As cross-border activity has increased in the EU, so too has the disparity between the quality of data being collected by financial regulators across the EU, making the supervision of large cross-border institutions inefficient.
In order to improve the effectiveness of cross-border supervision and to allow EU-wide analysis of capital positions, the European Banking Authority (EBA) has announced the planned introduction of COREP, the European Capital Requirement Directive’s common reporting framework. The aim is to harmonise EU-wide financial reporting obligations on Own Funds, Liquidity Coverage & Stable Funding and Leverage Ratios.
Information will be managed by the creation of a central repository which will hold EU banking investment firm data centrally to assist with improved risk management at cross-border level. A framework will be put in place to allow information and data to flow between national, European and international supervisory authorities, including the European Systemic Risk Board.
The EBA’s target is to improve transparency of cross-border institutions, enabling effective trend predictions and risk analysis, while minimising the occurrence of multiple reporting efforts to differing EU supervisory authorities.
The proposed new regulations are being released in three separate Consultation Papers. The first of the Consultation Papers (CP1) was released in June 2012 and sets out proposals in relation to Own Funds reporting (EBA/CP/2012/04) and specifically publishes the EBA’s Draft Implementing Technical Standards. The prudential requirements for Own Funds are set out separately in the EU’s Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRDIV), applying the Basel III framework across the EU. Both CRR and CRDIV will alter firms’ capital adequacy requirements within the EU and for many firms it is expected to increase the level of own funds which must be held.
The final two Consultation Papers relating to Liquidity Coverage and Stable Funding (EBA/CP/2012/05), and Leverage Ratio (EBA/CP/2012/06) were also published on 7 June 2012 and the consultation process remains open for both runs until 27 August 2012.
The FSA is involved in the CP1 review process and will be analysing COREP’s impact on UK firms and UK subsidiaries of overseas firms and whether the common reporting is likely to have an effect on the FSA’s supervisory framework. An industry working group has been set up to assist with highlighting industry concerns during the development stage of COREP and will provide feedback on the EBA’s Draft Implementing Standards.
As COREP will be used by firms to report Own Funds, the EBA has chosen to bring forward COREP’s implementation date by a year to coincide with the introduction of CRR/CRDIV. COREP is therefore currently tabled for full implementation by a deadline of 31 December 2012. However, the FSA has expressed doubts as to the feasibility of introducing CRR/CRDIV by 1 January 2013; the EBA has requested a deferral and any change to CRR/CRDIV’s deadline will correspondingly alter COREP’s initial implementation date – there is a view that CRDIV/CRR and, hence, COREP implementation may be deferred until July 2013.
Own funds data will be reported via a set of templates. Based on the 31 December 2012 deadline, there is a planned phasing in stages from 1 January 2013 to 31 December 2017, during which time firms will need to complete a transitional disclosure template. The template will be amended and updated in stages as the full Own Funds reporting requirements are introduced over time. Firms will also need to provide a balance sheet reconciliation between their financial statements and their regulatory Own Funds, in addition to details of the main features of their capital instruments.
As of 1 January 2018, the transitional disclosure template will be phased out and replaced with a general Own Funds template. The requirement to report on capital instruments and provide a balance sheet will remain in place.
Who will this impact?
Currently, all firms that are subject to CRD and, hence, GENPRU and BIPRU, the FSA’s prudential sourcebooks for Banks, Building Societies and Investment Firms, report their financial information at a national level to the FSA via GABRIEL, the FSA’s online reporting interface. It is intended that once COREP is fully introduced, BIPRU firms will report their financial information directly to the EBA and GABRIEL reporting for BIPRU firms will be phased out.
For those firms which fall outside the scope of CRR/CRDIV, it is anticipated that financial returns will continue to be reported via GABRIEL in the usual way.
With a possible implementation deadline of 31 December 2012, firms are advised to obtain a copy of the EBA’s consultation papers, including the draft templates, with a view to assessing how COREP may affect their current reporting procedures. As it is likely, changes will be made to the regulations before the deadline, firms should resist making any major changes to their systems or procedures until the end of the consultation process when the final rules are released.
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