New Way of Reporting to the CNB Pushes Czech Financial Institutions towards Automation

Czech financial institutions are undergoing one of the biggest regulative transformations of the last several years. This transformation entails the switch to a new information system for legal reporting of requests to the Czech National Bank (CNB), which is slowly coming to its completion. Only two areas remain to be transferred and these comprise several hundreds of entities. ARBES is migrating all of its current clients into this new system, as well as all new clients who wish to comply with these obligations on a professional level.

Reporting and collecting structured data for the CNB or the European Securities and Markets Authority (ESMA) represents a legal obligation for most financial institutions with a seat in the Czech Republic. The CNB project began in 2019, providing the affected entities a set of new technical and methodical changes resting in the obligation to make the switch from the old method to the new and automated method.

Reporting concerns entities such as banks, insurance companies, pension funds, payment and investment institutions as well as security traders, credit unions and others. “There are only a few companies in the Czech Republic, which deal with this type of regulatory reporting on the automated level. All the while, there are more than 1700 entities, which must comply with this new form of reporting. We’re proud that our ultramodern ARBES Reporting solution checks all the boxes in fulfilling everything that this change requires and goes even a step further. We also allow companies to be free of having to monitor subsequent related legislative changes and their implementation,” explains Michal Soukup, our specialist on regulatory reporting. In the course of the transition to the new reporting system, changes already appeared in some migrated functional areas and these were easily implemented thanks to ARBES Reporting.

Let Automation Be of Help As Opposed to Employees

Regulatory Reporting is one of the many consequences of the financial crisis, which swept over the world in 2008. Since then, financial institutions have been showered with new requests from local as well as European regulators. This is also why reports continue to focus more on data requests – more data areas are being reported in greater detail and in a shorter time frequency. Investments into creating and automating the reports, modifications of IT systems and data warehouses are growing exponentially.

According to a survey conducted by KPMG, 39% of banking institutions automate all available regulatory reports. Another 61% of them actively participate in improving the level of automation. The survey further showed that the requirements for reporting employees have also changed over the last few years. They must have not only possess accounting skills but must also be proficient and well-versed in Excel. The current trend makes demands for analysts, who are also proficient in English to be able to study the new regulation, knowledge of data, its storage and transformation, they must be versed in reporting methodology and last but not least, also in SQL. Meanwhile basically none of the employees in Czech companies are developers or programmers. “Creating reports is a complicated and difficult task and this is why IT departments or external suppliers create them. All the while, there are many companies on the market, which do not take care of the issue systematically, which means they do it manually and laboriously. This leads to a high incidence of errors and unnecessary financial losses related to costs for human resources,” adds Michal Soukup. Data quality is most significantly affected by routine building of reports; inadequate substitutability of employees and late delivery of input data, which shortens the period necessary to build the report, are also problematic.

Start of the SDAT CNB Implementation

Up until recently, the Czech National Bank was still collecting data from reporting entities and was processing them exclusively via the MtS-ISL-SUD-SDNS system. CNB is making the switch to the new – and in the future, the only system – using a specialized automated information system called SDAT. As opposed to the former MtS-ISL-SUD-SDNS system, SDAT brings technological change, first and foremost. The affected entities will obtain better means of communication, they’ll decrease their operations requirements, eliminate employees, which were in charge of it, and will make the legal obligations more effective.

Changes in the methodology take the EBA (European Banking Association) requirements into consideration on a national level. It is implemented in stages for the individual segments affected. ARBES has migrated entities into the ARBES Reporting system in parallel with the required deadlines. “The automated SDAT system has been implementing the entities from the government regulation as of November 2019 and is proceeding according to a set schedule, which was put together according to the functional areas where the given entities belong,” explains Michal Soukup.

A Hiccup Thanks to the Corona Virus Crisis

The initial plan for implementing the SDAT CNB system had set the completion date in the year 2020. In light of the fact that the pandemic and all the related restrictions are still ongoing, the schedule for the gradual implementation and the main implementation has been extended. It was extended further in March – in terms of the “Capital Markets II” reporting framework implementation – and the complete transition will be completed in May 2022. Entities already transformed have an obligation to now report only via SDAT.

CNB Reporting is currently sorted into about 29 areas and includes more than 350 reports. This control tool has been implemented with the goal of making the internal market more efficient and to support a unified model of regulation and supervision. Another reason is to improve consumer protection and make unified modifications in the area of investments and related risks.

The Key is to Focus on the Essence of Business

It is in the interest of every affected entity to comply with the required obligations. These change dynamically and new legislature and additional changes are coming into play. Specialized companies dealing with creation, development and support of software solutions can provide a comprehensive solution for retail, private and corporate banking as well as for management of investment portfolios, security trading, management and distribution of open mutual funds, financed leases and solutions for enterprise content management and business process management, but must also take care of all the obligations in reporting. “The advantage of our solutions also rests with the fact that we help the affected entities with the process of automated cleansing of primary data and transferring it to a format suitable for reporting in SDAT CNB. The entities can then simply focus on the essence of their own business. And since ARBES Reporting also exists as a separate product, it can also be implemented and used by customers who do not use any of our solutions,” concludes Michal Soukup.