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CoREP and FinREP Implementation Challenges – Part II

Read Part I here. The Capital Requirements Directive (2013/36/EU) and the Capital Requirements Regulation (575/2013) (CRD IV), together have ushered in new and comprehensive prudential rules for banks, building societies and investment firms (firms) throughout the European Union (EU). These prudential rules include two new reporting frameworks supervised by the European Banking Authority (EBA). The Financial Reporting Standard (FinREP) framework governs the reporting of financial information on an annual basis. The Common Reporting Standard (CoREP) framework governs the reporting of risk (credit, market, operational, solvency, capital) on a monthly and quarterly basis. CoREP reporting came into effect from 1st January 2014, and full implementation is required by 1st January 2019. Together these new reporting frameworks aim to improve transparency and standardisation in EU regulatory data reporting practices, as well as enabling more enhanced risk identification and management in supervisory practices. At the same time, the new CoREP and FinREP reporting frameworks pose significant implementation challenges for firms operating in the EU. Operational challenges The new mandated use of eXtensible Business Reporting Language (XBRL) for CoREP and FinREP reports may prove to be particularly challenging for firms. XBRL is optimised for complex, multifaceted reporting and has numerous advantages, such as comprehensive embedded support for integrated definitions, multiple languages, extensive vocabularies, data validation, and error checking. Nevertheless, non-XBRL formats (e.g., Extensible Markup Language (XML), Statistical Data and Metadata eXchange (SDMX)) are still widely in use in many countries around the world. Consequently, firms may be required to implement both non-XBRL and XBRL reporting frameworks. For some firms, this will require reporting solutions with full native support for XBRL in terms of fully embedded XBRL functionality, as an XBRL add-on may increase the probability of integration errors and lead to less than optimal system performance. For other firms, third party outsourcing of CoREP and FinREP reporting may prove to be a more cost-effective and efficient solution. This is because CoREP and FinREP reporting frameworks may turn out to be operationally complex in practice. These frameworks must ensure effective pre-submission formatting, normalization, and validation of reporting data. They must subject XBRL reports to a large set of validation rules within the EBA's Data Point Model (DPM) and XBRL taxonomy. They must conform data with EBA Implementing Technical Standards (ITS), and supplementary technical requirements issued by the local National Supervisory Authority (NSA) of each of the twenty-eight EU Member States. They must maintain template rules and hierarchies while also retaining access to archived XBRL iterations to comply with requirements to resubmit reports using earlier versions of the XBRL taxonomy. The underlying objectives behind CRD IV include the development of more accurate financial risk identification, management and monitoring supervisory frameworks, and enhanced macro-prudential analysis. In practice, this may necessitate frequent updates by the EBA to the DPM and XBRL taxonomy. Consequently, reporting frameworks must not only provide business as usual performance but must be flexible and scalable enough to support future updated XBRL reporting requirements (from the EBA and local NSAs) in a timely manner (i.e. speedy mapping of new XBRL taxonomy requirements to existing data sourcing frameworks). Management, Governance and Strategic Challenges The long-term implementation of cost-effective and efficient CoREP and FinREP reporting frameworks may prove to be an on-going challenge for firms. There are many management, governance and strategic challenges that lay ahead. On the one hand, many firms may have implemented intermediary reporting solutions, but may now be looking to put more sophisticated data management platforms in place. On the other hand, other firms provisionally using third party outsourcing of CoREP and FinREP reporting may be facing spiralling costs, and may now be looking for more cost-effective long-term third party solutions. Managers within the Risk, Finance, Operations and Reporting functions will have to ensure that the most accurate and cost-effective CoREP and FinREP reporting frameworks are in place, as well as striving to meet ongoing organisational, IT, infrastructure, and operational challenges. It will be no easy task for management to chart the correct course across a frequently changing CRD IV XBRL landscape. Managers must ensure that firms have sufficiently robust financial and risk control frameworks in place, as well as enhanced governance structures that can meet new CoREP and FinREP reporting demands. In practice, this may require the development of a more holistic and streamlined risk management, data management, accounting and regulatory reporting framework. With the CoREP and FinREP regulatory reporting process subject to regulatory review, there may be increased focus on data governance (i.e., audit and attestation) and data management practices. Firms will have to concentrate on data lineage and controls, create documentation to support the robustness of data management practices and accuracy of data, and develop visit inspection plans to account for discrepancies between initial and audited figures. Firm processes will also need to ensure that managers have access to sufficient reconciliation data to enable them to review and sign-off on CoREP and FinREP regulatory returns. At DataTracks, we understand the complexity of the new CRD IV XBRL landscape and make it our business to simplify CoREP and FinREP reporting for firms, by providing cost-effective reporting solutions. For more information on our CRD IV XBRL reporting solutions and prices, please email us at enquiry@datatracks.eu.
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