The European Banking Authority (EBA) is a decentralized agency of the European Union (EU) located in London. It is responsible for regulating banks through Implementing Technical Standards (ITS), conducting stress tests to increase transparency, and promoting convergence of supervisory practices to synchronize the application of prudential rules. As such, its reporting requirements are crucial, particularly in a European context, although this train of thought applies worldwide too, and the following are the reasons why:
- The Eurozone has one currency but it has different tax and public pension rules
- As the Eurozone is not a fiscal union, leaders are handicapped in their ability to respond to crisis
- Banks own a substantial amount of sovereign debt. Insolvency of sovereigns and the debt crisis have highly detrimental labor and economic market effects. This has led to longstanding political volatility and power shifts in several EU and non-EU nations
The stability of the EU and its nations is dependent on banks being solvent, with insurance companies’ operations also intricately linked, given the gargantuan sums of money involved. If insurers fail, a devastating ripple effect will ensue, as has been evident in several bailouts, such as the AIG debacle in 2008. Supervision by the correct authorities is imperative, which necessitates regular reporting of key data to supervisors to make their work easier and more effective.
Getting to Know the Requirements
Back in 2006, the Committee of Banking Supervision (CEBS) formed common reporting framework guidelines. Their aim was to increase the cost-effectiveness of supervision, increase comparability of reported financial information to supervisors, decrease reporting burden on cross-border credit firms, and eliminate probable barriers to financial market integration. In order to implement the Capital Requirements Directive (CRD) and the Capital Requirements Regulations (CRR) mandates, the EBA then introduced the two primary reporting requirements or mandates. These were COREP (Common Reporting) and FINREP (Financial Reporting).
COREP is the standardized reporting framework for CRD reporting requirements. All BIPRU companies including banking firms, investment companies, and building societies are required to report under COREP. The mandate covers market risk, operational risk, credit risk, capital adequacy ratios, and own funds. The ongoing evolution of the regulatory environment with newer versions of the CRD and CRR mandates on the horizon, has made implementing COREP a constant challenge. Ever since its inception, the data collection methods of banking firms has undergone crucial changes. This has brought in more detailed, granular data for COREP, and its Basel III framework, to regulate banking functions effectively.
FINREP is the reporting framework for certain credit institutions, banks, and investment companies. They would have to be listed on a stock exchange, make use of International Financial Reporting Standards (IFRS), and subjected to CRD IV (the fourth version of the CRD mandate). The framework required banks to disclose more information in their financial reports.
FINREP’s aims have been manifold. Standardizing reporting requirements across Europe is a primary objective. Creating a centralized data repository for European banking information to improve risk identification and allow peer reviews, risk analysis, and trend predictions, all for cross-border organizations is another. Enabling easy data sharing with national and international authorities is also a crucial objective of FINREP. These authorities include the European Systemic Risk Board (ESRB) and the European Supervisory Authorities (ESAs). The latter includes the European Insurance and Occupational Pensions Authority (EIOPA), the European Securities and Markets Authority (ESMA), and of course, the EBA itself.
Other Regulatory Requirements and Tools
EBA’s regulatory reporting requirements also include Asset Encumbrance, wherein the objective is to effect a sole measure for the same across organizations. They also consist of funding plans for financial bodies and benchmarking of internal models in the form of Supervisory Benchmarking Portfolios. The EBA also has a Data Point Model, a constantly updating dictionary of uniform definitions within the ITS as well as reporting and disclosure guidelines.
With advances in digital technology, it is anticipated that organizations can map their regulatory requirements directly to the data they possess. This creates the possibility for automated, straight-through-processing (STP) of regulatory returns. With improved accuracy of data submissions and reduced costs, changes to regulatory requirements would be more rapid and benefit both regulators and firms.
At HCLTech, we are currently partnering with a leading reporting vendor to offer a RegTech on-cloud solution. The solution will assist banks in automating regulatory reporting requirements in a precise, cost-effective, and swift manner. As an end to end reporting solution, it will assist financial firms in saving more than 30% of their time in meeting mandatory regulatory reporting requirements prescribed by the EBA.