Regulation YY – Regulatory Reporting and Data Readiness

Arrayo was engaged by an international financial institution to assess the potential impacts of a change in category under Regulation YY and to provide strategic guidance on enhancing its regulatory reporting infrastructure. The engagement focused on the quality of existing data production processes, the control framework, and the necessary steps to ensure compliance with Federal Reserve requirements for Foreign Bank Organizations (FBOs).

Challenge

The main objective of this project was twofold. First, the institution needed to assess the quality of its current design, data quality, and the control framework around the production of key regulatory reports. This involved a comprehensive analysis of existing processes, data integrity, and control deficiencies, as well as identifying compensating controls to address gaps. Second, the institution required strategic advice on how to integrate data across its various U.S. affiliates and develop a roadmap to produce the regulatory reports required for FBOs under higher categories, as defined by Regulation YY. Additionally, the organization sought guidance on the technology and staffing investments necessary to sustain regulatory compliance.

Delivery

Arrayo’s team worked closely with the institution’s regulatory compliance and IT teams throughout the engagement. The project was divided into key phases:

1. Onboarding and Project: The initial phase focused on onboarding, introducing the project scope, and setting up communication and collaboration channels between all stakeholders.
2. Analysis and Assessment: This phase involved a thorough review of existing documentation, including policies, procedures, and guidelines, followed by an in-depth analysis of data flows, processes, and controls. Key activities included:
   • Document Review: Arrayo conducted a detailed examination of the current documentation, mapping the end-to-end processes for regulatory reporting and identifying control points and data flows.
   • Data Profiling and Control Deficiency Assessment: Arrayo performed a comprehensive data profiling analysis to evaluate the quality, consistency, and integrity of the data used in regulatory reporting. The control assessment identified weaknesses and control deficiencies through interviews, walkthroughs, and data analysis.
   • Risk Analysis: A detailed risk analysis was conducted to assess the impact of identified control deficiencies on regulatory compliance and operational risks, with prioritization based on severity.
   • Compensating Controls Proposal: Based on the findings from the control assessment and data profiling, Arrayo proposed compensating controls to mitigate the risks and address any identified deficiencies. The compensating controls were designed to be practical, feasible, and aligned with regulatory requirements and business needs.
3. Draft Review: Arrayo produced a draft report outlining the findings of the analysis, including recommendations for improving data management, controls, and processes. The draft was reviewed in collaboration with the institution’s stakeholders for feedback and refinement.
4. Final Assessment and Advisory: The final phase involved providing actionable advice on the technology and staffing investments needed to ensure regulatory compliance, along with a detailed roadmap for implementing the required regulatory reporting. This included:
   • A detailed timeline with clear steps for achieving the compliance requirements for higher category FBOs under Regulation YY.
   • Definitions of roles and responsibilities across teams and stakeholders to ensure smooth execution of the roadmap.
   • Strategic guidance on integrating technology solutions and staff training to establish a sustainable regulatory reporting infrastructure.

Value Creation

The Regulation YY Compliance Assessment project provided significant value in multiple areas:

• Comprehensive Data and Control Assessment: By thoroughly evaluating the existing data quality, control framework, and potential risks, Arrayo identified critical weaknesses and recommended necessary improvements to align with regulatory expectations.
• Improved Regulatory Readiness: The project ensured that the institution was better positioned to meet the regulatory expectations for FBOs under Regulation YY, providing the necessary documentation and guidance to address any inquiries from the Federal Reserve or other regulators.
• Enhanced Data Management and Controls: With the proposed compensating controls and data quality improvements, the institution significantly strengthened its reporting infrastructure and governance.