In response to the global financial crisis, the European Commission decided that it was time that high quality regulatory reporting was implemented by scrutinising the financial data of companies in much more detail. Consequently, to align with the international bank capital requirements, on 20th July 2011, it submitted a number of proposals to implement the recommendations on Banking Supervision proposed (commonly known as the Basel III) by the Basel Committee.
Under the Commission’s proposals, the current Capital Requirements Directive (CRD) has been divided into two legislative instruments: the Capital Requirements Regulation (the CRR) and the CRD IV Directive.
Through its Capital Requirements Directive (CRD) IV, the European Commission has made it mandatory for the European Banking Authority (EBA) to develop Implementing Technical Standards (ITS) related to supervisory reporting requirements. Besides the main goal of aligning the prudential requirements across European countries, CRD IV has also made proposals on corporate governance and remuneration. In response to this mandate, the EBA has developed Common Reporting (COREP) and Financial Reporting (FINREP) as two frameworks that will apply across Europe.
COREP and FINREP: An Introduction
COREP is the framework for the Capital Requirements Directive reporting of risk (Basel III) under 5 components: Capital Adequacy, Group Solvency, Credit Risk, Operational Risk and Market Risk. This came as a solution to the problems faced by Credit institutions and Investments Firms in taking risk related decisions in a timely manner during the great European financial crisis at an earlier period. COREP was adopted by the Financial Services Authority (FSA) for the UK banking industry from 31 December 2012.
The FSA has mandated that in the UK, COREP will apply to all Credit Institutions and the Investments Firms who are regulated under IFPRU (the FSA’s prudential sourcebook for Investment Firms).
While COREP is a capital reporting regime, FINREP is its financial counterpart. It is a framework given by EBA for reporting financial (accounting) information to the regulator which will be applicable to all Credit Institutions in the European Union. Banks must now plan to adjust their reporting models and requirements to adhere to the technical standards published by the EBA on 26 July 2013.
Between COREP and FINREP, the latter is narrower in its scope because it applies to Credit Institutions reporting on a consolidated basis applying IFRS (International Financial Reporting Standards). COREP, on the other hand requires consolidated reporting as well as solo reporting entity by entity.
At the heart of these two frameworks, COREP and FINREP, lies the main goal of empowering banks with greater capabilities to aggregate risk data and high quality internal risk reporting practices. The main objectives can be summarized as:
Impact on organisations
There is a significant impact on organisations as far as implementation is concerned. Banks have to grapple with the implementation of multiple new reporting regimes by dedicating substantial financial and human capital resources. While some of the data sets under COREP/FINREP are completely new (for e.g. replacement of FSA reports), overall the frameworks require data at a much more granular level. As a result, organisations need to review data they currently collect, conduct a gap analysis and identify the additional data needs, to include the additional data reporting.
The other new aspect that comes in with COREP and FINREP is mandatory XBRL reporting. This will require firms to review their reporting model and software. Software applications like MS Excel may no longer be able to handle the level of granularity required now.
Under FINREP alone, the scope has expanded both in the number of templates for submission and the level of detail:
Moreover, re-submission of audited figures is also mandatory (for companies who are subjected to a regulatory audit, the data must be resubmitted once the audit is complete).
Watch this space for more details, coming your way soon.
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