Harmonised supervisory reporting: FINREP and COREP

The Directive and application

On 1^st January 2014, the fourth Directive on capital requirements (Capital Requirements Directive IV, CRD IV) and the related Regulation (Capital Requirements Regulation, CRR) i.e. the so-called CRD IV/CRR package introduced by EEA (European Economic Area) and EBA (European Banking Authority) entered into force.

The CRD IV is designed to implement the Basel III agreement on prudential and accounting supervision in the UE. The Directive provides for a regulation of reporting standards which should ensure common reporting criteria in the Eurozone, as well as establish which data need to be submitted by banks to the Authority and the frequency of that submission.

This regulatory package enhances the prudential framework for individual institutions and responds to stability concerns raised during the last banking crisis. Moreover, it provides transparency and supports the dialogue between credit institutions and regulators, fostering data sharing among financial intermediaries and supervisory bodies.

 

FINREP and COREP

Among the several harmonised reporting the companies subject to the above-mentioned rules (investment and banking companies, in Italy further extended to financial companies in relation to some COREP information only) need to produce for statistical and prudential purposes, there have been introduced the FINREP and COREP reporting, standing for Financial Reporting and Common reporting respectively.

The FINREP (financial information reporting) has to be drafted by investment companies, banks and financial groups subject to the Capital Requirements Directive IV and using IFRS or national (nGAAP) accounting standards.

The Authority will employ the reporting-derived information at consolidated and individual level, to define the qualitative risk or funding profile linked to different phenomena such as the risks, liquidity and budgetary constraint degree characterising the supervised institution. Using standard criteria to emanate reports at European level would allow supervisory bodies to identify each intermediary’s critical aspects, also thanks to the comparison with the other major players in the industry.

Moreover, the data collection system is constantly evolving: the recent implementations related to the recognition of financing subject to moratoria in the light of the COVID-19 pandemic should provide sufficient evidence of that.

The COREP (prudential information reporting) allows to generate in a harmonised format the data referred to the first Pillar of Basel Regulation, as well as the information on liquidity, leverage mitigation and relevant exposures. The COREP pursues the goal of higher transparency level and uniformity degree in relation to risk capital requirements. To meet regulatory needs, credit institutions have to submit to the responsible supervisory body the data related to different risk classes:

• Credit and counterparty credit risk
• Operational risk
• Market risk
• Concentration risk (Large Exposures)
• Group solvency
• Capital adequacy

The reporting, created to fulfil legislative requirements, and harmonised supervision have been defined by the EBA through Implementing Technical Standards (ITS) – that is, a set of technical implementing rules/schemes designed to put reporting systems into effect and standardising them at European level. The ITS specify data templates to be used and the information needed for their compilation.

Similarly to FINREP, also COREP templates are experiencing a continuous evolution: so much that, in the next two years, significant integrations are expected in relation to both reporting systems and the widening of collected information, as well as their subsequent incorporations to the anticipated regulation (so-called Basel 4).

Application scope and process

FINREP and COREP harmonised supervisory reporting are provided by those institutions subject to Bank of Italy’s supervision (primary reporting), which in turn submits them to the European Central Bank (secondary reporting). Both primary and secondary reporting are based on the Data Point Model (DPM) and need to be produced according to the XBRL (Extendable Business Reporting Language)format. Such data base is so granular that it can be harnessed in a fully-fledged manner by Business Intelligence for further elaborations within the organization.

In terms of frequency, the reporting is submitted on a quarterly basis and both COREP and FINREP scope of application covers the individual and consolidated level. There are also additional simplifications based on the progressivity principle, which tend to relieve the information assets for smaller and less complex institutions, i.e. not qualified as parent companies (‘solo’ reporting).

COREP and FINREP reporting, which are highly standardised in terms of contents and delivery format, may pose a significant challenge for many institutions. Consequently, the correctness of available data (data governance) and the soundness of the internal information management process by IT functions are more relevant than ever.

An efficient IT suite gives the opportunity to obtain an overall, long-term view of operational and strategic business models, in the light of increasingly growing and complex regulatory reporting requirements.

TIGREARM solutions for harmonised supervisory reporting

Harmonised Reporting: clear and monitored harmonised surveys. The primary reporting module for harmonised reporting is designed to deal with technical aspects, like:

• XBRL language
• Taxonomy

…as well as qualitative features, including:

• Templates provided in the Excel format (COREP, FINREP, Leverage, Large Exposures, Liquidity, etc.);
• Domain values for individual pieces of information, illustrated with the double coding ‘code’;
• EBA and ECB validation rules and Bank of Italy’s personalisation, transformed into a simple error report.

 

The main strengths of the module include:

• Intuitive management of any identified anomalies
• Transparency and ease of use of the whole system (descriptions, support tables, decoding)
• Quick processing and timely rectification/data-entry procedures, which allow the user to rapidly attain a formally correct result in terms of a preventive inconsistency check
• Regulatory compliance with the structures used and existing/previous versions (DPM versioning)

 

The module’s main advantages relate to the double possibility of:

• Data navigation (drill-down within generated templates and reports)
• Determination of qualitative reference indicators for internal analysis (data mining) of data assets and the bank’s positioning degree relative to such dimensions.

Like every other TigreArm module, this module is web-based and can be used also for remote working