EU supervisors issue CP on common reporting
LONDON - A plan to provide a common framework for European banks and investment firms to report their solvency ratios was published in late January by the Committee of European Banking Supervisors (CEBS).
The common framework was issued as a consultative paper, and is aimed, in part, at streamlining the reporting process for large financial groups, with subsidiaries in several of the EU's 25 member countries. The 3-month consultation period ends on April 30.
The London-based CEBS, which fosters convergence of EU supervisory practices and advises the European Commission on the technical aspects of banking legislation, says common reporting will make it easier for supervisors to cooperate and will help to reduce the differences in the implementation of the new solvency rules. These rules are key part of the Capital Requirements Directive (CRD), which transposes the new Basel capital accord (Basel II), published last June, into EU law. The directive, which will eventually set the capital rules for all the EU's 10,500 banks and 2,000 investment firms, begins to take effect in 2007.
The solvency ratio will be used by banking supervisors to assess institutions' risks and their related capital adequacy. Under the CRD, banks and investment firms must have enough financial resources to cover their risks and protect depositors.
The common reporting consultation paper* is the first of two planned for this year by CEBS. A second consultation, expected at the end March 2005, will focus on prudential reporting requirements around the balance sheet and income statement based on International Financial Reporting Standards (IFRS).
The implementation of new IFRS and the CRD provides a unique opportunity to harmonise the data framework, says CEBS in a note accompanying the consultation paper. Both supervisors and firms will need to develop new reporting requirements and CEBS is keen to seize the opportunity to promote greater convergence in this area. The aim is to reduce the reporting burden on firms and encourage an increased level playing field across Europe. Benefits for cross-border groups should be achieved whilst limiting the burden for small, local banks, says the supervisors' committee.
At present, financial groups operating on a cross-border basis within the Single Market are required to prepare and submit their supervisory reporting according to different national formats and using different technologies.
The proposed solvency ratio framework comprises a number of templates to be filled in by the reporting institutions. Under this common framework, the basic elements to be reported will be similar across the EU, with possible differences in the degree of details requested in each country. The consultation paper focuses on credit, market and operational risk.
CEBS, which is both a high-level committee and a secretariat, says its proposals are flexible because they allow each supervisor to choose the scope as well as the level of aggregation of information required. They seek to maintain consistency by adopting the same concepts and terminology as far as possible. And standardisation is promoted by keeping the number of different templates to a minimum.
Large banks will be expected to report according to the common framework at least on a quarterly basis. The frequency of supervisory reporting for the other credit institutions is to be determined at the national level.
A data model and an Information System solution have been designed to support the common reporting framework and at the same time made compatible with existing reporting systems. The adoption of a common technology protocol based on XML/XBRL language, which will allow full advantage to be taken of the data model's functionality, is recommended in the consultation paper.
CEBS also intends to provide a complete XML/XBRL (eXtensible Mark-up Language/eXtensible Business Reporting Language) coding and taxonomy for the reporting of the solvency ratio. This will not prejudice national decisions about the technical processes for the transmission of data to supervisors, says CEBS.
*CEBS Consultation Paper on the New Solvency Ratio: Towards a Common Reporting Framework (CEBS CBO4 - January 2005)
