We started our FPSL-journey on this blog with a post that gave a brief and general overview of SAP S/4HANA for financial products subledger as a product (What is SAP FPSL?). The goal of this blog post ist to shed light on the product scope and accounting functionality of FPSL.
SAP FPSL is designed not only for specific institutes but for the entire financial services industries sector and other corporations. This includes banks, insurances, reinsurance companies, fintechs and corporates. All of them have individual goals, needs and business models. How does SAP FPSL address them?
Subledger Accounting for Financial Instruments and Insurance Contracts
One main characteristic of SAP FPSL is the clear distinction between financial instruments on the one hand and insurance contracts on the other hand. This, however, does not mean that insurances for instance are limited to the functionality of the subledger accounting for insurance contracts. Insurances that possess a portfolio of financial instruments or reinsurances that are active in the context of capital markets instruments can in fact use both the subledger accounting solution for insurance contracts and financial instruments.
This is ensured by a clear distinction in the way the solution is built by SAP in its standard version. There is one path in the FPSL customizing that includes all key aspects relevant for financial instruments and another path that covers all necessary components for insurance contracts. Thereby, the solution offers an excellent approach to not only distinguish between both categories but also to focus on their specific requirements. How does this approach look like at what does it cover from a financial product scope perspective?
Zooming in: FPSL product scope and (accounting) functionality for financial instruments and insurance contracts
SAP FPSL is a subledger accounting solution for contracts and securities positions (financial instruments) as well as insurance contracts and reinsurance contracts. Hence, the business content of SAP’s subledger accounting solution considers a substantial range of product segments and associated products used within the financial services industry on a daily basis.
In this vein, the design along the needs and requirements of FSI business users is a clear strength of SAP FPSL. Financial contracts and securities are relevant in the daily work of finance, treasury or accounting departments and they exist in various versions. Each of them has their specific inherent logic that needs to be considered in the subledger. Thus, the preconfiguration in SAP FPSL is specifically designed for the requirements of the respective financial contract or security. The following table provides an overview of products which are covered within the scope of FPSL and how they are clustered into products segments.
|No||FPSL Product Segment||Products in FPSL Business Content|
|1||Cash on Hand||Cash Account |
|2||Cash Balances at Central Banks||Central Bank Account|
|3||Deposits (Credit Institutions)||Nostro Account |
|4||Checking Accounts||Checking Accounts|
|5||Savings Accounts||Savings Accounts |
|6||Term Deposits||Time Deposits|
|7||Derivatives (ETD)||Futures: Equity Future, Interest-Rate Future, FX Future |
Options: Equity Option, Interest Option, FX Option
|8||Derivatives (OTC)||Forwards: Equity Forward, FX Forward, Interest-Rate Forward |
Options: Credit Spread Option, Equity Option, FX Option, Swaption
Swaps: Cross-Currency Interest-Rate Swap, Interest-Rate Swap, Credit Default Swap, Mark-to-market Swap, Total Return Swaps Cap, Floor
|10||Debt Securities & Debt Securities (Issued)||Corporate Bond, Government Bond, Convertible Bond|
|11||Loans and Advances||Installment Loan, Mortgage Loan, Revolving Loan, Repurchase Agreement, Securities Lending|
|12||Financial Guarantees||Facility Financial Guarantee|
|13||Master Agreements||Master Contract|
Product Scope for Financial Instruments
In the same manner, insurance and reinsurance contracts that i.e. finance or accounting experts in the (re-)insurance industry work with exist in multiple versions. Each of them has their specific inherent logic that needs to be considered in the subledger. Thus, the preconfiguration in SAP FPSL is designed for the requirement of the respective (re-)insurance contract in questions. The following table provides an overview of how insurance contracts and reinsurance contracts are clustered within FPSL.
|No||FPSL Product Segment||FPSL Business Content|
|1||Property and Casualty, Liability and Personal Accident Insurance||Insurance Contract|
|2||Life and Health Insurance||Insurance Contract|
|3||Health Insurance||Insurance Contract|
|4||Reinsurance: P&C, Liability and Personal Accident Insurance||Reinsurance Contract|
|5||Reinsurance: Life and Health Insurance||Reinsurance Contract|
|6||Reinsurance: Health Insurance||Reinsurance Contract|
Product Scope for Insurance Contracts
Functionality Scope for Financial Instruments and Insurance Contracts within SAP FPSL
The overview above indicates which products and product categories are considered in the standard business content of the solution. The two tables also show how financial instruments and insurance contracts are clustered into product segments within SAP FPSL. From a subledger accounting perspective, however, it is also important to understand which accounting functionalities SAP FPSL specifically offers for these product segments and their associated products in its standard. What scope is covered in this context?
