Europe’s first Capital Requirements Regulation report is imminent – even through the European Parliament has yet to pass the act. Now regulators need policy alignment to save the industry €24.2 billion.
In July, JWG’s new research highlighted that regulatory standards were critical to saving €24.2 billion. After conducting an extensive survey of 80+ people in 30+ firms on regulatory reporting, it was found 90% of firms identified that it would take a minimum of six months to implement a change to their reporting solutions and only 48% of firms agreed that reporting programmes have sufficient resources and personnel.
A key focus of this research was the effect of the scope and timing of the CRR technical standards ’on firms’ implementation approaches. This quarter, the cost estimate assumptions proved valid as the reporting ITS are still far from being finalised. We fear the opportunity for savings is disappearing before our eyes. The opportunity for cost efficiency makes the discussion about detailed technical standards, like COREP and FINREP, even more important as an integral piece of reporting standards. This was discussed in September’s European Banking Authority workshop in London with 200 attendees.
With reporting compliance estimated to cost billions, and with the potential to take between 18 and 24 months, important systems architecture decisions need to be made soon. The repeated delays to the adoption of the CRR have provided a welcome extension for firms, but many existing issues on timing, interpretation and the detail of the technical standards still frustrate those attempting to design new, compliant systems.
- When will COREP/FINREP reporting be implemented?
- Is a phased implementation approach likely? If so, how?
- How many iterations to the draft templates and standards can we expect?
The questions on everyone’s minds is What exactly are the requirements and when do we have to implement them? Firms are desperate to obtain clarity on how they can begin implementation. This sentiment was strongly expressed at the EBA’s technical standards workshop in September, where authorities attempted to answer 400+ questions sent in advance.
The EBA’s introductory presentation on implementation approaches did little to clarify what banks can expect in 2013. It would appear that the possibility of phasing the delivery of reports is being considered. However, given the timing of MEPs, the EBA and the translators, an end-of-year implementation is far more likely.
This leaves the EBA with its back somewhat up against the wall. It has to decide in its ITS whether it is a reporting interpretation, which falls under its purview, or a risk aggregation question, which falls under the EC’s. These decisions then have to be approved by the EC and discussed before finally being incorporated back into the legislation.
Either way, whoever’s court the ball ends up in, this lack of clarity creates more delays as they get added into the CRR final text or the EBA’s technical standards. Any pushback from the EC regarding the ITS has the potential to cause an additional delay of two months to reach consensus. While the EBA doesn’t think this is terribly likely, it is certainly within the realm of possibility and would again mean knock-on delays for firms and their implementation plans.
This is largely a moot point. As the reports within the ITS have to go through local supervisors to reach the EBA, there is still another level of regulatory guidance required to specify what format and protocols they want reported. To further complicate matters, supervisors have largely not defined these, nor have they clarified local implementation timelines. For example, the FSA has said it will start collecting information from July 2013, but not made clear whether or not that date is mandatory.
Timing issues are only part of the challenge. As the EBA recognised, inconsistencies within the reporting templates, the data point model and the taxonomies have yet to be addressed. This is no simple issue, with redundant data requirements between templates, vague definitions and lack of appropriate standards (example: what can be considered a ‘connection’ when defining the obligor for retail exposures). The EBA was very receptive to comments regarding these inconsistencies and asserted that they were looking to resolve the issues in future drafts of the various ITS. However, from a firm’s perspective, this means an even steeper hill to climb for change management programmes.
The hard question is: how can firms track iterative changes to reporting templates across multiple analysts, contractors, consultants and systems integrators on a row/column level over years? In JWG’s research, we predicted that the cost of implementing these requirements across Europe could reach €49 billion by 2015. We’re moving to an increasingly fragmented, disproportionately expensive system where financial institutions are trapped in a reactive, individual approach to compliance and short term thinking and tight implementation windows mean quality is sacrificed.
We can only hope the vendors figure it out.
- The window of opportunity to save billions of Euros through streamlined regulatory standards is closing fast
- Delays with the Capital Requirements Regulation technical standards are resulting in costly uncertainty for firms’ change management programmes and system upgrades
- While regulators realise the inconsistencies in their reporting templates, the industry still waits for them to translate this into action.