CoREP and FinREP Implementation Challenges – Part I

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.

Organisational Challenges

Firms impacted by the new CRD IV rules will invariably have been required to implement an internal CoRep and FinRep impact assessment project, as well as putting in place a sufficiently experienced project management team in order to meet strict implementation timelines. In practice, the increased level of granularity required for the reporting data also means that firms will have to source data that has not previously been used for reporting purposes. Firms will have to quickly identify data requirements, and source the required data in multiple formats (e.g. electronic, paper statements, and manually maintained spreadsheets) by the relevant implementation deadlines. Firms will also have to identify which of the [25] CoREP templates and which of the [46] FinRep templates, they will be required to populate and report. Existing or new data reporting systems must be able to reconcile multiple reference dates such as FRS 102, IAS, IFRS, and IRR. Indeed, the 30 working day reporting window, increased reporting frequency, increased reporting templates, and increased demand for higher volumes of data, together may now compel firms to reassess the suitability and effectiveness of existing data sourcing and management systems. Firms must also ensure that Finance, Risk, Compliance, Operations, Legal, and Information Systems departments can quickly and effectively coordinate with regards to CoREP and FinREP implementation issues. This will not only raise questions regarding the precise nature of data ownership between internal functions but also questions pertaining to how to more effectively align traditionally siloed operational areas such as risk and finance. 

Information Technology and Infrastructure challenges

Under the new CRDIV reporting framework, firms may find themselves facing a plethora of Information Technology (IT) and infrastructure challenges. Many firms may likely be operating without a single data warehouse or repository, and so may need to track the required data from multiple sources on multiple occasions. The increased volume and granularity of data required for reporting purposes may oblige firms to develop intermediary databases, repositories, file systems, or information retrieval systems, in order to effectively source the relevant data from within the firm. In light of other reporting frameworks currently in place within the EU (e.g., the updated Markets in Financial Instruments Directive (MiFID II) and the European Market Infrastructure Regulation (EMIR)) firms may also likely be forced to develop reporting data warehouses in order to track and integrate data from multiple heterogeneous information sources. This will require firms to map the data to a common structure, to store in a centralised data warehouse, to implement cross-validation and adhere to EBA validation rules. Firms must also ensure data integrity, which may prove to be highly challenging in practice owing to potential information conflicts (i.e., semantic inconsistencies, data inconsistencies), integrity violations (i.e., hardware and software errors, inadvertent user errors) and technology obsolescence. Firms may be required to embed data integrity controls within the data collection process, along with tools and processes to enable swift correction of data. Indeed, CoREP and FinREP may also likely raise a number of recognised data mapping issues such as missing values, code changes, data type mismatches, and moving data from unstructured to structured fields. Firms may find that mapping data into the new range of templates (e.g., from GAAP to IFRS) will be a time consuming process that increases in complexity as the mapping of levels progresses (i.e., system-to-system, object-to-object, field-to-field, value-to-value).

Watch this space for more challenges in the next blogpost.

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