IFRS 9 compliance deadline is fast approachingâ€¦ are you ready?
Banks need to get their systems and processes in order for IFRS 9 compliance, says Desan Naidoo, VP for Africa Region, SAS.
Is it just me, or does it seem like the world is still trying to recover from the financial crisis of 2008? It feels like we’re always talking about tough economic times, about where we can cut costs and find more revenue, and about new regulations that are becoming ever more stringent.
What I do know is that, in times like these, banks turn their focus to two main areas: minimising fraud losses and reducing customer churn.
This runs in parallel with impending legislation, including—but not limited to—new International Financial Reporting Standards (IFRS 9), the Basel Committee on Banking Supervision’s regulation number 239, and the same committee’s Fundamental Review of the Trading Book (FRTB).
Compliance is not an option if we are to bring the African banking industry in line with international standards and, at least for IFRS 9, time is running out for banks to get their systems and processes in order. Realistically, banks need three years’ implementation time, so those that have not started the transition will miss the January 2018 compliance deadline.
RACE AGAINST THE CLOCK
IFRS 9 represents the International Accounting Standards Board’s comprehensive response to the financial crisis and includes a logical model for classification and measurement; a single, forward-looking ‘expected loss’ impairment model; and a substantially reformed approach to hedge accounting.
The aim is to enhance investor confidence in banks’ balance sheets and the financial system as a whole.
But you already know this. What you might be wondering is how you will meet the compliance deadline, especially if you don’t have the in-house skills or the time or money to overhaul your existing infrastructure.
A recent Deloitte study found that 46 per cent of surveyed banks do not believe they have sufficient resources to deliver changes by 2018, with the biggest implementation challenges being the forward-looking requirements and coordinating the multidisciplinary effort that includes finance, credit, risk and IT.
With the new expected-loss impairment model, banks are not only required to calculate actual credit losses but they must also be able to predict future losses—and they need to provide an audit trail of how they came to those calculations. The only way to do this is by applying advanced analytics to your own data and to data from external, unstructured sources.
This means data lineage and data integrity are key. It means you need the infrastructure and solutions in order to draw on these various data sources and predict what potential outcomes could be. It means you need the skills and know-how to be able to set up, maintain and run these systems and processes, all while complying with new regulations and applying best practice.
That’s a lot to consider.
BUT HAVE YOU CONSIDERED OUTSOURCING?
You can mitigate all of this through managed services hosted in the cloud. African banks are at a distinct advantage in that they don’t need to follow the same path that South African banks did three or four years ago. Back then, managed services were not as mature as they are today, which meant banks had to put in the graft of setting up systems, finding skills and learning as they went along.
While you could still go this route yourself, it’s not likely that you’ll be able to have your ecosystem up and running—and producing the outputs you need—by January 2018. Ideally, your IT department should be focusing on the things that add value to your business, like attracting and retaining customers and finding new sources of revenue, rather than on ticking compliance boxes.
The biggest advantage of partnering with a managed service provider like SAS is that we’ve already put in the work. With more than 20 years’ experience in Africa—and 40 years’ global experience—we’ve invested not only in user-friendly solutions that can handle any type of data perform any calculation but because we’ve worked with banks across the world, we’re able to apply best practice without compromising confidentiality—and without ripping and replacing your existing infrastructure, legacy or not.
What that means for you is faster time to market, access to worldclass skills and technology and, most importantly, the ability to meet compliance deadlines and to produce the outputs required by the regulator.
An added advantage is that you’re assured of reliable, accurate and organised data—no matter where that data comes from—and that you can confidently make business-critical decisions that directly impact your bottom line.
Just one example is the ability to have a single, 360-degree view of your customer, which allows you to predict when and why they might churn by identifying implicit warning signs within their behaviour, and what the next best offer is in order to stop them from churning.
In tough economic times, loyalty is the first thing that goes out the window. Even if someone has been banking with you for a decade, they won’t think twice about moving to a competitor who can offer them a lower interest rate.
What if you could see that coming and counter-offer with a better rate or another product or solution that meets the customer’s needs at that particular moment? When you talk to customers like you know them, you’re more likely to delight and less likely to annoy them.
By extrapolating data from digital behaviour, biodata and geo-location, and combining it with your own data to get a single view of the customer, you’re able to offer them better experiences and better services. You’re able to identify trends and make meaningful decisions about how to engage with customers. It’s equally critical to ensure that all channels and departments across the bank have access to the same data.
Most banks have multiple departments, channels and systems operating independently and are not set up to provide a holistic customer experience. Worse still, as customers know nothing of this internal fragmentation and view the business as a single brand, contrasting experiences across silos can lead to frustration and dissatisfaction.
But by having a coordinated approach within the organisation, you can move the customer along their journey rapidly and efficiently. Data and analytics enable each department or channel to understand the wider customer context, where they fit into the broader customer journey, and what they must do to drive the customer experience forward.
SAS can assist by providing the consulting skills and the tools necessary to sort the data gathered through various channels, collate it effectively and create the master data needed to allow analytics tools to utilise it more effectively. In the end, we hope to inculcate a true data-driven culture within banks, as this will be of enormous benefit to them and their customers in the long run.