As deadlines loom for a plethora of new accounting and regulatory frameworks, firms across Europe, Asia Pacific and the Americas must ensure they have the right finance, risk and regulatory reporting management structures and systems in place to meet the challenges ahead. That’s according to a new white paper from Wolters Kluwer.
Overhauls of standards by the two main arbiters of accounting practices, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), have produced the Current Expected Credit Loss (CECL) and IFRS 9 Financial Instruments protocols, respectively. Beyond those, firms must also contend with guidelines issued by national authorities that instruct them in how to interpret and apply the standards, and with requirements set forth by the Basel Committee on Banking Supervision.
Standard setters and regulators “insist that they’re all part of one big, happy family of overseers striving to reach a common goal of ensuring that firms operate in an efficient and prudent manner,” the white paper notes. But as they come to grips with the new supervisory order, firms are realizing that even slight discrepancies in how that goal is envisioned, and the mechanisms instituted to try to achieve it, are likely to create added confusion, work and expense.
“Banks will not just need good systems to handle their Basel and accounting requirements; they will need them in the run-up to implementation, an event that the majority acknowledge they are not ready for,” says Jeroen Van Doorsselaere, vice president, Risk & Finance, EMEA, at Wolters Kluwer’s Finance, Risk & Reporting business and co-author of the paper. “Preparing for and implementing IFRS 9, CECL and other regulation will compel firms to think about credit risk in new ways and to develop new models to account for it, with matters being especially thorny and complex for institutions that operate across borders. Such a formidable undertaking will also require talking, not just thinking; effective communication among functions – including risk, finance, compliance, reporting and technology – is essential.”
The situation will be further complicated by the fact that these new regulatory and accounting frameworks call for bankers to adhere to principles – which are open to interpretation and therefore to misinterpretation – rather than fixed rules. Success in integrating the standards will depend on banks having proper risk management, reporting and general operating practices, and the data systems to execute them, Wolters Kluwers’ experts note.