CRD IV and Omnibus II /Solvency II compliance
Prudential and statistical reporting in the financial services sector has undergone a period of major change. Within the EU, the Capital Requirements Directive, CRD IV, was issued to strengthen the regulation of the banking sector and Omnibus II now encapsulates the changes to the 2009 Solvency II Framework Directive for the insurance sector. In response to this new regulatory environment the European Supervisory Authorities (European Banking Authority - EBA - for the banking sector and European Insurance and Occupational Pensions Authority - EIOPA - for the insurance market) have recommended the use of the XBRL reporting format as part of the harmonisation process within Europe. This means that reporting obligations under COREP, FINREP and Solvency II must now be met using XBRL.
European Basel III Adaption
Changes to 2009 Solvency II Framework Directive
National Competent Authority
National Competent Authority
The first mandate for bank reporting under XBRL came into force in January 2014, and interim reporting for insurance companies started January 2015 as a precursor to full reporting in January 2016. This means that banks and insurance companies must prepare their COREP and FINREP reports and Solvency II interim reports under the new regulatory regime. It's not only the short timescale between reports, but also the radical changes the mandates will entail, that are of concern.
- Disclosures must include vastly increased amounts of capital, exposure and risk data
- The frequency of reporting will increase
- There is only a short time to prepare between reports
- XBRL (eXtensible Business Reporting Language), has been mandated for the preparation and submission of statutory reports, and will be unfamiliar to many financial organisations
Whilst the banking and insurance industry may consider these regulatory changes to be creating an additional compliance burden, if done correctly the outcome could lead to greater competitive advantage.
A strategic approach
The current imperative is that banks and insurance companies must comply with the new regulation. However, rather than adopting a 'quick fix', a more strategic approach is to be recommended; many of these institutions will also have wider prudential, financial and statistical reporting requirements, such as filing to other government agencies, e.g. SEC or HMRC filing, mandates all based on XBRL. Finding a solution that caters for a wide variety of reporting requirements is preferable.
Competitive advantage from compliance
Consider the new data that has to be prepared or gathered, the underlying consistency of format (XBRL) and the standardised data definitions imposed by the mandated use of XBRL. One of the key benefits of having access to this standardised data is that it can be easily compared, which can lead to more efficient decision making. Banks and insurance companies can use this data to analyse the viability of alternative investment decisions and, based upon tangible information, avoid exposure to bad debts. XBRL really can lead to easier, faster and more accurate decisions, a more efficient process, and reduced risk, all of which can contribute towards making the bank or insurance company more competitive.