Delivering a Data Mart for LCR and FR 2052a (5G) Reporting

Following the 2007 Inter-banking crisis, a European multinational financial services company faced significant regulatory changes introduced by Basel III and the Federal Reserve’s 5G proposal. The company needed to develop a Fed Data Mart to automate data collection and streamline the generation of LCR and 5G reports with minimal manual intervention. This case study explores Arrayo’s key role in the successful implementation of an automated IT solution that ensured regulatory compliance and enhanced the bank’s liquidity risk management capabilities.

Challenge

The Company – A European multinational financial services holding company operating in over 50 countries (Investment Banking, Retail Banking, Private Banking).
The Challenge – After the 2007 Inter-banking crisis, the G20 launched an overhaul of banking regulation, known as Basel III. In addition to changes in capital requirements, Basel III contains entirely new liquidity requirements: the Net Stable Funding Ratio (NSFR) and the Liquidity Coverage Ratio (LCR). Also, on November 1st, 2013, the Federal Reserve Bank (FRB) released the 5G proposal, a new approach for quantitative funding and liquidity monitoring and supervision.
The Goal – Create a new Fed Data Mart that would serve as the integrated database for LCR and 5G reports providing a) automated data collection, b) ability to generate 5G report on T+2 basis with as little manual intervention as possible and c) use of 5G database for LCR generation.

Delivery

A combination of Waterfall and Agile approach was used to deliver the required automated IT solution. Project team formation was a first step before Project scoping and BRD. Data Acquisition was next with data sources identification for the required Trades, Balances, and Reference Datasets. We followed up with Data harmonization scope and approach. A full inventory of data attributes was created for all source feeds. Attributes required for 5G report were also identified. The Functional specifications were created to cover enrichments and calculations after which we started the design of the Process flows, Logical data model, Enrichment logic details, Manual uploads details, Data feed specifications and layouts. We finally drove the project through the usual delivery processes from Build, UAT, Go-live and business adoption.
Challenges faced throughout the project can be broken down into following categories:

• Defining Roles and Responsibilities: Treasury, Financial Accounting, Reg Reporting, and Finance were all involved at the start of the project. Project ownership and steering processes had to be clarified and agreed upon.
• Project scope and requirements: The Fed requirements changed often during the course of the project. This required specific attention to avoid discrepancies in the deliverables and confusion among project team members.
• Testing approach: The extensive scope led to several iterations to all settle on a test methodology. Our systematic approach led to an agreement with all involved parties.

Value

The automated 5G solution collects quantitative information on selected assets, liabilities, funding activities, and contingent liabilities on a consolidated basis and by material entity subsidiary. It enables the bank to submit the consolidated data in compliance with the Fed requirements.

The 5G solution provides the foundational components required to feed the LCR calculation. LCR enables the bank to better monitor its liquidity risk profile and will improve the bank’s ability to absorb shocks arising from financial and economic stress.