|No||Financial Instruments||No||Insurance Contracts|
|1||FPSL offers the functionality to make valuations based on imported business events, target balances or posting documents from product systems. Additionally, FPSL allows manuals postings.||1||FPSL does not only offer traditional and economic measurement approaches but also a combination of both.|
|2||The scope of FPSL covers valuations according to multiple accounting methodologies, including at amortized cost or at fair value through P&L and OCI.||2||Next to manual postings, valuations can be made on the basis of best-estimate cash flows, accounting target values or cash flows specific to the respective accounting principle.|
|3||FPSL allows valuations in multiple currencies. If not needed however, the Multi-Currency-Accounting Functionality can be switched off.||3||FPSL contains a multi-GAAP functionality based on a central and delta GAAP approach. While cross-GAAP postings are created only once, FPSL creates GAAP-specific postings individually for the respective accounting standard. This also covers valuations on best-estimate cash flows.|
|4||To cover the requirements of multiple accounting standards (at the same time), FPSL contains a multi-GAAP functionality based on a central and delta GAAP approach. While cross-GAAP postings are created only once, FPSL creates GAAP-specific postings individually for the respective accounting standard.||4||Valuations can be made at several levels: contract coverage, claims coverage, or a portfolio of coverages.|
|5||The accounting model of FSPL comprises process steps designed on the basis of business processes. Hence, each step fulfils a business requirement for either day processing, period-end processing, year-end processing, period-opening processing, or preparatory processing.||5||Valuations can be made in multiple currencies.|
|6||To ensure completeness and flexibility error situations, Financial Products Subledger offers Suspense Accounting that allows the creation of preliminary posting documents.||6||The accounting model of FSPL comprises process steps designed on the basis of business processes. Hence, each step fulfils a business requirement for either day processing, period-end processing, year-end processing, period-opening processing, or preparatory processing.|
|7||To document securities positions, FPSL is delivered with a Lot Accounting Functionality. In this context, different lot selection methods, such as Last In- First Out or First In- First Out can be chosen.||7||To ensure completeness and flexibility error situations, Financial Products Subledger offers Suspense Accounting that allows the creation of preliminary posting document|
|8||Both impairment and hedge accounting can be performed in FPSL. SAP offers comprehensive functions to cover these accounting aspects.||8||To identify an asset/liability status for a group of contracts (with the effect of a balance sheet reduction), FPSL provides on-balance sheet netting.|
|9||To identify an asset/liability status for a group of contracts (with the effect of a balance sheet reduction), FPSL provides on-balance sheet netting.|
|10||To proportionally reclassify changes in value that were previously recognized in OCI to the P&L statement, FPSL contains a recycling functionality.|
Functionality Scope for Financial Instruments and Insurance Contracts within SAP FPSL
To summarize the above in a nutshell: SAP FPSL is designed for FSI and other corporations. It clearly and comprehensively differentiates between financial instruments and insurance contracts. The FPSL business content comprises a substantial range of product segments and products. The preconfiguration in SAP FPSL is specifically designed for the requirements of the respective financial contract, security or insurance contract. From a functionality perspective, it provides -amongst others- solutions that address GAAP-specific, multi-currency-specific, valuation-specific or cash flow-specific aspects. It leverages impairment, hedge accounting, suspense accounting and lot accounting. Additionally, it provides a comprehensive model covering the accounting process steps from a business perspective.
The ADWEKO FPSL-Experience
SAP S/4HANA for financial products subledger (SAP FPSL) is the new SAP solution for efficient subledger accounting for financial instruments and insurance contracts. ADWEKO supports you with the introduction of FPSL for standardized accounting processes that are secure according to regulations.
- Professional consulting regarding implementation and go-live up to project management and testing
- Lean architecture by using one database for multiple analyzers and computing systems
- Connection and integration of existing source systems and implementation in existing databases as well
- Smooth and time-efficient deployment with the help of best practice solutions
- Migration from Classic AFI to SAP FPSL