CoRep and FinRep: a "Frankenstein's monster" of reporting

CoRep covered consolidated, sub-consolidated and solo reporting of capital requirements and own funds based on the original CRD. FinRep covered ... 19JulCoRepandFinRep:a"Frankenstein'smonster"ofreporting Postedat05:15h inMediaCoverage by axiomsldevel Date:June1,2012 Location:NewYork Banksarebeingaskedtoreportthousandsofextrariskandcapitaldata-pointsattheendofthefirstquarternextyear–ahugeincreaseinvolumeandcomplexity,withanaggressivedeadline.Andthelistofitemstheyneedtoreportisstillsubjecttochange. Fortranslatorsandotherstudentsoflanguage,falsefriendsarepairsofwordsfromdifferentlanguagesthatcloselyresembleeachotherinformbutnotinmeaning:inItalian,stravagantemeanseccentric,butlookslikeitshouldmeanextravagant;bellenistheactofbarkinginGerman,butphoningsomeoneinDutch;inPortugal,raromeansrare,butinSpainitmeansstrange.Otherexamplesabound,providinglotsofroomforconfusionbetweenspeakersofthe23officiallanguagesoftheEuropeanUnion(EU). TheEU’sbankshavelongsufferedfromthesameproblem–theyreportsimilarinformationtotheirregulators,butdosoinslightlyvaryingways,makingcomparisonsdifficult.It’sthejoboftheEuropeanBankingAuthority(EBA)togetthemallspeakingthesamelanguage. ThefourthCapitalRequirementsDirective(CRDIV)callsontheEBAtodrawupasetofimplementingtechnicalstandards(ITSs)andcreatetemplatesthatallEUbankswillusewhenreportingtotheirnationalregulators.ButwhileeveryoneagreesreportingneedstobeharmonisedacrosstheEuropeanUnion,theEBA’sproposalsforCommonReporting(CoRep)andFinancialReporting(FinRep)arecausingheadachesforbanksandregulators–thetimelinechiefamongthem. TheEBApublishedaconsultationpaperinDecemberlastyear–CP50–layingoutthetemplatesbankswouldneedtouseandproposingthenewreportingregimeshouldcomeintoforceonJanuary1,2013,withthefirstreportingperiodattheendofMarchandthesubmissiondateMay13.ItaimstofinalisethetechnicalstandardsbyJune30thisyear.Butthatraisessomepracticalchallenges,inpartbecauseCRDIVitselfisstillbeingfinalised–DenmarkcurrentlyholdstheEU’srotatingpresidencyandishopingtohavetherulesfinishedbyJune,althoughthatlooksatallorder(RiskApril2012,page8). “TheCRDIVtextisnotyetfinalandtheCoRepandFinRepITSsareunlikelytobefinalisedbeforetheendofJuly2012,socurrenttemplatesaresubjecttopotentiallysignificantamendment,”saysMatthewPettican,vice-presidentforUKregulatoryreportingprojectsatCreditSuisse. Theindustryhasahostofothercomplaints–instructionspublishedwiththeEBA’sdrafttemplatesarenotnecessarilyclearorcomplete,bankssay,andtheproposalsrequestsignificantvolumesofdata,someofwhichisnotcurrentlyavailabletosomeinstitutions.Intotal,industryexpertsestimatethenumberofindividualitemsofinformationtobereportedunderthenewregimewillincreaseninefold(seebox). “ThemainchallengesofCoRepforafirmlikeoursaretheaggressivetimelinesforimplementationwithoutclarityontheregulation,andtheadditionaleffortfordetailedanalysisonmultipledatadimensionsthatwillberequired,”saystheLondon-basedheadofUKreportingforamedium-sizedUSinvestmentbank.Thesedimensionsincludemoredetailedbreakdownofinformationontrades,counterpartiesorissuers,hesays:“Weneedtoanalysealltheseadditionaldimensionsrequired,thenweneedtoworkwithupstreamprovidersofdatatosourcetheinformation,andthenmakesurewepopulatethereturnsatthatlevel.” Evennationalregulatorsagree–theyareinthesameboatasthebanksonmanyoftheissues,particularlythetimetable–withonegoingsofarastodescribeCoRepas“aFrankenstein’smonster”. LikeFrankenstein’screation,CoRepandFinReparenotwhollynew–theywereoriginallyissuedbytheEBA’spredecessor,theCommitteeofEuropeanBankingSupervisors,in2006and2005respectively.CoRepcoveredconsolidated,sub-consolidatedandsoloreportingofcapitalrequirementsandownfundsbasedontheoriginalCRD.FinRepcoveredfinancialreportingforcreditinstitutionsthatuseInternationalFinancialReportingStandards(IFRS)fortheirpublishedfinancialstatements.TheCoRepandFinRepguidelinesweresubsequentlyupdatedtoincorporatelaterCRDandIFRSamendments. TheproblemisthatEuropeanmemberstateshadtheoptiontoadoptCoRepandFinRepfullyorpartially,orcontinuewiththeirowndomesticreportingrequirements.Countrieshavetakenarangeofapproaches,fromBelgium,whichhasmoreorlessfullyadoptedbothCoRepandFinRep,toGermany,whichhasadoptedmostofCoRepbutnotFinRep,totheUK,whichhasonlypartiallyadoptedCoRepbutnotFinRep. ThegreateruncertaintyaroundFinRepisadilemmaforbothbanksandregulators.CreditSuisse’sPetticanclaimsinstitutionshavelessthanhalfthetimetheywouldnormallyneedforanimplementationprogrammeofthiskind:“Twenty-fourmonthsisarealistictimelineforbankstodotheworknecessarytoimplementCoRepandFinRepbuttheywillhavetotrytodoitinsixtoninemonths,”hesays,raisingquestionsabouthowmuchefforttheindustryshoulddedicatetoFinRep.Andsomeregulatorssuggesttheycouldsidelineitiftheyhavesomeflexibility:“IfFinRepisnotmandatorywewon’timposeitonJanuary1,2013.Thatisnottosayweneverwill,butrightnowweandthebankshavegotourhandsfull,”saysone. TheFSAhasalsosaidthatiftheEBAdoesnotmakeFinRepmandatoryforJanuary1,2013,itwillchoosealaterimplementationdate,withthecaveatitisallowedtocontinuewithitsexistingFSA001andFSA002financialreportingrequirements.TheEBAisnottotallyunawareofwhatitisaskingofbanksandnationalregulators–CP50includesaproposaltodelayimplementationbysixmonthsandallownationalregulatorstoapplyinterimsolutions.Thatideahasfewfans. BOX:Thesystemsburden OneofthebenefitstheEuropeanBankingAuthority(EBA)claimsforthenewregimeisthatitwillmakereportingmoreefficient.However,withsuchtightdeadlines,banksarebeingforcedtomaketacticalchangestocurrentsystemsratherthantakingastrategicapproachthatwilltakeadvantageofharmonisedrulesacrosstheEU’sdifferentjurisdictions,saysDavidAttenborough,businessdevelopmentmanagerforEurope,MiddleEastandAfricawithNewYork-basedreporting,complianceandriskmanagementsystemssupplierAxiomSL.CommonReporting(CoRep)andFinancialReporting(FinRep)willalsovastlyincreasethevolumeofdatainstitutionsmustreportandmanage. “Reportingisoneareawherethereislittlecompetitiveadvantagetobegainedfromin-housesystemdevelopment,andeventhebiggestbanksoptforthird-partysystemsfromvendors”. Industryexpertsestimatethenumberofrequireddatapointswillincreasebyafactorofaroundnine.MatthewPettican,vice-presidentforUKregulatoryreportingprojectsatCreditSuisse,saysCoRepreplacesnineexistingreturnstotheUK’sFinancialServicesAuthoritywith34reportingtemplates.Thesetemplatesrequire14,191datapointspercountry,andcouldtotalupto40,000datapointsforCreditSuisse’sgroupreporting,hesays.Andbecausetherequireddataismoregranular,itismorelikelytobesubjecttoregulatorychange,increasingtheburdenoninstitutionsintermsofkeepingtheirreportingdatabasesandsystemscurrent,saysAxiom’sAttenborough. Butreportingisoneareawherethereislittlecompetitiveadvantagetobegainedfromin-housesystemdevelopment,andeventhebiggestbanks,suchasMorganStanleyandJPMorgan,optforthird-partysystemsfromvendors.“ForCoRepandFinRepcompliance,avendorsystemcanhelpwithearlydefinitionofreportingtemplates,analysisofadditionaldataelementsasspecifiedbyregulatorsandprovisionofaversionofthesoftwarethatsupportstheCoRepandFinRepsubmissioninterfaces,”saystheLondon-basedheadofUKreportingforamedium-sizedUSinvestmentbank. –ByCliveDavidson ©IncisiveMediaInvestmentsLimited2012,PublishedbyIncisiveFinancialPublishingLimited Tags: RiskManagement Share Printpage Weusecookiesinordertogiveyouthebestpossibleexperienceonourwebsite.Bycontinuingtousethissite,youagreetoouruseofcookies. Accept