The Financial Technology Implications of FDIC 370

More motivation for a holistic data approach

FDIC

By Linda Jamison – Wolters Kluwer/ North America

Amid the discussion around large-scale, transformative regulatory initiatives post Dodd-Frank, it’s easy to lose sight of the fact that new regulatory requirements are also emerging from other sources, further underlining the need for banks to have financial technology systems and processes in place that are capable of accommodating change quickly, and on multiple fronts. Here Linda Jamison, Product Manager, North America, for Wolters Kluwer’s Finance, Risk & Reporting business examines how FDIC Part 370 is impacting financial technology requirements.

The Federal Deposit Insurance Corporation (FDIC)’s 12 CFR Part 370 rule, finalized earlier this year and due to be implemented by early 2020, is a good example of how new regulatory requirements are underlining the need for banks to have robust financial technology systems in place to accommodate change. The rule aims to ensure account holders have swift access to their insured deposits in the event of a bank failure, which the FDIC notes is critical to public confidence in the banking system. It dictates that covered institutions must have the technological capability to rapidly and accurately determine depositor insurance payouts in failure cases — an ability that the FDIC will test by requiring institutions to perform and report multiple insurance calculations.

FDIC part 370 will apply to all insured institutions with more than 2 million deposit accounts, meaning nearly 40 could be affected, the largest of which has a staggering 87 million accounts. Like many other regulatory requirements that have emerged in recent years, it is likely to involve the collection, processing and reporting of data not captured in current or historical regulatory reports. Underlying documentation must also validate and comply with requirements to support insurance coverage calculations. This puts the onus on banks to ensure documentation such as customer signature cards and similar materials are complete and up to date.

The picture will be complicated further by the fact that in some cases, the required data or materials will not rest within the institution. Collective or master accounts such as mortgage escrow accounts, for example, may bundle deposits from thousands of customers from which underlying details will be required to accurately process insurance payments.

Banks that have been involved in acquisitions are also likely to struggle to gather records or information on customers that they have effectively imported.

The high price of failure

The stakes are high, as failing to adequately perform calculations or being unable to provide the documents and details needed to satisfy the FDIC could lead to customers potentially losing insurance coverage in the event of a bank collapse. This makes it critical that banks put procedures in place that will enable them to connect with end-customers to obtain any necessary information quickly and efficiently, in a way that minimizes the impact on customer relationships. Ownership of this process will vary from bank to bank, but we recommend a blended team under a single leader as relevant deposits may be spread among several business lines, including retail, commercial and mortgage, and A&L. In essence, banks will need to draw on those who know the customers best.

On the technology side, FDIC part 370 underlines yet again the need for a foundation where data from various departments can be stored, processed and reused for regulatory reporting, as well as other functions. Ideally, the bank will have a flexible reporting solution in place that can be tweaked or enhanced to perform the complex calculations demanded by FDIC part 370, negating the need to build or implement a specific solution from scratch to address the rule’s requirements.

A lack of system or solution integration and flexibility means any new regulation will trigger yet another round of complex change management, challenging already strained plans and resources. Rather than trying to respond to every emerging requirement in an ad hoc manner, constantly building out systems and processes to fit new purposes, banks should have a regulatory architecture in place that can be easily extended to address new demands.

At the heart of this framework should be an integrated, transparent repository for the consistent and efficient aggregation of financial instrument and customer data, allowing easy consumption to address various and ever-changing regulatory requirements.

Developing an end-to-end view of data

A more holistic view of data throughout the processes of acquisition, aggregation, calculation and classification not only enhances accuracy, but also creates the audit trail that is needed to effectively meet the requirements of regulators like the FDIC, who are increasingly demanding the supporting information and calculations that underpin regulatory reports.

Visibility of data flows throughout the organization can also serve strategic goals, by highlighting areas of duplication or inefficiency, or uncovering trends that can serve as a basis for decision-making. FDIC part 370 is further impetus for a new approach to data that forward-looking institutions will adopt as they aim to become more resilient to regulatory change.