I am pleased to provide you with our January 2014 regulatory newsletter issue which provides you with a comprehensive focus on the regulatory reporting requirements and their key impacts on your organization and data management. To produce all the required reports on a timely manner with accurate quantitative data and qualitative information, financial institutions may need to perform substantial adaptation and improvement of their existing processes and information systems. Data mapping and quality assurance represent a critical prerequisite effort and a continuous monitoring stream for all the contributors, beyond the central reporting team, and the IT department. In a changing regulatory environment, continuous compliance of regulatory reports appears to be quite a challenge and requires an “adaptive intelligence” within organizations.
Focus on Regulatory Reporting
Purpose of Regulatory Reports
Regulatory reports are collected for many purposes:
- Monitoring safety and soundness on the individual legal entity level (e.g., regulatory capital)
- Monitoring systemic risk in the banking and financial systems
- Monetary Policy (measurement and operations)
- Cross border flows (individual exposures and position of countries)
European Regulatory reporting landscape for banks:
- European are required to prepare disclosures on a defined frequency and format, detailed in the table bellow:
Toward an harmonization reporting process
This harmonization approach is relying on the Lamfalussy process which recommends since 2001 to develop European Finance Supervision convergence. This process aims at:
- increasing the effectiveness of monitoring and supervising financial institutions,
- reducing asymmetries of information between supervisory authorities and financial institutions,
- ensuring data availability and comparability to facilitate a proper functioning of cross-border supervision
Harmonization is driven through three major axis
Major stakes for the financial industry
How to leverage on regulatory reportings requirements
- The European Banking Authority (EBA) released in October 2013 its Ü final technical standards on supervisory reporting on Non-Performing Exposures and Forbearance, which will provide consistent indicators of asset quality of banks across the European Union. The EBA also issued recommendations on asset quality reviews (AQRs) aimed at supporting existing and/or planned reviews across the EU.
- The EBA published on Dec. 19th 2013 final draft Implementing Technical Standards (ITS) which specify the format, structure, contents list and annual publication date of the supervisory information to be disclosed by competent authorities in the banking sector.The EBA published on Dec. 13th 2013 its final draft Implementing Technical Standards (ITS) on joint decisions on institution-specific prudential requirements. These ITS will ensure uniform conditions of application of the joint decision process - on capital and liquidity - between consolidating supervisors and relevant competent authorities.
- The EBA published on Dec. 20th 2013 two reports on liquidity, namely on:
These two reports provide the European Commission with specific recommendations for the purpose of its forthcoming delegated act.
- The EBA launched on Dec. 20th 2013 a public consultation on draft Guidelines proposing harmonised definitions and templates for funding plans of credit institutions. These Guidelines aim at harmonising the way the reporting of funding plans is conducted. The consultation runs until 20 March 2014.
Bank recovery and resolution directive (BRR Directive)
- At the Jun. 27th 2013 ECOFIN Council, EU finance ministers Ü agreed on a General Approach on the draft directive establishing a framework for the recovery and resolution of failing banks. The proposed directive is aimed at providing national authorities with common powers and instruments to pre-empt bank crises and to resolve any financial institution in an orderly manner in the event of failure, whilst preserving essential bank operations and minimizing taxpayers' exposure to losses. This agreement opened the way for trilogue negotiations between the Council, the Commission and the Parliament.
- A Trilogue agreement was reached on Dec. 12th 2013 between the European Parliament, EU Member States and the Commission on the BRR Directive establishing a bail-in system which will ensure that taxpayers will be last in the line to the pay the bills of a struggling bank.Timing: The directive is to enter into force on Jan. 1st 2015. The bail-in system is to take effect on Jan. 1st 2016.
Single Resolution Mechanism (SRM)
- The European Commission proposedon Jul. 10th 2013 a Single Resolution Mechanism (SRM) for the Banking Union. The Single Resolution Mechanism complements the Single Supervisory Mechanism which was proposed by the Commission in September 2012. It is set to centralize key competences and resources for managing the failure of any bank in the Euro Area and in other Member States participating in the Banking Union.
- The Council of the European Union Ü agreed on Dec. 18th 2013 on the establishment of a single resolution board and a single fund for the resolution of banks. It enables the start of negotiations with the European Parliament with the aim of agreeing the regulation on the single resolution mechanism (SRM) at first reading before May 2014.
Deposit Guarantee Schemes (DGS)
- Deposit Guarantee Schemes reimburse a limited amount of deposits to depositors whose bank has failed. From the depositors’ point of view, this protects a part of their wealth from bank failures. From a financial stability perspective, this promise prevents depositors from making panic withdrawals from their bank, thereby preventing severe economic consequences. On Jul. 12th 2010, the Commission adopted a legislative proposal for a thorough revision of the Ü 94/19/EC Directive on Deposit Guarantee Schemes dealing with a harmonization and simplification of protected deposits, a faster payout, and an improved financing of schemes.
The European Parliament and EU Member States Ü reached on Dec. 17th 2013 a political agreement on the new rules on Deposit Guarantee Schemes (DGS). The new Directive:
- Preserves the universal harmonized coverage level of € 100 000 per depositor and per bank.
- Gradually reduces Repayment deadlines from currently 20 working days to 7 working days
- Confirms the fundamental principle underpinning DGS whereby it is banks that finance deposit guarantee schemes, and not the taxpayers. In Addition, there are financing requirements for DGS in the Directive.
- Improves depositor information to ensure they are aware of the key aspects of protection of their deposits by DGS.
CRD IV- EU response to Basel III
- The European Banking Authority (EBA) published on Dec. 18th 2013 its final Ü draft Implementing Technical Standards (ITS) on additional liquidity monitoring metrics. The monitoring tools in these ITS, together with the Liquidity Coverage Ratio (LCR) standard, will support EU supervisors in the assessment of the liquidity risk of an institution. They aim at allowing the identification of potential liquidity difficulties that may emerge from a negative trend or an absolute result in the metrics. The ITS issued by the EBA sets out five metrics: contractual maturity ladder, concentration of counterbalancing capacity by issuer/counterparty, concentration of funding by counterparty and product type, prices for various lengths of funding and roll-over of funding.
Timing: The proposed application date is Jul. 1st 2015
- The European Banking Authority (EBA) published on Dec. 20th its final draft Regulatory Technical Standards (RTS) on the Ü definition of market and its final draft RTS on Ü Credit Valuation Adjustment risk (CVA risk). The latter is supplemented by an Ü Opinion on CVA risk which further elaborates on the approach taken by the EBA in determining a proxy spread.
- The final draft RTS on the definition of market relates to the definition of the term ‘market' to be applied for the calculation of the overall net position in equity instruments under the market risk standardized rules.
- The final draft RTS on CVA risk for the determination of a proxy spread and the specification of a limited number of smaller portfolios specify the data quality requirements and the minimum granularity of the attributes of rating, industry and region that institutions should consider when estimating an appropriate proxy spread for the determination of the own funds requirements for CVA.
- The EBA opinion on CVA risk for the determination of a proxy spread states the main reasons why the EBA adopted a flexible approach in the final draft RTS on the determination of a proxy spread.
European Market Infrastructure Regulation (EMIR)
- The European Banking Authority (EBA) published on Dec. 19th 2013 its final Ü draft Implementing Technical Standards (ITS) on the reporting of the hypothetical capital of a central counterparty (CCP). These final draft ITS specify calculations and reporting frequencies and templates for the information relating to hypothetical capital that a CCP has to deliver to all the credit institutions and investment firms that are clearing members for the purpose of calculating their own capital requirements.
Contacts : Adlen Bouchenafa et Alexandra Pistiaux