This document discusses the new FINREP regulatory reporting requirements for European banks established by the European Banking Authority (EBA). The key points are:
- FINREP aims to standardize European financial reporting to reduce the burden on banks and improve cross-border risk analysis. It requires over 40 new reporting templates with over 3,500 data fields to be submitted within 42 days of each quarter end.
- Banks will need to provide both initial and audited financial reports, disaggregate some data (e.g. by country or activity), and report additional information beyond current GAAP requirements.
- Implementing FINREP by the January 2013 deadline will be challenging for banks and require understanding the new requirements, identifying data
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IPSAS 23: Revenue from Non-Exchange Transactions(Tax & Transfer)
IPSAS 24: Presentation of Budget information in FS
IPSAS 25: Employee Benefits
IPSAS 26: Impairment of Cash Generating Asset
IPSAS 27: Agriculture
IPSAS 28: Financial Instrument Presentation
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IPSAS 30: Financial Instrument Disclosure
IPSAS 31: Intangible Asset
IPSAS 32: Service Concession Arrangements: Grantor
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IPSAS 9: Revenue from Exchange Transactions
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IPSAS 11: Construction Contract
IPSAS 12: Inventories
IPSAS 13: Leases
IPSAS 14: Events after the Reporting Date
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IPSAS 17: Property, plant & Equipment
IPSAS 18: Segment Reporting
IPSAS19: Provisions Contingent Liabilities & Assets
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IPSAS 21: Impairment of Non-Cash Generating Asset
IPSAS 22: Disclosure of Financial Information About the General Government Sector
IPSAS 23: Revenue from Non-Exchange Transactions(Tax & Transfer)
IPSAS 24: Presentation of Budget information in FS
IPSAS 25: Employee Benefits
IPSAS 26: Impairment of Cash Generating Asset
IPSAS 27: Agriculture
IPSAS 28: Financial Instrument Presentation
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IFRS Implementation and how the banks should approach it.
Though the final version of IFRS came up in 2014, the banks across the globe have recently embarked the journey. Any new regulation requires significant effort to revisit its existing governance, policies & processes, data and the systems and IFRS 9 is no different.
2. Background
Objectives
Key objectives of FINREP:
• Standardise European reporting requirements to
reduce the impact on firms of multiple regular reporting
requirements from different European supervisors;
• Establish a central repository for European banking
data, enabling improved risk identification and management
for cross-border institutions;
• Facilitate peer reviews, trend predictions, risk analysis
and provide greater transparency, especially on cross-border
firms; and
• Enable data to be easily shared with national and
international authorities, supervisory colleges, ESRB
and ESAs.
The Capital Requirements Regulation (CRR) under
The Capital Requirements Directive (CRD) IV contains
a mandate for the European Banking Authority (EBA)
to develop Implementing Technical Standards (ITS)
related to supervisory reporting requirements. In
response, the EBA has developed two frameworks
that will apply across Europe:
Financial Reporting Standard (FINREP) – reporting of
financial information to the regulator.
Common Reporting Standard (COREP) – reporting of
risk (Basel III) in 5 components (capital, solvency, credit
risk, operational risk and market risk).
To whom does it apply?
FINREP applies to credit
institutions reporting on
a consolidated basis.
A credit institution as defined by CRR
Article four:
An undertaking whose business is able to
receive deposits or other repayable funds
from the public and to grant credits for
its own account.
1
2
3. What are the impacts?
Though the standard is not final, the draft has a proposed effective date of 1 January 2013 with the first reported period
being the quarter ending 31 March 2013. The requirements are a significant increase from current financial reporting
requirements (i.e. those set out in UK FSA 001 and FSA 002) by local regulators and includes expanded scope both in
the number of templates for submission and the level of detail required:
• Increase to over 40 new forms/templates with over 3,500 data fields.
• Submissions are due within 42 calendar days of quarter end; a calendar quarter end is required.
• In addition to quarterly reporting, re-submission of audited figures is required (no new audit requirements,
however data must be submitted within 42 days and where a regulatory audit of the entity already occurs, the
data must be resubmitted once the audit is complete).
