Enterprise spreadsheet risk management in 2023

As businesses reconsider their budgets this year, many are already looking at additional cuts in 2023. We’ve already seen some layoffs at major banking and financial institutions, and if the recession strikes, as predicted by firms such as BlackRock and JPMorgan, it will likely continue.

Restructuring spending is a natural response to tough market conditions, but companies will regret cutting resources for data governance and risk management. Regulators are stepping up enforcement and issuing higher fines for compliance errors such as compromised data and spreadsheet failures.

The past decade has seen an increase in the number of fines linked to the use of spreadsheets by regulators on banks with weak life-will plans — fines that have made headlines in all major financial centers in the United States, Europe and Asia. In addition to the financial costs, this news can affect reputation. Among banks, there is a steady increase in manual spreadsheet calculations and modeling for business decision making. But to avoid repercussions, he has to keep the administration and vigilance under control.

Spreadsheet error: Achilles heel

The speed of performance has often led to spreadsheet errors and is proving incredibly costly – wrong data or calculations can cost institutions billions of dollars in losses and millions in fines.

While there are many benefits to automating and integrating bank spreadsheets, including getting products to market faster and successful people growing more quickly, the most pressing issue this year is compliance with regulatory rules for software tools. .

Excel has been an enterprise tool for decades, so why is this issue so important now? This is because regulators in the US and UK want financial institutions to take data governance in general and spreadsheet risk in particular more seriously. In particular, the authorities would like to see better implementation of BCBS 239, the section of Basel III that addresses spreadsheet risk.

Since 2019, the regulator has sent letters to CEOs to the industry highlighting failures in implementing BCBS, particularly regarding the lack of data automation and proper controls over spreadsheets and the potential risk posed by spreadsheet failures. Now, regulators globally are adopting an enforcement-based approach, tightening rules, increasing monitoring and issuing more fines for spreadsheet failures of banks to bring more attention to the importance of compliance.

UK’s PRA consulting on CP6/22’s “Model Risk Management Principles for Banks”,” whereas the US FR Y-14 reporting rules would be Will be strengthened in 2023 In particular “severely adverse scenarios” require more accurate and timely P&L reporting. The decision to introduce these new regulations has been made because they believe that the use of spreadsheet models by firms will continue to grow and become more complex. However, previous reviews have found a number of data governance failings, particularly around reporting requirements.

What risks do spreadsheets pose?

Many of the concerns surrounding spreadsheets arise because of their ease of use. They can be adjusted with a single click, making them sensitive to overwriting. Often, many employees rely on a spreadsheet for large scale tasks such as tracking millions of data points to something as benign as quick sums.

But without proper documentation of key processes, risk assessments and decisions, they are also a compliance landmine, leading to improper management. Regulators are cracking down after discovering that many companies were not formally registering working files as EUCs, and others have no program of ongoing review of the underlying logic.

Regulators argue that the lack of control makes it difficult to generate accurate returns, especially at a pace during periods of market volatility.

Preparation for enhanced banking regulations

Proper compliance will not only save a firm potentially millions (if not billions) of dollars, but it will also create a culture that is more strategic.

Software add-ons to Excel can be incredibly valuable in assisting employees with compliance tasks. They can create better accounting spreadsheets so they can’t be overwritten, help manage reports, and identify and manage risks before they become a headache for the company. Whatever solution the company chooses, it should have some strategy for it. Control increased operational risk exposure, The key would be to implement this strategy before it is too late.

Robert Showers is cro For capital market and bank services compatibleis a global SaaS company that converts spreadsheet business logic into enterprise-grade code for financial institutions and insurance companies.