRA consultation paper
Background
The CoA Rules were implemented in 2015 to support the resolution and the PRA’s safety and soundness objective by reducing the adverse effects of firm failure on the stability of the UK’s financial system. The CoA Rules aimed to support the continuity of covered by maintaining a depositor’s access to deposits and banking services while a deposit taker was undergoing resolution using a Bank Insolvency Procedure (BIP) or a Building Society Insolvency Procedure (BSIP), via a transfer of covered deposits to a purchasing institution.
Following the introduction of the CoA Rules, the Bank of England’s (‘the Bank’) approach to resolution evolved, causing the Bank to reassess the transfer of FSCS-covered deposits using CoA functionality. As a result, in advance of the 1 December 2016 effective date of the CoA Rules, the PRA provided a WBC to a broad set of firms. This WBC substantially narrowed the scope of application of the CoA Rules for three years to exclude small BIP/BSIP firms and bail-in firms and allowed the Bank to consider the longer-term policy requirements for transfer resolution strategies. The original WBC expired in 2019. This was extended for a further three years to 1 December 2022 due to the possible impact of the Bank’s review of its approach to setting a minimum requirement for own funds and eligible liabilities on the scope, functionality, and necessity of the CoA Rules. During these six years, at any one time, only around 13 firms have been required to comply with the CoA Rules. Approximately 140 firms currently hold a WBC.
The Bank, alongside the PRA, has recently initiated work to develop alternative solutions to reduce disruption to transactional accounts in the event of an insolvency procedure (See PRA statement – ‘Improving depositor outcomes in the bank or building society insolvency’ (IDOBI)). This work will look to provide depositors with improved access to their deposits throughout such an insolvency procedure, and the PRA may consult in due course on proposed future rules in this area.
Proposal
The PRA is proposing to revoke the CoA Rules and amend other rules referring to CoA before the expiry of the current WBC and amend SS18/15 accordingly. The PRA considers that revoking the rules would ensure that, in the future, firms that would otherwise have had to develop systems to comply with the CoA Rules would not be disproportionately burdened by rules that are currently not being enforced for the majority of firms.
In addition to the proposal to revoke the CoA Rules, the PRA is also proposing that firms that have already developed CoA system capabilities should consider maintaining or archiving those systems. While the outcome of the IDOBI workstream is not yet known, it may lead to a consultation with proposed new rules that impose similar requirements to the CoA Rules. The PRA proposes that as part of this process, while such firms should maintain the capability to complete field 48 of the Single Customer View (SCV), which requires details of a customer’s transferable eligible deposits when completing the SCV, firms should leave it blank so that it acts as a legacy field retained as a placeholder. This may reduce any future costs should the outcome of the IDOBI workstream require firms to develop systems with similar functionality.
The PRA has previously stated that it would ensure that firms had at least 18 months to implement changes in connection with the re-implementation of the CoA Rules. The 18 months notice period was designed to give firms sufficient time to build the required systems. As the PRA is revoking rather than imposing additional rules on firms, which is intended to prevent new firms in scope of the CoA rules from investing in building new systems that may turn out to be redundant, the PRA does not consider that firms would require 18 months’ implementation time.
Action Required
Based on Macro Global’s analysis of the COA requirements, it has been observed that FI’s neither needs to get COA waivers from PRA nor implement COA activities at the CBS level.
In SCV Report, the transferrable eligible deposit field (field 48) must be reported with a blank value henceforth which Macro Global will be rolling out a new patch in the SCV Automation process shortly. In case you have not been onboarded with Macro Global’s SCV Automation for the SCV submission file generation, please ensure your existing application can handle this.
Background
The Dormant Account Scheme (the ‘Scheme’) was established under the Dormant Bank and Building Society Accounts Act 2008 and was originally launched (in respect of dormant bank and building society accounts only) in March 2011. The Scheme enables money that is held in dormant accounts to be distributed for the benefit of the community while protecting the rights of owners or beneficiaries to reclaim the value of their assets.