FINREP does not change the underlying accounting framework (there are templates for
both IFRS reporters and local GAAP reporters). However, the FINREP consultation
paper requires reporting of financial data on the entity consolidated using the CRR
scope of consolidation, which differs from the scope of consolidation under the
accounting frameworks.
Additionally, in certain cases FINREP requires information that is not required by
GAAP or that is disaggregated in a manner that differs from GAAP. For example:
• Disaggregation by country of counterparty for assets and by location of activity
for the income statement.
• Reporting of change in fair value due to credit risk for assets in the held for
trading category by asset type/counterparty type.
• Reporting of certain economic hedges.
• Consideration of tactical vs. strategic solutions – can FINREP be incorporated
into existing strategic change programs or will there need to be workarounds?
Other key considerations include:
• Which entities are in scope? Is data available for the entity reported under consolidated supervision?
• Does the current financial reporting process operate at a frequency and within a time period (within 42 days of
quarter end) that would meet the requirements? Is the quality of the data (including the quarterly data) robust
and well controlled?
• Regulators’ increased focus on the quality of reporting data will result in changes to the format and frequency of
the reports, and increased demand for greater assurance that the reports are accurate. FINREP will expose the
quality of pre-audited figures to the regulator as it requires submission of initial figures and resubmission of
audited figures.
• The proposed implementation timeframe is challenging and may coincide with other projects; institutions should
begin to understand the requirements; assess data gaps and review the current reporting process.
The reporting required is also in excess of interim disclosure
requirements. The FINREP requirements have three key impacts on
the financial reporting function and institutions will need to:
• Understand the new FINREP policy and requirements.
• Identify and source the correct data to satisfy the FINREP requirements.
• Develop an efficient and effective process to deliver
FINREP reporting.
FINREF policy
& requirements
Data Process
Revised drafts of the
CRR indicate the final
proposal may only apply
to IFRS reporters.
Additionally, it is
unclear whether FINREP
will be mandated by the
EBA or left to the
discretion of the
national regulators.
4. FINREP – Timeline
Proposed timelines of legislation and implementation
Timing may change due to changes in the final version of CRD IV, the CRR and the ITS
Q4
2011
Q1
2012
Q2 Q3 Q4 Q2Q1
2013
What changes under FINREP?
New data
requirements
New reports
and templates
More granular
data
New reporting
language
Short
timeframe to
comply
Increased
frequency of
reporting
Implementation of FINREP will be a major challenge for UK and EU banks and requires:
20-Dec-2011
EBA
Consultation
Paper CP50
issued
20-Mar-2012
End of
consultation
period
01-Jan-13
Institutional
compliance
20-Feb-2012
Public hearing
on CP50
20-Jun-12
Final draft of
Implementing
Technical
Standards
31-Mar-13
1st
Regulatory
reporting period
end
13-May-13
Submission
to national
authorities
5. Example of how PwC has
helped a client to gain a clear
understanding in four weeks
Client issue
The client needed to determine how best to address new financial reporting
requirements to regulators (FINREP) as drafted by the European Banking
Authority (EBA). As the client already reports extensive data to the regulators,
PwC was requested to determine the feasibility of leveraging current regulatory
reporting to meet the FINREP requirements. The client faced short deadlines
and required support with expertise and resources.
PwC approach
PwC designed an approach to analyse and interpret the FINREP requirements
and to determine the extent of overlap with current regulatory reporting.
Findings were summarised and recommendations were developed into options
for senior management. PwC also provided in depth analysis on the FINREP
policy and the approach to sourcing the required data. Furthermore, PwC
supported the client in understanding implications for the current reporting
process and considerations for tactical solutions in order to comply with
FINREP by 1 January 2013.
Client benefit
PwC helped the client to gain a clear understanding of the FINREP policy, the
granular data requirements and the significant impact on the current financial
reporting processes. The engagement enabled the client to take an informed
decision on how to comply with the FINREP requirements within the timeframe
set out by the regulators.