Regulated firms are required to submit a range of returns on a regular basis which allow regulators to monitor the financial performance and position of regulated entities, including a number of more operational aspects of their performance and to perform benchmarking to inform the focus of their regulatory activities. The accuracy, completeness and timely submission of regulatory returns continues to be a key focus, including the governance framework around the process.

CRR regulated institutions have to report their Net Stable Funding Ratio (NSFR), new market risk requirements and changes to counterparty credit risk.

The European Regulators continue to develop proposals to implement all the remaining elements of Basel III (Basel 3.1) which is the final package of banking prudential reforms for CRR firms developed in response to the 2008/09 financial crisis. Basel 3.1 will result in significant changes to the way firms calculate Risk Weighted Assets under the Standardised Approach, and for firms who currently report under the Internal Ratings Based (IRB) Approach, they will be expected to apply a standardised output floor (OF). The OF will become a binding capital constraint for some EU Banks and introduce a new layer of complexity in capital planning and strategic decision-making for all. Banks should prepare now for the introduction of the OF, even while its design is still being debated by policymakers. Banks should be analysing the implications of the OF for internal capital allocation (understanding what we call “floor capacity”). Many Banks will also need to invest in the data and calculation infrastructure necessary to determine accurate revised standardised risk weights, which will be the basis for calculating the OF.

As the need to address Environmental, Social and Governance (ESG) issues continues to evolve at increasing speed, it is essential that organisations have a comprehensive understanding of the ESG risks most material to their operations. Understanding and reporting on the issues important to consumers, investors and the wider society demonstrates commitment to contributing to a more positive, fair and sustainable environment. Whilst most organisations have begun their ESG journey with a focus on Climate Change, wider ESG issues such as Diversity and Inclusion (D&I), labour practices and human rights compliance are climbing up the agenda in Board rooms across the industry. However, the challenge remains of how to assess these risks and what exactly to disclose. Internal Audit can play a critical role by providing necessary challenge of ESG risk assessment design and methodology, as well as testing the design of the ESG disclosure framework, thus helping to improve investor and stakeholder transparency. ESG will be a key industry topic for many years to come and early engagement and commitment across an organisation will help shape the frameworks put in place to address the evolving and complex issues.