Under the Scheme, participating institutions can transfer money held in eligible dormant accounts to a dormant account fund operator. The dormant account fund operator manages the money received so that it can meet repayment claims from owners or beneficiaries should they come forward in the future, and distributes surplus money for the benefit of the community.
Under section 213 of the Financial Services and Markets Act 2000 (FSMA) and the FSMA (FSCS) Order 2013 (S.I. 2013/598), the PRA was required to make rules establishing a scheme for compensating persons in cases where a dormant account fund operator is unable, or likely to be unable, to satisfy a repayment claim against it. These rules, which are set out in the Dormant Account Scheme Part of the PRA Rulebook (the ‘DAS Rules’), provide for FSCS compensation in respect of repayment claims made in connection with a dormant account fund operator that is in default.
The Dormant Assets Act 2022 (the ‘2022 Act’) modified and expanded the Scheme to cover additional assets such as insurance, pension, investment, and securities assets. footnote [13] As part of the changes made by the 2022 Act, the 2013 Order was amended to exclude repayment claims made in connection with a dormant account fund operator that is in default from the scope of FSCS protection. Accordingly, the PRA no longer has the power to provide FSCS protection on repayment claims under the Scheme, and the DAS Rules have become obsolete.
Instead, HM Treasury is committed to ensuring consumer protection in the event a dormant account fund operator footnote [14] is or looks likely to be unable to meet its liabilities, and to upholding the core principle of the Scheme (i.e., that owners or beneficiaries can reclaim the amount of their dormant asset balance owed to them at any time). If there was a considerable risk that a dormant account fund operator could not fulfil its reclaim obligations, HMT would assess the most appropriate course of action in line with these principles, which may include the use of a loan to the dormant account fund operator.
Proposal
The PRA proposes to remove the DAS Rules from the PRA Rulebook, given that the PRA no longer has the power to provide FSCS protection of repayment claims under the Scheme. The deletion of the DAS Rules necessitates some consequential amendments to other Rulebook Parts which refer to the dormant account scheme.
Following the removal of the DAS Rules from the PRA Rulebook, the FCA will be making associated changes to the Fees manual (FEES) in the FCA Handbook to remove obligations relating to dormant account fund operators and the Scheme.
Action Required
This CP change is only applicable to FSCS. As per the PRA rulebook, if the dormant account operator is in default status, then the repayment claim will be handled by HMT directly.
Background
The PRA has become aware that the rules on Temporary High Balances (THB) in Depositor Protection 10 in the PRA Rulebook need to be amended to reflect the underlying policy intent and remove any ambiguity.
The PRA considers that the THB rules are unclear as to whether a trust can claim a THB on behalf of a beneficiary. When a trustee operates a bank account on behalf of a beneficiary, it is the trustee and not the beneficiary that is the legal account holder. The current definition of a THB refers to a ‘depositor who is an individual’. The PRA considers this could be interpreted to exclude corporate trustees and potentially all trustees from bringing a claim for a THB. This causes tension with the underlying policy intent as evidenced by the SoP – DGS which envisages trustees being able to claim THB protection on behalf of beneficiaries footnote [15] and the ‘look through’ concept that applies to trusts in the context of the DP Part of the PRA Rulebook. Moreover, in the case of a trust, the policy intent is that it is the individual beneficiary rather than the account holder/depositor who is of relevance in determining whether or not the rules on THB apply.
The PRA also considers that there has been some confusion as to how the rules on THB apply to joint accounts, specifically when one of the account holders dies. The existing rules in DP 10.2 provide for the THB regime to apply to sums paid to a depositor connected to a person’s death or which are held on the account of a deceased’s representative. However, the PRA considers that they do not set out how the THB regime applies in the event of a death of a joint account holder.
Currently, joint account holders are each entitled to FSCS protection up to the relevant limit, either £85,000 or, if the deposit is attributable to a THB, up to £1 million (unless the THB relates to payment in connection with personal injury or incapacity in which case there is no limit). This means, for example, that where there is a joint account with two account holders the account holders receive either £170,000 or £2 million FSCS protection in total. However, this protection is reduced to £85,000 or £1 million when one of those account holders dies, which means that if the firm then fails, the surviving account holder will have a substantial portion of their deposit not protected by the FSCS. This is not our policy intent.
