20 Mar AnaCredit: Putting credit exposures under a microscope
March 20, 2015 – By Nicholas Hamilton, Research Analyst, Policy and Product Strategy
The European Central Bank (ECB) is finalizing its plans for a centralized register of granular credit data, which will enable it to conduct more detailed market surveillance. However, credit institutions will struggle to supply the new register with the large number of reports required, at the regular intervals that are being discussed, if they do not have a scalable platform that automates the entire reporting process.
As part of its Analytical Credit Dataset (AnaCredit) program, the ECB is harmonizing the data that is collected by domestic credit registers in Eurozone countries (such as La Central de Información de Riesgos del Banco de España – CIRBE – in Spain) and introducing new requirements for more granular data. The data collected by the national registers will be used to create the centralized European database, which the ECB will tap into to produce its statistics – including analysis of impaired assets, provisioning for those assets, and loans to non-financial corporations broken down by entity size.
In order to produce these types of statistics, the ECB wants credit institutions in the Eurozone (and other European Union countries that wish to participate) to report on their credit exposures on a borrower-by-borrower or loan-by-loan basis. The final regulation is expected to require about 100 data attributes, including granular data about the lender and the borrower, the exposure features, the valuation, risk and loss measures, and the balance sheet status.
These requirements present significant challenges for credit institutions. For a start, many of the AnaCredit data attributes have never previously been required for external reporting purposes. As a result, credit institutions are unlikely to currently capture all of the necessary data. If an institution does have the required data, it may not be subject to rigorous governance processes, and will therefore be of varying quality. The data is also certain to be distributed across multiple systems and will need to be mapped into the ECB’s data structure.
This means credit institutions will need a reporting platform with strong data aggregation functionality, which can bring together all of the necessary data. Data normalization and enrichment features will also be essential for ensuring that data taken from different sources is in the correct form and that the final reports are complete.
New, granular data is not the only challenge created by AnaCredit. In order to achieve a holistic and accurate view of credit exposures in Europe, the ECB is expected to set a low threshold for reportable loans, and to require more frequent reporting than is currently mandated by domestic credit registers. Of course, from the point of view of credit institutions, this means producing more regulatory reports at more frequent intervals.
These requirements raise questions about the usability of credit institutions’ reporting platforms. Credit institutions may be able to manage some aspects of their current credit reporting manually (data remediation and report attestation, for example). However, this will no longer be possible when the number of reports they must submit increases dramatically and the reporting cycle is shortened, under AnaCredit.
In order to keep up, firms will need a platform that not only automates the reporting process, but also provides business dashboards and management information (MI) functionality. This will make it possible to manage the attestation of large numbers of reports, and will give firms confidence that they have accurately executed all of their reporting.
AnaCredit is the latest in a growing number of regulations that demand large volumes of granular credit data – stress testing requirements such as the Firm Data Submission Framework (FDSF) in the UK and the Comprehensive Capital Analysis and Review (CCAR) in the US call for a similar set of data.
With this in mind, it is time for credit institutions to start thinking strategically about the reporting of credit data and start preparing for a new world in which regulators scrutinize their credit exposures like never before.
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AxiomSL provides all of the data aggregation, validation and reporting functionality needed to comply with the ECB’s AnaCredit requirements… To read more, click here.