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Country-by-country reporting: HMT tells banks to design their own reports

The 4^th Capital Requirements Directive (CRD IV) requires banks to report to their national regulators, so-called ‘country-by-country reporting’.  Individual Member States have been tasked by the EBA with issuing national standards for firms regulated under CRD IV to carry out this reporting.  The results from the UK’s Country-by-Country reporting (CBCR) for capital requirements consultation were released on Tuesday 19 November, and it was less than surprising when questions arose regarding the format of the reporting methods.  However, the result was more surprising in that the Treasury seem to have given banks free rein to design their own form for reporting.

The consultation paper was part of the UK Government’s approach to finding the most effective way to implement the new reporting requirements set out in CRD IV. The respondents were a group of twenty-two organisations and three private individuals. The reporting standards that were addressed will be affecting most financial institutions and require that those institutions provide information such as their location, number of employees and pre-tax profits or losses.

In order to accomplish this, the UK has decided to follow the majority of respondents, who asserted that any standardised form would impede transparency, and effectively allow firms to design their own form, with a minimal level of guidance.  With this policy of institutional choice being used for reporting, new problems will arise. Instead of having a template that can be understood by the reviewers, the Government faces the risk of having hundreds of different styles of reports, all of which must be checked to make sure the firms are reporting the correct items.  The only assurance that the Government has made is that they will provide common definitions for the reports and they hope it will allow for consistent reporting.  But if transparency and comparability were the main aims here, then it seems that that objective has been compromised.

This is generally good news for banks, who are faced with having to report under a whole host of new regulatory initiatives in 2014, none of which have been aligned, and all of which demand their own reporting standards.  However, in terms of attempting to achieve the aims of the country-by-country reporting standards, and CRD IV as a whole, this approach has few advantages; without alignment, these reports are effectively compliance for compliance’s sake.  Nonetheless, the first reports are expected on 1 July 2014, and then annually from 2015.