Proposal
To ensure that FSCS protection continues to function in the way it was intended, the PRA proposes to amend the rules on THB to ensure that (i) trustees (whether individuals or corporate trustees) claim on behalf of eligible beneficiaries and (ii) the criteria for determining whether the THB rules apply are assessed about the individual beneficiary rather than the account holder/depositor. The PRA proposes that in line with the existing rules in the DP Part of the PRA Rulebook, the trustee of a bare trust would be able to bring a THB claim on behalf of each beneficiary, and the trustee of a discretionary trust would be able to bring one THB claim per group of beneficiaries.
To remove the current gap in protection for joint account holders, the PRA proposes to amend the rules in DP 10.2 to explicitly cover situations where a joint account holder dies. The PRA proposes to amend the rules relating to THB to provide that for a joint account, the FSCS protection limits of the surviving account holders would be increased by an amount calculated by dividing between the surviving account holders the limit applied to the deceased account holder at the date of death. The table below provides an example of the proposed changes where one depositor dies.
Depositors | Amount of deposit in a joint account | Proposal |
2 Depositors | £170,000 | FSCS protection is limited to £85,000 per depositor. The deceased’s protection is not split as there is only one remaining account holder so the surviving account holder receives £170,000 if failure is within 6 months of the death |
3 Depositors | £6 million (The deposit does not constitute a THB) | FSCS protection is limited to £85,000 per depositor. The deceased’s protection is split between the two remaining account holders so they each receive £127,500 (£85,000 + £42,500) if failure is within 6 months of the death |
3 Depositors | £6 million (The deposits are attributable to three separate THB events that have a £1 million limit) | FSCS protection is limited to £1 million per depositor. The deceased’s protection is split between the two remaining account holders so they each receive £1.5 million (£1 million + £500,000) if failure is within 6 months of the death |
The PRA considers that this would provide the surviving account holder(s) with THB protection for six months, giving them time to arrange their financial affairs and transfer any amounts over the relevant FSCS protection limit to another deposit taker.
Action Required
The THB is an exclusive FSCS internal separate process managed by them which is currently not to the scope of FI’s FSCS file submission. In case of any THB claim FI’s can deal with FSCS through their regular resolution channel.
Background
Under the Electronic Money Regulations 2011 (EMRs), the Payment Services Regulations 2017 (PSRs) and FCA guidance, e-money institutions (EMIs) and authorised payment institutions or small payment institutions (together PIs) and credit unions, in respect of e-money, footnote [18] are required to safeguard funds received from customers. One commonly used method is to segregate the relevant funds from all other funds held by the firm and deposit the funds in a separate account with a PRA-authorised credit institution. While FSCS protection is not available in the event of a failure at the level of the EMI or PI, the PRA had historically considered that these firms’ safeguarded funds deposited into a PRA-authorised credit institution would fall within the scope of FSCS depositor protection if the credit institution were to fail, as eligible end customers of EMIs and PIs would be deemed to have an absolute entitlement to those safeguarded funds via a statutory trust.
Following recent court cases, footnote [19] it is harder for the FSCS to establish that the end customers of an EMI or PI have an absolute entitlement to the safeguarded deposits. This creates a risk that the FSCS is unable to provide compensation to end customers if a PRA-authorised credit institution were to fail while holding deposits safeguarded under the EMRs/PSRs, which was not the intention of the original policy.
Proposal
The PRA is proposing to amend its rules to make FSCS depositor protection available to eligible customers of an EMI/PI in respect of their relevant proportion of safeguarded funds should the credit institution holding the safeguarded deposits fail. The proposed amendments would protect to end customers in respect of safeguarded funds which the PRA had understood to have existed before the decisions in the recent court cases. Ensuring that safeguarded deposits are FSCS protected at the point of failure of the credit institution is consistent with the logic of safeguarding.
