27 July 2018

Regulator’s spotlight now firmly on regulatory returns accuracy

Can we expect the FCA's review to result in firms ending up with a S166 review?

On 19 February 2018, the FCA issued a 'Dear CEO letter' detailing their intention to review the accuracy of regulatory returns. Can we expect the FCA’s review to follow the same pattern of the PRA’s review, with many firms ending up with a S166 review at the end of the process?

As a result of the PRA’s review, many firms became subject to an ICG (individual capital guidance) due to the failings within their returns, placing a greater emphasis on the importance to the regulator to monitor firms and their risk profile. Having an ICG and a SERP/S166 uses up large amounts of resources and costs firms considerable money, so it is important to ensure you have the confidence that your regulatory reporting is complete, reflects the regulatory requirements and is accurate.

Common failings

In their letter, the FCA outlines common failings they already perceive to be in the returns - it is imperative that you have addressed these items prior to the potential of being selected for review.

These failings include:

  • failure to complete the underlying templates within the COREP submissions due to inadequate understanding of the prudential rules;
  • failure to submit certain returns, such as the Financial Reporting (FINREP) return;
  • IFPRU investment firms and BIPRU firms are generally required to complete the FSA001 Balance Sheet, FSA002 Income Statement, as well as the Common Reporting (COREP) returns in the case of IFPRU investment firms, or the FSA003 Capital Adequacy return in the case of BIPRU firms. Please note that other regulatory returns may also need to be completed, and it is the firm’s responsibility to ensure that all compulsory regulatory returns are submitted to the FCA;
  • the total sum of risk exposures across various risk categories (market and credit risk, for example) is not calculated correctly, leading to an inaccurate figure for the firm’s capital requirements;
  • inconsistent completion of COREP returns. European Banking Authority (EBA) validation rules dictate that certain data points submitted across different templates within COREP should show identical values or equal the sum of a number of other values. These validation rules are published on the EBA website for all firms to use. To find out more, please click here.
  • reporting using incorrect units;
  • not reporting cumulatively (on a year-to-date basis) on the FSA002 Income Statement.

How we can help

With our team's experience of helping firms through the PRA’s review and being key providers to navigate the regulatory horizon and mitigate risks, we are uniquely placed to assist those who want to feel confident and compliant and would therefore not be impacted by a FCA review. We have vast experience in not only reviewing regulatory returns but also in preparing them on behalf of firms. We can support you through reviewing your returns, assessing their current framework and reporting requirements, or even outsourcing the production of your returns preparation.

For more information, or if you are interested in us conducting an independent review of your prudential reporting, please contact Emma MacArthur.

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