FCA asks CEOs to ensure Prudential returns are compliant

23 February 2018 | UK & Europe | Articles

Andrew Bailey, CEO of the FCA, has this week written to IFPRU and BIPRU investment firms requesting them to review their prudential reporting practices. This was as a result of the FCA discovering that large numbers of firms are submitting inaccurate and incomplete returns.

So, if you are the CFO, expect questions from your CEO, challenge from your compliance departments and greater scrutiny from the FCA.

Common mistakes

The letter highlighted the following as being the most common issues:

• 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
• 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 firms’ capital requirements
• Inconsistent completion of COREP returns, which should have picked up using the EBA validation rules. These dictate that certain data points submitted across different returns should show identical values or equal the sum of a number of other values
• Reporting using incorrect units
• Not reporting cumulatively (on a year-to-date basis) on the FSA002 Income Statement.

Consequences of getting it wrong

The letter emphasised that the information in prudential returns is integral to firms’ risk management frameworks and is used by the FCA to assess the quality of the latter.

Bovill’s experience is that mistakes in Pillar 1 capital calculations in an ICAAP document are viewed as governance and risk management failings by the FCA. This can then result in an increased Individual Capital Guidance (ICG) after a review of a firm’s ICAAP document.

So, poor returns could lead the FCA to see your systems, controls and governance arrangement as inadequate.

Next steps

The FCA will be reviewing a sample of firms’ returns in October 2018 so it is likely they will be looking at 30 June 2018 submissions.

Are you confident that you are getting your returns correct?  To be sure, we strongly recommend you review your regulatory reporting practices. This review should include not just processes but also ensuring that all the people involved in the production and review of returns have the appropriate knowledge and skills.  You will need to consider whether your staff need more training and resources.  Are your sign-off processes sufficiently rigorous? Is your senior management oversight sufficient?

Bovill has extensive experience of prudential regulatory reporting reviews. If you would like to discuss how we can help you be confident that you are getting your returns right, please contact Harpartap Singh or Jackie Domanska.