Five best practices for your next DFAST submission

dfast five best practices
September 1, 2016

Dodd-Frank Act Stress Testing (DFAST) is no longer new. This means that financial institutions required to conduct DFAST have learned a few things about how to best organize the process.

At this stage of Dodd-Frank's maturity there exists a great opportunity to take an honest look at your DFAST processes. Organizations that dedicate time to do a thorough, high-level evaluation of their submission from start to finish find ways to improve their productivity throughout the entire process.

Getting started on a comprehensive review process can feel like a burden. The question of where to even begin can often prevent organizations from taking this critical step. Start with these 5 best practices to help build your most efficient DFAST submission process.

  1. Document your process
  2. A good first step that can be held in conjunction with your annual submission post-mortem kickoff meeting is to whiteboard and document your organization's core submission processes. Include supporting documentation, such as narratives, review and challenge, and other BAU processes and documentation.

    Make sure to clearly identify and document structured and unstructured data sources—both text and data. Take note to how those data are being aggregated and gathered together to create your submission and supporting documentation. Examine the final submission and supporting documentation and inspect how the reviews were conducted.

    This type of whiteboard visualization and record will be crucial as you analyze your process in the following steps.

  3. Commit to continuous improvement
  4. Use your process document to note not only what needs improvement, but also what worked well. While you'll want to be sure to follow steps that worked well again, there are always ways to continuously improve even the smoothest parts of your process.

    For example: Where did you gain the most efficiency from the previous year's submission?

    Paying attention to the pain points is equally important. Every large reporting process has inefficiencies and constraints, from version control and collaboration to data governance and ticking and tying. Inadequate reviews, last-minute changes, and even board presentations all have a way of getting in the way of process optimization. It's critically important to document and go over these "pain" points in order to fully understand them all.

  5. Seek out best practices
  6. With your documentation and full picture of the positive and negative parts of your submission process in hand, it's time to seek out others who have had similar issues. Looking for best practices both internally (organizational best practices) and also externally (industry best practices, conferences, and round tables), will enable your team to leverage existing fixes. Keeping in touch with your treasury teams, economists, peer banks and outside sources will prove invaluable as you optimize your processes and approaches to meeting regulatory requirements.

    This is also the time to look and see whether there are new technological solutions to some of the process issues that could help your team become more efficient.

  7. Mind the evolving regulation
  8. Regulations are always evolving. The form and make-up of the bank, and how it must respond to and comply with regulations can evolve over time as well. Paying attention to what happens with DFAST and associated stress testing and capital regulations can help to plan for future adjustments to your process—and to adapt to new rules within the regulation.

  9. Build your plan for next submission
  10. Finally, it is time to take all you learned from your deep dive, and with this knowledge, start your new submission. There is a lot of information to consider. What will you do differently? What will you keep the same? And most importantly, how will you measure yourself to know whether you improve year over year? Oh, and of course, how will you address any regulator feedback or changes in regulatory requirements?

    All of this deserves close and careful consideration. After all, you didn't put in all this work to do nothing with what you discovered. Coalescing this information into a strategic plan for your next submission should involve key stakeholders from your DFAST process, and should focus squarely on the learnings from your assessment.

Every year, annual stress testing and subsequent DFAST submissions, along with the maintenance and creation of all the affiliated documentation, provide several lessons we can leverage to find success and hidden efficiencies for future submissions. From content and data flow process and validations, to change management and governance, and review and challenge processes, there are always ways to improve on submissions.

In order to keep pace in a volatile regulatory environment, give the attention your team deserves to the right places in the most effective way. Start with these steps, and this year make it a point to evaluate your annual process. Seek out help where you have questions and always plan for the future.

Constantine Kokolis

About the author

Constantine Kokolis is a thought leader and subject matter expert on the power of enterprise documentation process transformation. He's spent the past three years consulting with some of the largest banks in the world to optimize financial and regulated risk reporting documentation processes, such as CCAR, DFAST, and resolution and recovery planning. He specializes in workflow process improvement, process design and architecture, and creating innovative solutions to complex problems. He also has extensive experience in project management and implementing process improvement strategies using LEAN and Six Sigma methodologies.