Regulatory reporting software is the system layer responsible for extracting, formatting, and submitting the financial and operational data that payment institutions and e-money institutions must provide to their national competent authority on a defined schedule. For regulatory reporting software to function accurately, it requires a structured, consistently classified source of financial data to draw from. That source is the general ledger, organised according to a chart of accounts.
A core banking system that lacks these components cannot provide the structured input that regulatory reporting software requires, and the reporting process degrades into manual data extraction, reconciliation, and reformatting that is resource-intensive, error-prone, and structurally incapable of keeping pace with evolving regulatory requirements.
As illustrated in a typical regulatory reporting data flow, regulatory reporting software connects directly to the general ledger of the core banking system and queries it for the data required to populate a specific report. The chart of accounts determines how each financial event has been classified within the ledger, and the reporting software applies the aggregation, calculation, and formatting rules defined for each regulatory report to produce the required output.
The entire process is automated, consistent, and auditable. In a core banking system without a general ledger and chart of accounts, the same process requires a member of staff to locate the relevant data across multiple disconnected systems, verify its accuracy, reconcile it against other data sources, and manually populate the report template, introducing errors and delays at every step.
Key Takeaways: #
- A core banking system without a general ledger and chart of accounts cannot reliably support regulatory reporting software functions, as financial data remains unstructured, unclassified, and impossible to extract accurately at the volume and precision regulators require
- Without a structured accounting framework, regulatory reporting software has no consistent, classified source data to draw from, forcing institutions into manual data extraction processes that increase the risk of reporting errors, inconsistencies, and non-compliance penalties
- A general ledger and chart of accounts form the foundational data layer that makes regulatory reporting software accurate, auditable, and scalable, and are essential components of any compliant core banking infrastructure for payment institutions and e-money institutions
The Consequences of Operating Regulatory Reporting Software Without a General Ledger #
Imagine trying to find specific data points and formats required for regulatory reporting in an ocean of unstructured, untagged, and unclassified data. It’s akin to attempting to find a specific grain of sand on an expansive beach, where each grain looks nearly identical to the untrained eye. In this disorganized environment, it’s far too easy to overlook critical data or misinterpret its meaning, leading to reports that are incomplete or riddled with errors. The consequences of such inaccuracies are severe, ranging from penalties and fines to damaged reputation and a loss of trust among stakeholders.
Unstructured financial data: Without a general ledger, financial transactions are recorded without a consistent classification framework. Data may be distributed across separate operational systems, stored in incompatible formats, or logged without the metadata required to identify its regulatory relevance. Regulatory reporting software cannot function effectively against unstructured data of this kind, as it has no reliable way to identify which records correspond to which regulatory data categories.
The institution is left with two options: invest in significant data transformation infrastructure to convert unstructured operational data into a format that the regulatory reporting software can process, or resort to manual extraction and classification, neither of which is sustainable as transaction volumes and reporting obligations grow.
Inaccurate and incomplete regulatory reports: Regulatory reports submitted to authorities such as Banka Lietuvos, the FCA, or the EBA require precise data points presented in prescribed formats. When the source data available to regulatory reporting software is unstructured or inconsistently classified, the risk of omission, misclassification, and miscalculation is significant. A single misclassified transaction type can produce an incorrect figure across multiple reports simultaneously, as the same underlying data feeds several regulatory submissions.
Errors in regulatory reports can result in supervisory queries, required resubmissions, financial penalties, and reputational damage with the national competent authority. Regulators expect institutions to demonstrate that their reporting is based on a consistent, well-governed data methodology, and an institution whose regulatory reporting software draws from unstructured source data cannot credibly make this demonstration.
Manual, resource-intensive reporting processes: In the absence of a structured accounting framework, producing regulatory reports requires staff to manually extract data from operational systems, reconcile figures across multiple sources, interpret and classify financial information, and populate report templates by hand. This manual process is time-consuming, requires specialist knowledge to perform correctly, and creates a single-point-of-failure dependency on the individuals who carry out the work.
As regulatory reporting obligations expand in scope and frequency, the operational burden of manual processes compounds accordingly. Regulatory reporting software cannot eliminate this burden without a structured data source to automate against; it can only partially reduce the manual effort while the underlying data quality problem remains unresolved.
Limited analytical and management reporting capability: A general ledger and chart of accounts do not only enable regulatory compliance reporting. They also provide the structured data foundation required for internal financial analysis, budget monitoring, and management reporting. Without them, regulatory reporting software cannot generate the management accounts, performance analytics, and financial position reports that the institution’s leadership requires to make informed business decisions. The institution loses visibility into its own financial performance precisely at the point when that visibility is most needed, as it scales its operations and its regulatory reporting obligations grow in parallel.