As is currently the case, the proposals would not provide FSCS protection in the event an EMI/PI itself were to fail in an event unrelated to the failure of a safeguarding credit institution.
Eligibility
The proposed rules allow a look-through to eligible end customers of financial institutions that, under the EMRs/PSRs, deposit safeguarded funds into PRA-authorised credit institutions. Existing eligibility requirements in PRA rules will apply at the level of the end customer so not all customers of EMIs/PIs will be entitled to receive FSCS compensation. Customers would also not be eligible if they are unidentifiable (eg the e-money is anonymous) or the customer cannot be verified under AML rules.
Payment options
The proposed changes are designed to create an entitlement to depositor protection in respect of safeguarded funds for end customers to avoid an almost complete loss upon failure of a safeguarding credit institution. The PRA recognises, however, that a failure of a safeguarding credit institution combined with a requirement that the FSCS pay compensation directly to the end customers of an EMI/PI could ultimately lead to the demise of the EMI/PI. While a consequential failure may be unavoidable in certain circumstances, allowing the FSCS an option to pay the compensation amount into a safeguarding account held by the EMI/PI with an alternative credit institution may minimise the impact of the credit institution’s failure on the EMI/PI as well as the end customers. Therefore, the PRA is proposing the FSCS can pay compensation either:
into a new safeguarding account of the EMI/PI, provided the EMI/PI is not subject to a formal insolvency procedure and the FSCS is satisfied that each eligible end customer would be in no worse position than if the compensation was paid directly, or directly to the eligible end customers of the EMI/PI or to another person as directed by the end customer, if there has been an insolvency event at the EMI/PI.
The no worse off provision means that if the amount of compensation calculated by the FSCS is less than the total amount of safeguarded deposits shown in the failed credit institution’s exclusions view file (because, for example, there are customers that are ineligible for protection under PRA rules or amounts more than the deposit protection limit), the EMI/PI would need to contribute its own funds to make up the shortfall.
Calculating compensation
The calculation of compensation due to end customers of EMIs/PIs upon the failure of a safeguarding credit institution is challenging because of real-time transactions occurring at levels in the chain separate from the failed credit institution and possibly even after the time that the safeguarding credit institution has failed.
From the failed credit institution’s exclusions view file, the FSCS will know the amount of total safeguarded funds that were deposited in the failed credit institution. However, to compute the compensation due to EMI/PI customers, it also needs to receive customer data from the EMI/PI to determine the eligibility of end customers and each eligible customer’s proportion of the safeguarded funds.
Generally, depositor protection compensation is calculated by reference to eligible deposits held on the date the credit institution is in default. However, where the EMI/PI has also failed, and the FSCS compensation will go directly to the end customer rather than to a new safeguarding account, the FSCS will need to calculate entitlements to the amount of compensation on the date of the EMI/PI’s failure. This will allow for adjustments in the amount of compensation payable by the FSCS if the customer has spent some of its e-money in the intervening period, for example.
Each end customer would be considered against the eligibility requirements and eligible customers would be separately protected up to the deposit protection limit (£85,000).
Time limits and maintenance of customer details
In order for the FSCS to assess eligibility and operationalise pay-out on a timely basis, it would be important for EMIs and PIs to maintain up to date customer information in a usable format that can be transmitted to the FSCS quickly upon the failure of a safeguarding credit institution. While the PRA cannot make rules requiring such firms to maintain such customer details, it is in the EMI/PI’s interest to enable the FSCS to pay compensation quickly. The PRA considers that due to the lack of SCV requirements on EMIs/PIs, and the potentially large number of end customers due compensation, the pay-out timelines for FSCS will likely be longer than the targeted seven days for direct depositors. In recognition of the complexity of the determinations and reliance on third parties, the PRA proposes to amend DP 9.4 to allow the FSCS additional time to effect a pay-out in respect of safeguarded funds in the event that there is a delay, beyond the current payout timelines as provided for in DP 9.3, in the FSCS being able to determine the amounts to be paid to eligible customers.
