Addressing Regulatory Compliance and Reporting Challenges in Bangladesh
(Published in the Financial Express in 2019)
Dr. Shah Md Ahsan Habib
Compliances and regulatory reports by banks are crucial tools of the ‘Bangladesh Bank’ (BB) for monitoring and supervising the banking industry of the country. By applying reported data, BB conducts its monitoring and supervision mechanism; identify and address problems; prepare BOP; formulate monetary and other policies; and undertakes data analyses and conducts research for publications. Certain regulatory report information is used for public disclosure so investors, depositors, and creditors can better assess the financial condition of the reporting banks. These data are also related to transparency and protection of the consumers or clients of the banking and financing industry.
In line with the global development, BB brought into remarkable changes in the regulatory reporting environment. Following the most recent financial and economic crisis, enforcement of stringent prudential rules, capital adequacy requirements and liquidity management (under Basel III) changed compliance and regulatory environment. The changing regulatory compliance requirement brought about visible changes in the monitoring and reporting arrangement of BB. Notable transformation has taken place in recent years in terms of introducing new regulations and reporting requirements of the Bangladesh Bank. Most of these are prudential regulations and related reporting requirements to ensure more stringent rules to restrict banks against undertaking excessive credit related risks, ensuring transparency, and addressing financial crimes. These have visible implications in the volume of regulatory reporting, efforts and costs. These are burdensome but cannot be bypassed. Practically, in the current complex scenario, better banking business and better reporting & compliance go hand in hand. In the present scenario, there is no scope to consider compliances and regulatory reporting requirements as operational hazard, rather these are risk management tools. Banks must have right kind of positive approach and mindset to address the complexity.
To comply with the increased regulatory reporting requirement and demand, reporting banks are required to install sound internal governance and control mechanism. International governance and controls of regulatory reporting in banks are crucial for ensuring data quality and accountability arrangement. There should be structured arrangement for data collection and screening, report preparation, review, and communication of regulatory reports. Other than a few multinational and local private commercial banks, banks in Bangladesh hardly have adequate and organized internal set up for regulatory reporting and compliances. Centralized data gathering and processing arrangement, review system, and central report submission setup are hardly found. Most of the banks do not have senior bankers/specialists specifically responsible for regulatory reporting and compliances. Probably it is time for all the reporting banks to install effective internal governance and control mechanism for better compliance & regulatory reporting ultimately for sustainable business.
Increased regulatory requirements have cost implications. There are evidences of some duplications of regulatory reporting to different departments of the Central Bank. These have cost and business implications for the banking industry of Bangladesh. There are initiatives on the part of the Central Bank to address data duplication and redundancy issues. Apparently, there are lots of scopes for improvement. Cost burden might be too stressful for the small sized banks. As the future step, the regulatory reporting requirements may vary according to the size of the reporting banks and the use of products and the associated risks.
Compliance and reporting requirements may vary according to the country circumstance. Growing financial crimes is a cause of concern for the policy makers and the Central Bank of Bangladesh. Especially trade based money laundering became amongst the key areas to address. In this connection the country’s reporting requirements and perspective cannot be matched with major developed countries like USA, EU or Canada. In the context of Bangladesh, relying on formal payment arrangement and stringent reporting and monitoring framework are very relevant. Trade facilitating banks need more effort and investment in this connection.
Greater harmonization and standardization of data, and greater coordination amongst the key stakeholders are seen as the key elements for addressing systemic risks and for ensuring effective regulatory reporting & compliance requirements. Supervisors and industry must have formal platform for sharing thoughts on the necessity of regulatory reporting, necessary arrangements and demand for greater compliance. Regarding this, alongside bank management, Bangladesh Association of Banks (BAB) and Association of Bankers Bangladesh (ABB) may have roles to play.
Banks in the country have been using banking software for their operations and service delivery. Banking soft wares used by banks have differential features and are not always equipped with the data processing and management required for the regulatory reporting. Most of the banks of the country are yet to attain centralization in their banking operations though some have transformed to the centralized systems and some are in the process. Differences in the banking operations and systems are barriers of having harmonized and standardized data set for ensuring quality and comparable data.
Quality people are at the center. Compliance and reporting roles in banks are generally considered less important, as opined by some senior bankers. Banks are required to develop a set of expert executives to ensure due compliance by enforcing regulations and meeting regulatory reporting requirements of the Central Bank. Major training academies like Bangladesh Institute of Bank Management (BIBM) and Bangladesh Bank Training Academy (BBTA) organize very limited number of courses/workshops on the regulatory compliance and reporting issues; and training institutes of banks also have very limited number of courses on these areas. Practically, other than a few multinational banks operating in the country, commercial banks hardly find the necessity of attending or organizing capacity development events on these issues. Practically, multinational and reputed banks operating in the globe have started taking regulatory reporting and compliance issues seriously following some incidences of penalties imposed by the regulatory authorities in recent years. Generally, banking industry of the country is yet to attain due approach on the need and necessity of ensuring regulatory compliance and reporting.
‘Trained, well informed and efficient employees’ is the key. Quality and capable bank executives should be placed for pursuing such vital roles. Thus, with the introduction of new set of compliance rules and new regulatory requirements, there must be arrangement for due capacity development of the bankers. Training and capacity development institutes especially Bangladesh Bank Training Academy (BBTA) and Bangladesh Institute of Bank Management (BIBM) may be engaged in the process to play roles. BBTA or BIBM may organize joint training program with the concerned department of Bangladesh Bank following the introduction of a new regulatory reporting and compliance requirement. Top management and board of banks should also be brought under capacity development programs for better enforcement.
In essence, it would be very difficult to get away with regulatory compliance without installing an adequate level of automation. It is thus no surprise that emerging technologies and business models are equipping banks with the strategies and capabilities needed to address these challenging new requirements. Banks have no option but to invest in RegTech. In particular, distributed ledger technology has some promising applications which are currently being evaluated by the global banking and financing industry. The current template driven regulatory reporting model may be replaced by cube based arrangement. In near future, regulators and banking industries must embrace updated technology to create an effective platform for automated regulatory reporting.