Key points of the consultation paper
Implementation of IFRS 18
The most significant change arises from the implementation of IFRS 18, which introduces a new structure for the profit and loss account. This consists of five categories: Operating, Investing, Financing, Income Taxes and Discontinued Operations. The corresponding FINREP reporting forms will be adapted to this structure. The framework takes into account the different business models of institutions. For institutions whose main business activity consists of providing finance to customers and/or investing in assets, certain income and expenses must be allocated to the ‘Operating’ category, even though they would normally be allocated to the ‘Investing’ or ‘Financing’ categories.
Each institution must assess, on the basis of its individual circumstances, whether investments in financial or non-financial assets are attributable to its principal business activity.
Simplification and proportionality
The EBA aims to reduce the reporting burden without losing information essential for supervision. To this end, reporting requirements are reviewed on the basis of their supervisory relevance, and greater account is taken of the principle of proportionality.
Plans include the removal of reporting templates that are of little practical relevance or are redundant, the reduction of data points and detailed information (particularly in the area of non-performing loans), a reduction in the reporting frequency for selected reporting templates, and greater proportionality, particularly for small and non-complex institutions (SNCIs).
In future, FINREP is to be structured according to a ‘core and supplement’ approach. The core component comprises the reporting templates that are mandatory for all institutions, whilst the supplement component is to be reported only by institutions outside the SNCI group.
Additional data requirements, particularly for EU-wide stress tests, will be integrated into the regular FINREP framework. At the same time, existing ad hoc data collections are to be phased out and duplicate reporting reduced.
The EBA is revising the structure of the reporting templates and completion guidelines, organising them thematically into modules and adding a new index containing information on reporting frequency, proportionality and core/supplement allocation, in order to make the application of the reporting framework more manageable.
Institutions will need to analyse which reporting forms they are required to submit, at what intervals this must be done, and what additional information will need to be reported in future, or which reporting obligations will be discontinued.
New information requirements
These simplifications are offset by targeted enhancements. In future, institutions will be required to report additional information on the quality of collateral, haircuts, valuation methods and asset-backed collateral. The expanded disclosures are intended to enable the supervisory authority to make a more informed assessment of the quality, liquidity and value retention of collateral. This is to be achieved through a more precise definition of the maximum eligible collateral value, separate reporting for performing and non-performing exposures, additional details on the loan-to-value (LTV) ratio for commercial property loans, and new information on property collateral, haircuts, valuation methods and valuers. The EBA proposes splitting the existing template F 13.01 into F 13.01.1 and F 13.01.2, as well as introducing the new templates F 37.00 (half-yearly) and F 48.00 (annual).
In addition, new reporting requirements for exposures to non-bank financial intermediaries (NBFIs) are being introduced. The background to this is the increasing interconnectedness between banks and other financial market participants. According to the EBA’s estimates, these exposures amounted to around 9.2 per cent of bank assets and around 10.3 per cent of bank liabilities at the end of 2023. To better monitor the risks arising from this interconnectedness, three new reporting forms will have to be submitted on a quarterly basis; small and non-complex institutions, and institutions whose financial assets vis-à-vis other NBFIs do not exceed 5 per cent, are exempt from the reporting requirement. These reporting forms must disclose assets, financial liabilities and off-balance-sheet positions vis-à-vis other NBFIs. Positions vis-à-vis institutions specialising in retail lending must also be disclosed.
For the first time, separate information on crypto-assets and crypto-related services is also being integrated into FINREP. A distinction is made between electronic money tokens (EMT), asset-referenced tokens (ART) and other crypto-assets (e.g. utility tokens or certain stablecoins). In addition, data on crypto derivatives and on crypto-assets as defined by the IFRS Interpretations Committee will be collected. The reporting requirement applies only to institutions with crypto-asset activities on a half-yearly basis. Small and non-complex institutions are exempt from the reporting requirement. Additional reporting items are provided for in templates F 22.01 and F 22.02 for services relating to crypto-assets, as well as the new reporting form F 38 ‘Information on crypto-assets’.
Further optimisations
Some reporting forms are being adapted to comply with new IFRS and CRR requirements. These include, amongst other things, the separate disclosure of goodwill, additional disclosures on equity instruments at fair value through other comprehensive income (OCI), and updated definitions and completion instructions (e.g. for SMEs, specialised lending and off-balance-sheet transactions) in accordance with CRR III.
To improve risk monitoring, additional disclosures are being introduced regarding IFRS 9 overlays, loans covered by public guarantee schemes, the group structure, and hedging derivatives in connection with unrealised gains and losses. Furthermore, reporting form F 41.01 is being changed from annual to quarterly reporting.
Finally, the EBA is incorporating various clarifications from published Q&As, as well as insights from supervisory practice and data quality checks (including the ECB’s EGDQ checks), to further enhance the consistency, quality and comparability of FINREP reports.
Challenges for banks
Implementation does not concern regulatory reporting alone, but requires close collaboration between accounting, risk management, treasury, data management and IT. In particular, the adaptation of account allocation logic, data models, mapping tables and reporting software will entail a considerable amount of coordination work. At the same time, new data sources must be tapped into and existing data quality controls expanded.
In particular, the new requirements relating to collateral, NBFIs and crypto-assets demand a high standard of data quality. Missing or inconsistent data can lead to increased reconciliation efforts and regulatory objections.
Recommendations for action
Institutions should therefore begin a structured implementation at an early stage. It is advisable to start with a comprehensive gap analysis between existing FINREP processes and the planned requirements. Building on this, a cross-, cross-functional project should be set up to address both business and technical issues. In parallel, it is advisable to involve software providers at an early stage and to carry out test submissions and parallel calculations. In addition, staff should be trained on IFRS 18 and the new FINREP requirements to ensure that the transition can take place efficiently.
Conclusion
On the one hand, FINREP reports are to be streamlined through simplifications and a greater emphasis on proportionality. On the other hand, the EBA is expanding the data set to cover new risks such as crypto-assets, collateral quality and NBFI interconnections. This increases the demands on data quality, data availability and cross-functional collaboration. Institutions that plan their implementation at an early stage and systematically develop their reporting and data infrastructure can reduce regulatory risks whilst simultaneously and sustainably improving the efficiency of their reporting processes.
We would be happy to support you in analyzing and prioritizing areas for action, as well as in developing a viable implementation strategy.
If you have any questions or would like to discuss these matters in more detail, BDO’s specialists are always available to assist you.
