FRB Changes Hit FBO Reporting
In just over a month, the Federal Reserve Board’s (FRB) 2024 regulatory changes for foreign banking organizations (FBOs) with one or more entities (US branch, agency, and non-bank subsidiary) go into effect for FFIEC 002 as-of reporting. In another six months, they are once again under the gun, only this time for FR Y-7 annual reporting at the end of December.
In terms of requirements, the FRB has proposed:
- Revisions to the FFIEC 002 report of Assets and Liabilities of US Branches and Agencies of Foreign Banks, including the addition of data items related to reporting on loans to non-depository financial institutions (NDFIs) and margin loans.
- Draft templates as part of the annual report of FBO FR Y-7 submission.
Without a comprehensive solution, FBOs that leverage their home-country systems US regulatory reporting will face significant challenges implementing the FRB’s changes
A Slew Of Requirements Bring Technical And Functional Challenges For FBOs
These requirements are going into effect in an environment of increased regulatory scrutiny on FBOs during bank examinations at both the FRB and state level, based on the US branch location (state banking department), specifically regarding the two key reports filed, the FFIEC 002 and FR Y-7.
New Templates
In terms of the amount of separate and detailed balance sheet schedules required by the FRB, the FFIEC 002 (FBO’s US entity report) is equivalent to a US/domestic bank’s Call Report (FFIEC 031/041). It covers cash/due from third party bank balances, loans, deposits, and due from/to related party balances as well as off-balance sheet products and derivatives, securitizations, fiduciary/trust balances, and other memoranda items.
The FR Y-6 Annual Report of Holding Companies, filed by the top-level consolidated US organizations (US bank holding companies, US savings and loan holding companies (SLHC), and US intermediate holding companies (IHC) owned by FBO, focuses on the annual reports these entities provide to shareholders. In contrast, the broader FR Y-7 report requires structural (organizational, legal entity), financial (shares/shareholders, bearer/non-bearer securities owners, qualifying FBO statistics), and overall governance information (Regulation YY Compliance checklist).
Many of these items have new templates that standardize this information for the FRB.
Functional Drivers
The number of regulatory reports filed by an FBO’s branch/agency depends on the location of the entity, i.e., under which FRB jurisdiction – district(s) and states – the entity is regulated.
While some reports are filed on a consolidated US basis, for FBOs the FR Y-7Q Capital and Asset Report and specifically for large FBOs (with $100 billion or greater in consolidated assets), the FR Y-15 Systemic Risk Report and the FR 2052a Liquidity Reporting), others are filed by FRB jurisdictions. Having multiple US-state branch/agency locations (e.g., New York, Illinois, Texas, and California) requires the above reports to be filed in each jurisdiction.
Reporting frequency also plays a role, particularly around reconciliation.
- Daily/weekly reports: FR 2420, FR 2644, and FR 2900
- Monthly reports: US Treasury TIC Form BC/BL, and
- Quarterly reports: FFIEC 002, FFIEC 002S, FFIEC 019, US Treasury TIC Form BQ
Technical Challenges
Without a comprehensive solution, FBOs that leverage their home-country systems (e.g., general ledgers, data warehouses, and specific source-system vendors) for IHC or US branches/agencies regulatory reporting will face significant challenges implementing the FRB’s changes; not to mention the volume and frequency of reports an FBO’s branch/agency generates, which require reconciliation to ensure consistency of data items reported. This is important since the FRB conducts periodic regulatory-reporting examinations of FBO US branches/agencies, requiring the FBO to provide evidence of its data quality and governance as well as its ability to integrate regulatory reporting systems to minimize or eliminate manual intervention. Historically, FBOs employ manual efforts to compile and file reports, which greatly increases the risk of inaccurate regulatory reporting.
The Countdown Has Begun
At this point, the situation is grim, indeed, for an FBO that is not prepared for the FFIEC as-of June 30th reporting, as regulatory non-compliance brings a range of adverse consequences, including fines and reputational damage. On the other hand, there is still time to turn the situation around for the FR Y-7 December 31st report with an end-to-end solution that scales for increased volumes and business growth and reconciles across consolidated and subsidiary levels for regulatory reporting on a global and local basis for transparency.
Certainly, regulators expect FBOs to have such a system in place for both rule changes. For FBOs, it would be easier on them if that system was supported by bespoke regulatory data dictionaries that clearly reflect the regulations, provided transparency around validations and business rules, and delivered lineage and audit trail drill-down functionality, allowance for adjustments, and accurate submissions.
Clearly, time for action on FR Y-7 is right now. However, by taking a strategic single-system approach, FBOs that may have struggled to meet the June 30th FFIEC 002, can start getting ready now for next year’s report.
The cross-report reconciliation product enables institutions to compare balances as of a given date across many of the required FBO’s US branch/ agency reports: FFIEC 002, FFIEC 019, FR Y-7, FR Y-15, FR 2052a (for large FBOs), FR 2420, FR 2644, FR 2900, and TIC Reports.