Subrogation
In the event of a direct payment to the end customer, the PRA proposes to amend the subrogation rules in DP Chapter 28 to suspend an eligible end customer’s rights against the EMI/PI, in order to prevent double-recovery, i.e., both receiving FSCS compensation and exercising their contractual rights of repayment vis a vis the EMI/PI. The proposed rules would then extinguish the rights of customers against the EMI/PI when, and to the extent, the FSCS has made recoveries from the failed bank. These amendments are designed to preserve the effect of the anti-set off provisions in the EMRs/PSRs for the benefit of the FSCS during the failed credit institution’s insolvency process.
Additional changes
The proposed rules also amend DP 2.2 to make explicit the existing interpretation for looking-through credit institutions and investment firms to beneficiaries when depositors/account holders are not absolutely entitled to deposits. This amendment is for the avoidance of doubt to clarify existing treatment of beneficiaries given the changes to 2.2 needed to enable the look-through proposals regarding safeguarded funds.
Consistent with the policy outcome of protecting certain safeguarded funds, the PRA proposes to amend DP 43 to clarify that the Class A tariff base includes accounts holding safeguarded funds. The PRA considers this is also consistent with the treatment of funds that the account holder is not absolutely entitled to (eg, bare trusts).
Other types of segregated accounts
The PRA considers that similar types of segregated accounts may also need to be reviewed to determine whether end customers should also benefit from FSCS protection. The PRA welcomes responses as to whether there are similar accounts that are not already covered by PRA rules. However, the PRA acknowledges that a full review of the FSCS protection for other segregated accounts may take some time, and considers that such a review should not delay fixing this known gap in protection.
Action Required
If the FIs are handling safeguard deposits, then they must check the usual FSCS compensation eligibility of the customer and report the customer accounts in SCV / Exclusion file as normal. No specific action is required by FIs.
Background
Where a firm with Part 4A permission to accept deposits has that permission restricted by the PRA and subsequently defaults, Depositor Protection 3.2 in the PRA Rulebook (DP 3.2) provides that eligible deposits accepted while the firm held its Part 4A permission continue to benefit from FSCS protection.
DP 3.2 was drafted when the UK was still a member of the EU and was intended to apply only where the PRA significantly restricts a firm’s Part 4A permission to accept deposits but remains PRA-authorised. The PRA considers that, following the UK’s withdrawal from the EU, there is a small risk that the rule could be interpreted as applying in another circumstance: where an overseas firm with a deposit-taking permission in the UK surrenders their permission and PRA-authorisation (or their permission and PRA-authorisation lapses as a result of the expiry of the TPR or SRO), but the firm continues to hold deposits that it accepted in the UK. The PRA considers this uncertainty to be undesirable and that a potential unintended consequence of this ‘expansion of scope’ could be an increase in FSCS levy costs to the industry.
Proposals
The PRA considers that deposits held by a UK branch of an overseas deposit-taking firm that has had its Part 4A deposit-taking permission and authorisation from the PRA removed should cease to benefit from FSCS protection. For example, DP 3.2 would not apply where the overseas deposit-taking firm transfers eligible deposits to an overseas branch before surrendering its Part 4A permission and PRA-authorised status. Following EU withdrawal, eligible deposits transferred from the UK to the EU by overseas firms should generally be covered by the firm’s home state deposit guarantee scheme under the Deposit Guarantee Schemes Directive (2014/49/EU) Opens in a new window.
The PRA proposes to amend DP 3.2 to reflect the original policy intent and remove any potential for ambiguity. The PRA proposes to make clear that a firm must be authorised by the PRA at the moment they default for their depositors to be eligible for compensation. The PRA considers that this would reduce both uncertainty and the risk of the rule being interpreted in a way that expands the scope of FSCS coverage and creates a potential increase in FSCS levy costs to the industry.
The PRA proposes to add a new notification obligation on overseas firms, in similar terms to the notification obligation on them at the time of EU withdrawal, to ensure UK branch depositors are aware of the loss of FSCS coverage and is provided with information on whether and to what extent their deposits will be protected by another deposit guarantee scheme when the firm has its PRA authorisation cancelled.
