Cicero Policy Briefer

Issue 18, November 2007

What does the future hold for banking supervision?

By Michael Cooper

It is fair to say that industry is not singing the praises of current banking reporting systems in the EU. With the extra regulatory workload from MiFID having come into force in November, industry is bemoaning the extra work coming from the reporting systems being shaped by the Committee of European Banking Supervisors (CEBS). The Committee is presently assessing templates of its supervisory reporting systems FINREP and COREP: the former referring to financial and standardised financial reporting framework for credit institutions operating in the EU, and the latter to common reporting framework for credit institutions and investment firms when they report their solvency ratio to supervisory authorities under the Capital Requirements Directive (CRD).

With a view to finding a compromise that strikes a balance that increases convergence of necessary reporting while not over-burdening industry, CEBS last month held an open hearing on what the future holds for the world of supervisory reporting. CEBS’ action plan for 2008 is looking to deal with the major problems that stand in the way of implementing fully converged frameworks by 2011.

Comparing the system with international equivalents, CEBS admits that reporting systems in the US demand less information. With increasing compliance requirements come higher costs, and business is keen to scale down what information will be required and to extend the remittance dates for data submission allowed by CEBS.

Yet more problems occur with divergence in data definitions, stemming from differing interpretations that Member States have taken when implementing the CRD. With CRD implementation proving to be a mixed bag, the interplay between the Directive, Basel II, and local regulators is hazy at best. Unfortunately it is difficult to achieve solutions to this and many other issues arising from CRD as CEBS’ remit only goes so far before the European Commission (unfortunately absent from the hearing) takes charge.

What CEBS can do, however, is offer practical issues within the boundaries of CRD—and this is where it can begin to win over industry. In the short term it will run user-tests to analyse how to reduce the differences in national implementation of supervisory authorities as well as tests to streamline the FINREP template. Another possible short term solution for CEBS to mull over will be setting up one single entry point for all data from banks to one supervisory authority where it would then be authorised and dispatched to all other authorities.

What is certain is that the Committee and industry need to work together to find agreements on how to keep the system running while the long-term measures and structural headaches are deliberated over in Brussels. With a greater emphasis on banks’ internal reporting structures there can be less duplication of reporting, and CEBS must find agreement on a list of relevant data items on which definitions are agreed.

It should be noted that the framework templates have, widely speaking, been well received by domestic banks using standardised reporting. At this stage CEBS cannot afford to be too protective of its original templates and the possibility of two processes, one for domestic banks and one for cross-border banking groups is another area in which it could help industry.

Indeed CEBS has been quick to highlight that the supervisory reporting frameworks are by no means set in stone, and is more than willing to continue dialogue with wider stakeholders. And with the future package of supervisory reporting hard to clarify, functional next-steps and ideas which are neither overarching nor bureaucratic will better lead the way.

Michael Cooper can be contacted on +44 (0)20 7665 9530 or click here to email.

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