Regulation & Reporting

Regulation & Reporting

The banking world has witnessed dramatic changes in recent years due to significant developments in the regulatory landscape. This trend is to be to continue in the coming years due to an introduction of new regulatory requirements which will need to be implemented at both a national and European level. Increasing requirements for risk management processes lead to a considerable need for banks to adapt. Aside from the need to reconsider methodologies, operative processes and IT systems will also need to be reviewed. It is also becoming increasingly necessary to re-configure or replace existing trading, risk and credit systems and to revise collateral management processes.

Mit SFTR, der Benchmark-Regulierung und der damit verbundenen Ablösung von Referenzzinssätzen durch neue risikofreie Zinssätze und dem Brexit stehen weitere regulatorische Vorgaben an, welche die Produktgestaltung, die Prozesse und die Systeme von Finanzinstituten entscheidend verändern werden. Die höheren Anforderungen an Risikosteuerungsprozesse führen zu erheblichem Anpassungsbedarf in den Banken. 

Unsere Experten beobachten und analysieren alle neuen regulatorischen Anforderungen aufmerksam. Hieraus leiten wir für unsere Kunden relevante Veränderungen ab. Wir entwickeln auf Basis dieser Erkenntnisse umsetzungsorientierte Strategien und Konzepte, die wir genau auf unsere Kunden und deren Bedarf zuschneiden. 

Neben der Einführung neuer regulatorischer Anforderungen unterstützen wir Sie bei der Definition von Zielprozessen, beim Change-Management und bei der Weiterentwicklung Ihrer IT-Systeme. 

EMIR (European Markets and Infrastructure Regulation) was initially conceived to bring order and transparency to the largely unregulated OTC derivatives market.

EMIR ‘s objective is to continually build on a crisis proof market infrastructure for OTC derivatives through the introduction of measures aimed at three thematic areas; the clearing obligation on standardized OTC derivative on exchanges, reporting of OTC contracts to central trade repositories and risk mitigation measures for all non-centrally cleared OTC derivatives.

In recent years the implementation of EMIR measures by financial institutions has been cumbersome and a burden on resources, with this trend likely to continue with the introduction of new and more stringent OTC derivative requirements from the regulator.

Our consultants have successfully supported or managed several projects in the area of EMIR regulatory implementation. Our core competency resides in our ability to conceptualize how requirements need to be implemented from a functional and systematic perspective.

We have experience in connecting clearing members to central counterparties (CCP’s), we connected clearing clients to CCP’s through clearing members, and we helped clearing members establish client clearing as a new business service. Additionally, we have extensive project experience in the reporting of derivative transactions to trade repositories and in projects relating to risk mitigation of bilateral non-centrally cleared OTC derivatives. We continue to offer our support services in all areas relating to EMIR. This includes the further integration and connectivity of non-centrally cleared OTC derivatives to CCP’s, and new implementation requirements concerning the stricter regulations of collateralized OTC derivatives. 

Our services relating to EMIR include:

  • Connecting credit institutions to a central counterparty (CCP) as a clearing member or a client clearer through a clearing broker
  • Review of risk management processes and trading systems
  • Implementation of the requirements of EMIR ReFit an Initial Margining
  • Implementation and optimization of existing Collateral Management systems (e.g. FIS Apex Collateral, IBM Algo Collateral)

The financial crisis has proven that systemic risks in securities financing transactions are difficult to measure for supervisors. Without appropriate analytical tools, regulators cannot counteract negative developments in financial markets. The SFTR (Securities Financing Transaction Regulation) aims to increase the transparency of securities financing transactions by setting new reporting requirements. Comparable to the EMIR regulation, market members have to report their SFT trades to a recognised trade repository. 

The provision of the additional data required and their coordination by the trade repository will pose new challenges for financial institutions. Many of the reportable data can be found in number of systems throughout the bank. The challenge for our clients is to identify, merge, harmonize and report the entire dataset to the trade repository in compliance with the regulation. 

The reporting requirements are introduced gradually. The first phase starts in April 2020 and includes credit institutions and investment firms. In a second step, central counterparties and CSDs are required to fulfil the reporting requirements from July 2020 onwards. Funds (UCITS, AIF) and insurance companies have to start the reporting in October 2020 and non-financial counterparties in January 2021. 

Firstwaters supports you as a competent partner in the conception and implementation of the SFTR reporting. We support you during the entire project period from conception through implementation to the go live of the reporting solution.

Our offer includes:

  • Performing SFTR Impact Analysis 
  • Performing Data Availability Checks
  • Adaptation UTI generation
  • Selection of trade repository and Development of the related interface
  • Implementation of ESMA-compliant reportings

In response to the "LIBOR scandal", the IOSCO defined the "Principles for Financial Benchmarks" which were transformed into european law by the benchmark regulation. As a consequence, only approved reference rates can be used for new business and contracts from 2021 onwards. 

