Legal Entity Regulatory Reporting – Common Pitfalls & Simple Solutions

August 6, 2015
In an effort to effectively monitor systemic risk and drive regulatory transparency, the Federal Reserve requires various filings for legal entity management. With tight reporting requirements and several moving parts, it’s easy to wind up in common pitfalls that could hinder your ability to maintain reporting compliance. Here are a few common pitfalls and solutions you and your organization can apply:
Pitfall 1

Unreliable data and communication. It’s common to find disconnects between the deal-team and back-office reporting organizations. As a result, the latest deal documentation may not be available to the back-office resulting in late filings and/or filing corrections. Data ownership becomes unclear and the communication between front and back-office is unpredictable.

Pitfall 2

Back office gets involved after the fact. Countless deals are conducted each day without fully understanding the potential reporting rigor that may be required. Deals can be structured specifically to require or avoid certain reporting requirements if the time is taken up-front. In addition to analyzing management agreements and other legal documentation, understanding the organization’s legal structure (beyond a basic parent-child relationship) may be required to vet-out the entity’s reportability.

Pitfall 3

When the back-office requires additional information for legal analysis, it becomes very burdensome on all parties to obtain it. A common complaint is that the deal team is overwhelmed with documentation and information requests relating to a deal or particular entity. When data and information is decentralized it is difficult to consistently retrieve it for analysis, reference or audit purposes.

Solution: Implement controlled processes and policies that will traverse pre-deal activities through filing.
  • Standardized communications between all stakeholders – Policy should require communications to be sent within strict SLAs before and after deals are created. This ensures the deal is being made with accurate legal assumptions in mind. Also, this will help bring information to the back-office as soon as the deal closes, resulting in more timely filings.
  • Implement a centralized data repository – Ensure all legal entity documentation is uploaded and available to both front and back-office. Legal entity identifiers (not Legal Entity Name) and standardized naming conventions should be used to indicate the entity, type of document, and effective date of the document.
  • Apply controls around the data – Edit access should be limited and monitored. Documentation should not be updated without all stakeholders being notified. This ensures any changes to entities that may result in a filing are captured, and it provides an audit trail for what documentation was used for certain analyses and filings.
  • Document it! – Once you have standardized processes and policies, document it and communicate it. All stakeholders should understand what they are responsible, accountable, consulted, or informed (RACI) for as it relates to each step in the process and all policies.