SS&C Technologies Holdings, Inc. (Nasdaq: SSNC), a global provider of financial services software and software-enabled services, today released a study revealing a marked decline in banks' confidence in their ability to address the Current Expected Credit Loss (CECL) standard via existing reserving processes. Despite previously high (85 percent in 2016) levels of confidence, only 43 percent of 2017 respondents plan to leverage or have leveraged their current reserving process for the CECL transition.
The study is a follow-up report to a benchmark analysis released last year. This year's survey found that most banks are still in the earliest stages of transition. Nearly half (46 percent) of respondents were in the information gathering and planning stages, with 24 percent performing gap analysis.
A Busy Road Ahead
While respondents in 2016 expressed intent to begin preparing early, the window to properly execute a practice run ahead of the mandatory 2020 deadline for SEC registrants is quickly approaching. This year, over half (64 percent) of respondents said they plan to process in parallel for 12 or more months before fully transitioning to the new standard. However, only eight percent of companies are actively implementing CECL requirements today, shining a light on the urgency that will ensue in 2018. Since functional system requirements must be implemented before parallel processing can begin, banks that find themselves behind the curve could have to cut their practice runs short.
Compliance vs. Success
"CECL-compliant models are just one piece of the puzzle," said John Lankenau, Senior Vice President of Product and Operations, SS&C Primatics. "A holistic approach will be critical to a successful CECL implementation. Rather than addressing modeling requirements in isolation, a holistic approach will consider the consequences of methodology elections on reporting, data, and a potentially volatile estimate."
CECL will have a wide-ranging impact on financial institutions' allowance processes, requiring new data elements, disclosures and analytics in support of a forward-looking credit loss estimate. SS&C Primatics' CECL Reserving Solution holistically addresses the entire end-to-end reserving process and establishes the foundation of a successful CECL implementation.
The survey was conducted at the 2017 AICPA National Conference on Banks & Savings Institutions in Greater Washington, D.C. on Sept. 11-13. Results are based on a seven multiple-choice question poll of 104 CPAs, controllers, treasurers and accounting professionals within banking institutions of total assets ranging from less than $5 billion to greater than $250 billion. Full survey results can be found here.