EONIA, EURIBOR and LIBOR will no longer be allowed to be used in their current forms. Benchmark administrators are working on possible adjustments of the IBOR rates and their calculation methodology. Whether this is sufficient to use the IBOR rates in the future and to obtain the approval of the regulators is still open. At the same time, a new family of alternative Risk-Free Rates (RFRs) is in development. While there are already new RFRs in other currency areas (e.g. SONIA for GBP and SOFOR for USD), the euro area is still awaiting the publication of the €STR on 2 October 2019. €STER will be determined by the ECB and will replace EONIA as the central overnight rate for EUR business.

The transition to a new regime of benchmark rates based on RFRs includes some challenges for the implementation by financial institutions. Although there are still some issues to be answered in terms of the concrete outcome, financial institutions should start to deal with the challenges and solutions right now. Products, contracts, processes and IT systems are affected in many places affected by the upcoming reform, especially in the areas of:

  • Pricing and FTP
  • Clearing and Collateral Management
  • Finance and Risk
  • Hedging
  • Legal and Documentation
  • Sales

Firstwaters supports you as a competent partner in analysing the impact of the IBOR reform and implementation of necessary adjustments in your IT systems and business processes. Our offer includes:

  • Impact analysis of the IBOR reform on products, contracts, processes and IT systems
  • Implementation of the necessary adjustments in existing IT systems and processes
  • Management of IBOR projects and their bank-wide coordination

The severe market stress during the financial crisis exposed significant weaknesses in the current framework for capitalizing market risks. To address the most pressing shortcoming the Basel Committee for Banking Supervision (BCBS) defined a standard on minimum capital requirements for market risk. The new standard fundamentally modifies the way banks are required to measure market risk and contains the following key issues:

  • A revised boundary between the trading book and banking book: In the future there will be explicit specifications whether a certain position must be recognized in the banking or in the trading book
  • Revision of the internal model approach (IMA): The final standard implies a stricter and more granular approval process for internal models at a trading desks level
  • Revision of the standard approach (SA): The final standard introduces a new sensitivity-based standard approach which is intended to be more risk sensitive compared to the existing requirements. The total capital charge results from the sum of delta-, vega-, gamma- and default risks as well as a residual add-on for risks, which cannot be modelled by sensitivities
  • Revision of risk methodology: The capital calculation based on the value-at-risk method will be replaced by the expected shortfall (97,5 %)
  • Incorporating market illiquidity: The concept of varying liquidity horizons (10 to 120 days) is established under the internal model approach 

Based on the regulatory requirements, institutions need to take action in the following areas:

  • Revising the process of allocating risk positions to the trading and banking book as well as the process of subsequent changes.
  • Introducing the new standard approach
  • Upgrading internal models from value-at-risk based design to an expected-shortfall based calculation. Introducing new statistical methods and processes for back testing and validation of the expected-shortfall
  • Analysing the effects on capital requirements for different products, portfolios, trading strategies and business models.
  • Adjusting internal risk management and controlling practices to the new regulations
  • Implementing new requirements concerning regulatory and internal risk reporting
  • Enhancement of existing market risk engines or the implementation of new systems, as well as their integration into the existing front office architecture

We offer the following services in the field of “Fundamental Review of the Trading Book”:

  • ­Performing impact studies to analyse the effects on the organizational structures, processes, data supply and systems of the institution
  • Analysis of the legal requirements to deduct business requirements with regard to the client’s status quo
  • Development of target solutions for the calculation and optimization of the capital charge
  • Functional requirements, test planning and management, rollout of IT architecture
  • General management of entire projects


As a consequence of MiFID II an international exchange group based in Frankfurt has decided to implement a Reporting Hub to match the transparency and reporting requirements for their clients. Firstwaters assisted with a team of 10 Business Analysts and IT Consultants to support the client with the design, implementation and testing of the service platform. Especially the combination of specialized expertise, technical skills and methodology know-how within Firstwaters had contributed to the project’s success. Following the Go-Live of the Reporting Hub we are currently assisting the customer with the functional enhancement of the platform and the set-up of further reporting services.

An umbrella organization of German financial institutions benefits from Firstwaters as a partner to analyse regulatory requirements (including EMIR, SFTR) and to clarify their impact on the financial group. As part of a long-term collaboration Firstwaters specialists are operating as sparring partner by analysing and implementing the recent regulatory requirements within the group. Next to the analysis of the requirements are the preparation and the execution of workshops, define and coordinate the implementation of recommended actions and the evaluation and selection of solution provider part of the long-term cooperation.