Why Regulatory Reporting Software Requires a General Ledger and Chart of Accounts #
The general ledger as the data source for regulatory reporting software: The general ledger is the central, authoritative record of all financial transactions processed by the institution. Every payment, fee, settlement, currency conversion, and balance adjustment is captured within it in a consistent structure. Regulatory reporting software connects to the general ledger as its primary data source, querying it to extract the transaction-level and aggregate data required for each report. This direct connection between the reporting software and the ledger eliminates the intermediate data extraction, transformation, and reconciliation steps that manual reporting requires, and ensures that the figures reported to regulators are derived from the same authoritative source that drives the institution’s operational processes.
The chart of accounts as the classification engine for regulatory reporting software: The chart of accounts is the classification system that organises all financial transactions within the general ledger into defined account categories. For regulatory reporting software to generate accurate reports automatically, every financial event must be classified into an account category that maps to the relevant regulatory reporting field.
This mapping is the mechanism by which the reporting software knows that a transaction classified to the client funds safeguarding account category should contribute to the safeguarding balance figure in the regulatory return, or that a transaction classified to the fee income account category should contribute to the own funds calculation. Without a chart of accounts configured to reflect the institution’s regulatory reporting requirements, the regulatory reporting software has no basis for this mapping and cannot produce automated, accurate reports.
Automation and scalability through regulatory reporting software: When a general ledger and chart of accounts are integrated within core banking software and connected to regulatory reporting software, the reporting process can be fully automated. The reporting software extracts the required data, applies the relevant calculations and formatting rules, and generates the completed report without manual intervention.
This automation not only reduces the risk of human error but also enables the institution to scale its reporting capability as its transaction volumes, product range, and regulatory obligations grow, without a proportional increase in compliance resource. Regulatory reporting software that is properly integrated with a structured general ledger can generate multiple reports simultaneously from the same data source, maintain a complete audit trail of each report’s input data and calculation methodology, and adapt to changes in reporting formats without requiring manual re-engineering of the underlying data extraction process.
Regulatory Reporting Software and Specific Compliance Obligations
For payment institutions and e-money institutions, the regulatory reports that the reporting software must produce are specific and demanding. In the UK, the FCA requires equivalent returns under the Payment Services Regulations 2017 and the Electronic Money Regulations 2011. These reports require not only accurate transaction data but precise accounting classifications that distinguish, for example, between funds held for safeguarding and the institution’s own operational funds, between fee income from different product types, and between settlement liabilities to different payment networks.
Regulatory reporting software can generate these distinctions automatically only when the chart of accounts has been configured to classify transactions at the required level of granularity. An institution whose core banking system lacks a chart of accounts must perform these classifications manually for every reporting period, creating a compliance process that is fragile, resource-intensive, and inconsistent across reporting cycles.
FAQ: #
Which regulatory reports do e-money and payment institutions typically need to produce, and how does regulatory reporting software support them?
- E-money institutions and payment institutions are subject to reporting obligations set by their national competent authority. Regulatory reporting software that is integrated with a general ledger and chart of accounts configured to the relevant reporting requirements can generate these reports automatically at each submission deadline, drawing directly from classified ledger data without manual intervention. The specific reports, formats, and submission frequencies vary by jurisdiction and institution type, but all share the same foundational requirement for structured, consistently classified financial data as their input.
What is the difference between regulatory reporting software and a general ledger?
- A general ledger is the accounting system that records and classifies all financial transactions of the institution, providing the structured source of financial data from which reports are derived. Regulatory reporting software is the application layer that queries the general ledger, applies the aggregation, calculation, and formatting rules specified by the regulatory authority, and produces the completed report in the required submission format. The two components serve distinct but interdependent functions: the general ledger provides the data, and the regulatory reporting software transforms that data into regulatory submissions. Neither is a substitute for the other. Regulatory reporting software without a general ledger has no reliable, structured data source to draw from. A general ledger without regulatory reporting software requires manual extraction and formatting of report data for each submission cycle.
Overall, a core banking system that lacks a general ledger and chart of accounts would pose significant challenges in obtaining the necessary information for regulatory reporting. It would require manual processes, risk inaccuracies, and limit the ability to perform comprehensive financial analysis. Therefore, having a robust accounting framework within the core banking system is crucial for efficient and accurate regulatory reporting. Baseella provides just that, we have integrated numerous e-money and payment institution specifc reports and provide capabilities to have any other reports easily configured.