Action Required
No action is required from the FSCS reporting perspective, but from an operational, finance or customer service point of view, the FIs can use their usual channel of resolution.
Also, it has been mentioned that a firm must be authorised by the PRA at the moment they default for their depositors to be eligible for compensation.
If the UK branch of an overseas deposit-taking firm that has had its Part 4A permission and authorisation from the PRA removed, should cease to benefit from FSCS protection.
Background
Depositor Protection 19.1 and 19.2 in the PRA Rulebook (‘DP 19’) require firms to notify depositors of a merger, conversion of subsidiaries into branches, transfer, or similar operation and provides such depositors with a three-month withdrawal right. In this event, the withdrawal right allows the depositor to withdraw the amount of their deposit that exceeds the FSCS coverage limit at the time of the operation and, if desired, transfer it to another firm, without incurring any penalty. The policy intent behind this rule was to ensure that depositors could retain the same level of FSCS protection in the event their total protection would be less after the restructuring than before.
Proposals
The notification and withdrawal right is currently wider than it needs to be and applies regardless of whether the depositor would suffer a reduction in the total protection under the FSCS. If a depositor’s overall FSCS protection is not affected by the transaction, the PRA considers the withdrawal right is not achieving the purpose for which it was intended and is creating an unnecessary operational burden on, and cost to, firms.
The PRA proposes to amend DP 19.2 to set out that the withdrawal right would only apply if the level of a depositor’s overall FSCS protection is reduced by a restructuring operation. The PRA considers that depositors would still have a right to be informed that the entity that holds their deposit is undergoing some form of restructuring operation, and is not proposing to change the notification requirement. However, these proposals would reduce the operational burden on firms as they will no longer need to implement systems to comply with the obligations associated with the rule DP 19.2 unless there is a reduction in FSCS protection.
For example, if a merger of two unrelated entities reduces a consumer’s combined protection from £170,000 across the two entities to only £85,000 in the newly merged entity, the withdrawal right would continue to allow withdrawal of up to £85,000 without penalty. But if there is no overall impact on the level of FSCS protection before and after the merger (for example, where entities in the same banking group merge, or if deposit accounts are transferred from one UK-based entity to another UK-based entity within the same banking group), there would be no withdrawal right.
Action Required
No action is required from the FSCS reporting perspective, but from an operational, finance or customer service point of view, the FIs can use their usual channel of resolution.
PRA has provided detailed information about the withdrawal of the deposits.
Background
The Depositor Protection Part of the PRA Rulebook (‘DP’) contains various rules that require firms to notify depositors about the scope of FSCS protection arrangements. In particular, with respect to deposits that are not eligible for FSCS protection, DP 17 requires firms to provide annual information sheets and exclusions lists.
The PRA has become aware that this notification requirement is unduly burdensome to firms with depositors who are not entitled to FSCS protection by their legal personality.
Proposal
The current rules in DP 17 transposed the EU Deposit Guarantee Schemes Directive (DGSD).footnote [21] Now that the UK has left the EU, the PRA considers that they should be amended to reduce both the operational burden on, and cost to, firms.
The PRA is proposing to remove the Chapter 17 annual notification requirement for depositors who are ineligible for FSCS protection by virtue of DP 2.2(4) (ineligible depositors). To ensure that such depositors are aware that they would not benefit from FSCS protection, the PRA proposes that firms would still be required to provide an information sheet and an exclusions list to each intending depositor, whether eligible or not, before entering into a deposit-taking contract, in addition to complying with the other requirements as required under Chapter 16. This would ensure that depositors clearly understand whether or not they will benefit from FSCS protection.
Action Required
No action is required from the FSCS reporting perspective, but from an operational, finance or customer service point of view, the FIs can use their usual channel of resolution.
Since PRA is proposing to remove the Chapter 17 annual notification requirement for depositors who are ineligible for FSCS protection, the firm doesn’t require to send the information sheet and exclusion list annually.
