COVID-19 came as an unprecedented calamity, stirring a revolution for banks and financial institutions worldwide. As a key sector of the economy, the financial services industry has been affected greatly and found themselves having to adapt their processes quickly to meet the new regulatory reporting requirements.
The COVID 19 pandemic led to governments shutting down economies, all over the world, to contain the spread of the virus. In a world where global financial systems work together as an organism, their movements hugely affect the world economy. It became crucial for global regulators to ensure the health of this system by adopting a systematic approach to regulatory reporting and banking supervision. It was their topmost priority to ensure the economic and operational resilience of the financial system globally.
Banks had to continue lending despite the challenges of growing liquidity risks, shrinking revenues, pressure to cut costs, and remote working staff. While regulators tried to balance between implementation of suitable measures for risk assessment and mitigation to avert a big financial crisis, they relaxed other activities like -
All over the world, banks rose to the occasion and continued to provide liquidity and credit to the economy. With a remarkable degree of coordination between authorities, national and international supervisors and regulators acted with the common goal of promoting financial stability and ensuring that funds reached those who needed it the most.
Banks went ahead and provided regulatory relief to financial intermediaries, and restricted the distribution of dividends so that more capital is available to tackle losses and support lending, in the face of uncertainty. Banks also offered relief measures for debtors by granting pre-approved loans or forward-moving the payment of pensions and unemployment benefits.
In February 2021, the Reserve Bank of India (RBI) published a statement that introduced policy measures for banks, including regulatory changes brought about by the COVID-19 relaxations. This statement highlights that
Compliance and regulatory reporting are extremely crucial for banks but at the same time, it is a highly challenging area to navigate. During the pandemic, the regulatory pressures grew with a massive number of data points needed at a high frequency and absolute accuracy. This is done with over 750 global regulatory bodies following 2,500 compliance books and creating an average of 201 regulatory alerts daily.
The infrastructure and risk data aggregation functions experienced significant difficulty trying to monitor the impacts and risks with the required promptness and accuracy. Time was a major challenge with the current processes and IT systems mainly designed to run official reports every quarter.
As the financial system continued to supply the financing the economy required, it is even more clear that a robust banking sector, backed by effective global regulatory standards is paramount. Financial institutions faced several challenges around core regulatory reporting, such as -
Going ahead, to increase effectiveness, compliance will need to strategically plan and adopt Big Data and AI Technologies to handle the challenges faced by banks better. Real-time regulatory reporting giving regulators direct access to source data will be the trend of the future, doing away with the labour and time-intensive process of repeated reformatting of data.
While digitalization will revolutionise how banks operate, risks and challenges that come with it will have to be maneuverer. Supervision and Regulation will have to factor in long-term structural changes in the ecosystems with far-reaching impact and rebalance the risk sensitivity of the global frameworks.
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