With less than 75 days until Solvency II goes live on 1 January 2016, many businesses still require guidance on how to prepare for the upcoming regulation.
To meet the requirements around Pillar III (reporting and disclosure), firms will need to present a lower level of information, but with greater frequency and shorter timescales. This will inevitably place considerable stress on not only the staff, but also on the systems and processes that support these complex reporting requirements.
Data, data, data
Data is the focal point of Solvency II, and one of the main teething problems firms will experience going forward. To comply with Solvency II, firms will need to ensure that their data is reliable, controlled and accurate. However, in order to achieve this goal, firms will first need to identify and map out exactly which data is required, in addition to agreeing where it can be sourced and collected from. As part of this process, any tools or manual input needed down the line should also be noted down, as manual reviews will be a key part of the initial phases.
Solve Solvency II
Once a data plan is formulated, the next stage is to set up a testing environment. Firms should begin by choosing a small aspect of the data required and getting the computation working on this individual piece. This way, firms can develop a prototype that can be rolled out on a much larger scale later on, once any errors have been worked out. Whilst working on the prototype, any manual adjustments required should be carefully noted and separated to ensure that any unwanted data additions are not carried over into future replications of this process. It is vital that these notes are clear and capable of showing how any figure can be identified and traced back to its original source.
Regular review cycles are vital throughout this process in order to identify any issues promptly, so that that any problems can be rectified before being built into the larger scale model. It can also be helpful for an individual who is not part of the Solvency II process to review at this stage – explaining the process to the CFO, for example, could prompt some questions that draw attention to previously unknown errors.
Many businesses have already developed internal models in preparation for Solvency II, but these early attempts have not been streamlined effectively in many cases, nor are they efficient enough due to the huge levels of documentation involved in the process. Many firms will go down the route of a spreadsheet-driven approach in line with other reporting tasks, but the risk that this approach might not deliver is too great to ignore.
The sheer number of items requiring approval under Solvency II means that supervisors are likely to see their resources being stretched considerably. A more streamlined approval process can help enormously here, as it will make it easier for supervisors to manage this additional workload more efficiently.
The agility, automation and user-friendliness of firms’ reporting processes will ultimately determine how well they can manage the introduction of Solvency II. As such, firms must not be complacent in the run-up to the January deadline, and must instead act now to ensure that these important changes can be made in time.
Robert Gothan is CEO of Accountagility