The European Banking Authority (EBA) introduced the Capital Requirements Directive IV (CRD IV) aim to ensure financial transparency across the European Economic Area (EEA). The directive covers banks, building societies and investment firms.
The EBA has developed two reporting frameworks being:
- COmmon REPorting Standards(COREP) that specify the capital information required, applies to all credit institutions and investment firms operating in the EEA. The regulation requires reporting templates for Capital Adequacy, Credit and Counterparty Credit Risk, Group Solvency, Market Risk and Operational Risk. Reports must be filed on a monthly and quarterly basis with the National Supervisory Authority.
- FINancial REPorting Standards(FINREP) that specify the financial information required and applies to all credit institutions that consolidate their financial reports based on IFRS The templates include Balance sheet, Income statement, Comprehensive Income and Equity, Disclosure of financial assets and liabilities, off balance sheet activities and non-financial instrument disclosures.
The UK Capital Requirements Regulation (CRR), defined by the European Banking Authority (EBA), requires CRR firms to apply the implementing technical standards (ITS) for reporting (the guidance, templates, technical standards and validation required for reporting COREP and FINREP to supervisors)
Here, we consider which institutions will need to comply with FINREP and the nature of these requirements.
Recent updates to FINREP
Recent amendments to FinRep come from Reg (EU) 2017/1443, which introduces the concept of expected losses with International Financial Reporting Standards 9 Financial Instruments (IFRS 9), and from Reg (EU) 2020/429, which amends/adds reporting of non-performing and forborne exposures, of profit or loss items (especially concerning expenses), and on leases according to the new IFRS 16.
What are the 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
- Facilitate sharing of data with national and international authorities, supervisory colleges, ESRB and ESAs
Which financial institutions will be affected by the Changes?
FINREP applies to credit institutions, banks and investment firms that are:
- Listed on a recognised stock exchange
- Prepare their financial statements in accordance with International Financial Reporting Standards (IFRS); and
- Subject to CRD IV so all credit institutions and some investment firms
Building societies with securities listed on an EU regulated market are also affected.
What is the timeframe for FINREP?
FINREP went live on 30 September 2014 and the first submission date was 11th November 2014. This submission included all FINREP templates except for those covering Non-Performing Exposures (NPE) and ForBearance (FB) that were due for submission on 31 December 2014.
Latest available EBA reporting framework 2.9: Package 2.9 FIN to apply from 30/06/2020 which includes Changes to FINREP concerning non-performing and forborne exposures reporting, P&L and IFRS16.
Key considerations for financial institutions
The major UK listed banks have spent considerable time and effort in mapping their underlying information to FINREP templates and preparing for the initial submissions. Although the starting point is their consolidated financial statements, most have found that there are differences in the amount of information required or the nature of analysis required. For UK listed investment firms the challenge has been to identify what is relevant to them and to find the resources to prepare for FINREP reporting.
What actions does FINREP require?
On an ongoing basis FINREP reporting will require the financial reporting function to:
- Understand the new FINREP policy and requirements
- Identify and source the correct data to meet the FINREP requirements
- Develop an efficient and effective process to deliver FINREP reports that are accurate and consistent
- Produce the information required in the timeframes required
- Reconcile any differences between a reporter's IFRS/UK GAAP accounting consolidated group and PRA/FCA prudential consolidated group
- Submit pre-audited figures to the regulator (and resubmit when audited figures are available)
How we can help with FINREP
BDO can assist institutions reporting under FINREP to undertake a regulatory review of the templates submitted quarterly. This review covers areas such as:
- Review of FINREP templates including review of template mapping, categorisation, documentation and controls.
- Review of reconciliations between the institution's IFRS accounting consolidation group and the FCA/PRA prudential consolidation group.
For more information, please contact Oivind Andresen.
