A Comprehensive Guide to CECL Parallel Run for UK Startups: Ensuring Compliance and Preparation for Financial Reporting

Understanding the CECL Parallel Run Process and Its Implications for UK Startup Companies

4 mins read

The implementation of the Financial Accounting Standards Board’s (FASB) Current Expected Credit Loss (CECL) standard has posed significant challenges for financial institutions worldwide. In the United Kingdom, startups and emerging companies are also subject to these regulations, requiring them to carefully plan and execute a parallel run process to ensure compliance and readiness for the new reporting standards.

This guide aims to provide a comprehensive overview of the CECL parallel run process for UK startups, offering insights and recommendations to navigate this complex regulatory landscape. From defining the parallel run objectives to resource planning, technical functionality, operational processes, allowance for credit losses approval, and reporting and messaging, we will explore each aspect in detail, highlighting the key considerations and best practices. This guide will equip UK startups with the knowledge needed to successfully undertake the CECL parallel run and meet regulatory expectations.

Key Takeaways:

  1. The CECL parallel run is an essential step for UK startups to prepare for the implementation of the CECL standard and ensure compliance with regulatory requirements.
  2. The parallel run process consists of three distinct phases: testing the functionality of the production process, running the operational and internal control portion, and adding the approval, reporting, and investor communications components.
  3. Resource planning is crucial during the parallel run, requiring thoughtful allocation of existing resources and potential utilization of external resources to meet the new CECL demands.
  4. Technical functionality, including system integration testing and user acceptance testing, should be conducted in advance to avoid challenges during the parallel run phase.
  5. The operational phase involves running end-to-end processes throughout 2019, producing the allowance for credit losses amount and required external quantitative reporting disclosures.
  6. Allowance for credit losses approval processes should be thoroughly tested, with special attention given to analyzing drivers of period-over-period changes and qualitative overlays.
  7. Reporting and messaging play a vital role in the parallel run, requiring complete financial reporting and messaging processes for two quarters, including the production, drafting, and review of quantitative and narrative disclosures.
  8. Collaborative engagement with key teams, including SEC reporting, investor relations, and external auditors, is crucial for successful parallel run execution and investor evaluation.

Defining the CECL Parallel Run

The CECL parallel run serves as a preparatory process for UK startups to calculate, review, and report on the CECL allowance for credit losses. It ensures alignment with board, management, external auditor, and regulatory expectations. To define an effective parallel run, three guiding principles should be considered:

  1. Thoughtful Resource Planning
  2. Ensuring Technical Functionality
  3. Completing Full Parallel Cycles
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  1. Thoughtful Resource Planning

Resource planning is a critical aspect of the parallel run process. Startups must consider four factors in their resource planning:

a. Reassigning existing business-as-usual (BAU) resources to work on the CECL project, run parallel, and then return to BAU. b. Identifying new resource needs by preparing a detailed CECL operational cadence to avoid surprises during the parallel run. c. Designating project resources to fill new and existing BAU roles to ensure knowledge transfer from the build phase to the operational phase. d. Utilizing outside resources deliberately with a clear transition plan and knowledge transfer during the parallel run.

Resource scarcity is a challenge in the CECL implementation, and startups should consider retention benefits for CECL-skilled team members.

  1. Ensuring Technical Functionality

To achieve an effective parallel run, startups must focus on technical functionality by conducting system integration testing (SIT) and user acceptance testing (UAT) in advance. Early testing of functionality and refining modeling approaches will enable the identification and resolution of any plumbing issues before 2019.

In addition to processing the allowance for credit losses, supporting technology processes (e.g., regulatory reporting, ad hoc reporting, annual planning and forecasting, scenario testing) should undergo SIT and UAT to ensure their seamless integration.

  1. Completing Full Parallel Cycles

The parallel run process should include three distinct phases:

a. Testing the functionality of the production process in 2018. b. Running the operational and internal control portion of the end-to-end (E2E) process for four quarters in 2019. c. Adding the approval, reporting, and investor communications components for the last two quarters of 2019.

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Completing these parallel cycles across all product lines is ideal, as it helps identify potential issues and avoids the complexity of running separate phases by product type.

Operational Processes and Allowance for Credit Losses Approval

During the operational phase of the parallel run, startups should focus on running end-to-end operational processes for the entire year of 2019. This phase includes producing the allowance for credit losses amount and required external quantitative reporting disclosures. Key considerations during this phase include:

a. Assigning a dedicated owner to oversee the operational cadence and ensure adherence to the target operating model design sequence. b. Conducting real-time, cross-functional team debriefs and incorporating feedback from the third line of defense and external auditors. c. Testing and documenting the control environment and processes to identify any control deficiencies that could be considered “material weaknesses.” d. Engaging external auditors to gain insights and feedback on control deficiencies and ensure compliance.

The allowance for credit losses approval process should be executed, including the governance/oversight committee construct, for at least two quarters. Extra attention should be given to analyzing the drivers of period-over-period changes and qualitative overlays included in the allowance for credit losses.

Reporting and Messaging

The reporting and messaging phase of the parallel run is where startups demonstrate compliance and transparency to external stakeholders. Consider the following best practices:

a. Running the complete financial reporting and messaging process for two quarters, including the production, drafting, and review of quantitative and narrative disclosures. b. Involving SEC reporting and investor relations teams early in the CECL program to incorporate their insights into reporting philosophy. c. Engaging audit committee review for valuable oversight and insights. d. Seeking feedback from external analysts to improve disclosures and address potential investor questions.

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The ultimate goal is to drive execution and understanding among the entire team, preparing startups for a confident transition to the new reporting standards in 2020.


The CECL parallel run presents a significant challenge for UK startups. However, with careful planning and execution, startups can ensure compliance with the CECL standard and meet regulatory expectations. By following the recommended steps outlined in this guide, startups can navigate the complexities of the parallel run process and emerge well-prepared for the future of financial reporting.

Remember, the parallel run is not merely a regulatory requirement but an opportunity to strengthen internal processes, improve risk management, and enhance investor confidence. By leveraging the insights and best practices outlined in this guide, UK startups can successfully navigate the CECL parallel run and position themselves for long-term success in the evolving financial landscape.


  1. Defining the CECL parallel run
  2. Running CECL In Parallel – What You Should Know
  3. Understanding CECL parallel runs and model validations

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