Changes in the Solvency II Directive: Why reporting is becoming an IT issue for fund providers

With the planned amendments to the Solvency II Directive, the Tripartite Template (TPT) is once again becoming the focus of regulatory practice. What at first glance appears to be a professional development of existing transparency requirements turns out to be a structural challenge for fund providers on closer inspection. The central question is no longer whether TPT reporting is delivered in a technically correct manner, but whether the underlying IT infrastructure is even capable of mapping the increasing requirements consistently, flexibly and in a way that can be reconciled. The Solvency II update thus makes TPT reporting an IT question in the narrower sense.

The TPT is increasingly acting as a condensation of a wide variety of regulatory requirements. Look-through information, risk metrics, and supplemental transparency features must be provided at a high level of granularity. For fund providers, this means that reporting processes are directly dependent on the quality and integration of IT systems. Architectures that have grown over time, in which data from several upstream systems are manually merged, are coming under pressure. The Solvency II update reveals that technical requirements can hardly be mastered without continuous IT support.

The increasing requirements for timeliness and traceability increase the importance of an integrated data model. Individual reporting solutions are no longer sufficient if data is stored multiple times or interpreted differently. Fund providers must ensure that TPT data is consistently derived from the same sources as risk or valuation information. Otherwise, breaks arise that are visibly and increasingly critically questioned in the coordination process with insurers.

The regulatory framework entails both tightening and simplification. In particular, requirements for the penetration of complex fund structures and for the identification of key risk drivers will be tightened. At the same time, there are opportunities to reduce the level of detail if it is not relevant to the risk profile of the respective insurer. However, these simplifications are always subject to voting. TPT reporting is thus less standardized, but more recipient-oriented. On the IT side, this requires flexible reporting logics instead of rigid templates. Technical know-how of the reporting matter and a far-reaching understanding of your own IT landscape are essential for this coordination process.

This is because the necessary coordination between fund providers and insurers is becoming more important and costly. Different interpretations of regulatory leeway must be documented in a comprehensible manner and technically implemented. Without appropriate IT support, this effort shifts to manual processes, which jeopardizes scalability and quality. The Solvency II update thus clearly shifts the bottleneck in the direction of system and process capability.

Adjustments in the Solvency Capital Requirement calculation have an indirect effect on TPT reporting. Changes to risk modules and calibrations are changing the information needs of insurers. Fund providers need to understand how the data they provide feeds into the SCR logic. This increases the requirements for transparency and traceability of data origin. IT systems must be able to map these logics in order to efficiently support queries and adjustments.

The Solvency II update clearly shows why TPT reporting is becoming an IT issue for fund providers. The regulatory requirements can only be met in a stable manner if data integration, governance and reporting logic are neatly interlinked on the system side. Simplifications do not come from less work, but from better coordination and technical flexibility. Fund providers must be prepared for the fact that TPT reporting is no longer an isolated process, but an expression of the entire IT and data architecture. Those who address this challenge at an early stage create the basis for resilient and scalable reporting processes.

I will deepen the developments surrounding the Solvency II Directive and its impact on fund reporting in further articles, in particular by shedding more light on individual topics (links to follow).

If you are particularly interested in certain aspects, please feel free to contact me.