However, firms would still be required to provide an information sheet and an exclusions list to each intending depositor, whether eligible or not, before entering into a deposit-taking contract. So, the firm should ensure that the above proposal is accomplished while onboarding the depositor.
Background
In this section, the PRA sets out its proposals to amend its Statement of Policy ‘Calculating risk-based levies for the Financial Services Compensation Scheme deposits class’ (‘SoP – RBL’) to account for changes made to reporting requirements and the leverage ratio.
Proposal
Amendments to the non-performing loans ratio calculation
The SoP – RBL sets out the methodology used to calculate Capital Requirement Regulation (CRR) firms’ and Credit Unions’ risk-based contributions to the FSCS. The calculation takes into account several metrics, including firms’ non-performing loans (NPL) ratios. Each NPL ratio is calculated using data from the FSA015 template, or where this is not available, the FINREP F18 template.
Under the PRA’s Policy Statement (PS) 18/17 ‘IFRS 9 Changes to reporting requirements’ Opens in a new window (‘PS 18/17’), the requirements for several firms to report either the FINREP F18 or FSA015 templates were removed. As a result, the PRA has been unable to calculate the NPL ratio for this group of firms. As a temporary solution, these firms have since then been assigned the lowest possible risk score for this metric by the PRA – regardless of their riskiness. Since the overall amount levied across all firms is fixed, this means that these firms pay relatively less than before, and all others firms relatively more.
The PRA proposes to introduce a permanent solution to this issue and re-introduce the original policy intent by amending SoP – RBL to allow a proxy for the NPL ratio to be used for this group of firms. This proxy would use data from the FINREP F7 and FINREP F1 templates rather than the FSA015 or FINREP F18 templates. These firms would be ranked and rated separately from others to calculate the NPL ratio, to maintain consistent treatment across the groups for which differing data is used. Please see Appendix 6 for full details of the proposed calculation.
Amendments to the leverage ratio calculation
Another metric used in the calculation of firms’ risk-based contributions to the FSCS is the leverage ratio. Currently SoP – RBL assigns firms an individual risk score (‘IRS’) of 0 if their leverage ratio, as defined in the CRR, is greater than 3%, and an IRS of 100 if it is equal to or below 3%. This threshold is now out of line with the PRA’s Supervisory Statement ‘The UK leverage ratio framework’ updated in October 2021 (‘SS45/15’).
To achieve consistency between the SoP – RBL and the leverage ratio framework set out in SS45/15, the PRA proposes to change the threshold in the SoP to 3.25% and to specify that the leverage ratio would be defined as in the PRA Rulebook. Full details of the proposed amendments are set out in Appendix 6.
Action Required
No action is required from the FSCS reporting perspective, but from an operational, finance or customer service point of view, the FIs can use their usual channel of resolution.
PRA has proposed amendments in the reporting requirements and ratio calculation for SoP-RBL. The FI has to check the amendments and update its reporting process accordingly
Background
In this section, the PRA sets out its proposals to update SS18/15, SoP – DGS and SoP – RBL to ensure that they reflect the current PRA rules in force as well as the proposals in this CP and remove spent provisions from the PRA Rulebook.
Proposal
The PRA proposes to update SS18/15, SoP – DGS and SoP – RBL to:
- reflect the proposals consulted on in this CP, this will include changing the name of SS18/15 from ‘Depositor and dormant account protection’ to ‘Depositor protection;
- reflect the UK’s withdrawal from the EU; and
- improve the clarity of drafting, for example by removing material that is no longer relevant, due to the expiry of the relevant transition period or the deletion of certain PRA rules.
The PRA also proposes to delete rules 17.3 and 20.3 in the Depositor Protection Part of the PRA Rulebook (the ‘Rules’) as, given the period since IP Completion Day, the Rules are now spent.
Action Required
No action is required from the FSCS reporting perspective, but from an operational, finance or customer service point of view, the FIs can use their usual channel of resolution.
PRA has provided the information about this CP update on the respective policy statements.