This blog focuses on meeting the complaint and regulatory reporting standards for financial institutions and insurance companies (IFRS).
What is SAP FPSL?
SAP Financial Product Sub-Ledger or SAP FPSL is designed to let various financial services organizations handle finance products as independent sub-ledgers and enable instantaneous financial insight at any level of detail for analytics and reporting.
While Sub-Ledger accounting is not new in the financial sector, the Sub-Ledger solution approach for financial instruments and insurance has brought with it a radical perspective in financial reporting. In SAP FPSL, both the traditional Sub-Ledger Chart of Accounts (CoA) and the General Ledger Chart of Accounts are incorporated.
SAP S/4HANA FPSL is available in two varieties:
- Banking option for SAP S/4HANA for financial products sub-ledger is shipped with pre-configuration and templates for IFRS 9 and US GAAP.
- Insurance option for SAP S/4HANA for financial products sub-ledger is shipped with pre-configuration and template for IFRS 17 and US GAAP regulation.
Why SAP S/4HANA FPSL?
SAP S/4HANA FPSL brings new dynamics and capability to financial reporting such as:
Challenges facing financial institutions and insurance industries financial reporting without SAP FPSL
The main challenges for financial industries and the insurance sector are in the following areas:
- Reporting and compliance
- Absence of dedicated multi-GAAP and multi-entity Sub-Ledger
- Absence of pre-configured financial reporting standards for IFRS and US-GAAP
- Inability to handle high transaction volume
- Absence of full transparency at all levels
- Limited GL and system agnostic
- No flexible, modular functionality
- Decentralized valuation, calculation, and accounting hub
- Inadequate end-to-end integration
The financial systems operated by insurance companies have developed over many years, and the market has traditionally underinvested in instruments to effectively manage financial data. Many insurers must navigate a fragmented environment to access data on transactions involving policies and claims.
Building a comprehensive view is made more challenging by the accounting data these systems provide. The multiple systems that underpin an insurer's basic operations are also frequently the result of acquisitions or new projects, which leads to inconsistent data structures and necessitates more complex data transformations to generate consistent data for financial reporting.
How does the SAP FPSL solution connect the finance, actuarial and operations across the globe?
Until now the financial service sector has had to maintain several sub-ledgers with the general ledger being loaded with all the detailed data. This presents not only data inconsistencies but opacity in the financial reporting. Performance is negatively impacted due to overburdened general ledger details.
Banks are currently experiencing significant difficulties because of frequently changing accounting standards and other regulatory requirements.For financial and the insurance sector to meet the new generally acceptable international requirements for financial reporting standards like USGAAP and IFRS 17/9, the Financial Product Sub-Ledger approach is the solution. For financial institutions and banks, challenges equally arise in two primary areas: compliance and reporting.
How does SAP FPSL and its architecture help financial services institutions comply with international accounting standards including US-GAAP?
To address the financial products accounting requirements of any standardized reporting (IFRS/GAAPs) – statutory or economic – for both financial instruments and insurance contracts, SAP FPSL was designed from the ground up to accommodate all the challenges. The following core features make up a flexible process model that assigns the book value components to different process steps:
- Time value of money, which allocates present values to the lifecycle stages of the insurance contract while discounting and taking financial risks into account.
- The value of the adjustment for unexpected risks with reference to the sum and timing of future payments (such as credit risk margin, regulatory cost of capital margin, or confidence level margin) is contained in the adjustment for unexpected risks functionality.
- Profit recognition includes spreading the profit across the life of the contracts and recognizing insurance contracts in the balance sheet. US GAAP is one of the accounting principles supported by this function.
Holistic corporate management
A process of iteration is required for effective financial modeling. The results are compared to the output of a model so that organizations can investigate the core cause and make better decisions. This iterative technique help to accomplish two objektives:
- It is a measure of how "accurate" the model's future projections are.
- It supports the notion that improving business planning is an ongoing activity.
It is a process that iteratively supports ongoing corporate development. It includes all three financial statements (balance sheet, cashflow and profit and loss) and the entire organizational financial operations. Finding practical insights necessitates a collaborative approach where finance and operations work side by side. To prevent making repeated adjustments to the financial model or running the danger of the model failing to achieve its primary objective, the goal must be made explicit.
Therefore, it makes sense for banks and insurance companies to maintain the sub-ledger for all products and contracts within their own system. This implies that the systems in charge of maintaining the portfolio no longer need to apply accounting requirements in a decentralized manner. An alternative is a central implementation in the consolidated sub-ledger approach.
With SAP FPSL, it is possible to connect several upstream systems to a central sub-ledger, which has the benefit that new accounting needs can be incorporated in the central sub-ledger irrespective of goods and systems.
In the future, a dynamic banking environment will require the implementation of new standards, modifications to current standards (such as IAS 37), and regulations (such as those of the Basel Committee). These improvements must be put into practice in the constantly evolving IT systems in addition to changes in the specialist area. Therefore, even small adjustments can require a lot of work, like the recent adoption of IFRS9, 15 and 16. This holds true for the insurance in sector´s financial reporting standard- IFRS 17.
Record as the central entry point into holistic corporate management
The challenge is integrating all the different sub-ledgers into a single and centralized sub-ledger where all the postings are recorded, but enhancing data integrity makes the Sub-Ledger solution not only worth it but rewarding for financial reporting with regulatory compliance. SAP S/4HANA capabilities offer an enhanced possibility for not only handling financial data for reporting but meeting the regulatory requirement.
Since IFRS17/9 contains mandatory reporting standards for all financial services as of 2025, it is therefore also a good idea to check the existing reporting standards that are country-dependent to the mandatory international standard covered with the SAP FPSL solution approach on SAP S/4HANA.
Why take the journey to SAP FPSL with Scheer?
Scheer is a provider of full-service transformation. As a result, Scheer focuses on the full SAP transformation's value generation process and provides the essential professional and technical expertise from strategy and implementation to production support. Scheer's in-depth expertise is focused on the new SAP S/4HANA-based Business Suite and comprises the following technical solutions that are specifically suited to the requirements of banks and insurance firms.
- SAP FPSL including its predecessor SAP (Smart) AFI
- In-depth analytics and reporting tools such as SAP Analytics Cloud, SAP Group reporting, SAP BW and SAP BW4HANA as well as SAP PaPM (Profitability and Performance Measurement)
- SAP S/4HANA Finance including the new GL (General Ledger)
Scheer's expertise and in-depth experience in the financial industry, leveraged by Scheer's process centric approach offers the following:
- Seamless conversion journey to SAP S/4HANA
- SAP S/4HANA pre-study
- Process analysis
- Preparation and implementation of the SAP S/4HANA transformation
- Technical and functional life cycle and production support
With SAP FPSL, Scheer seeks to support financial institutes and insurance industries and provide other benefits and offer the ability to present standard-compliant internal and external financial reporting that meet all regulatory requirements at all levels.
