Liquidity reporting: Time to prepare for a year of change

January 5, 2015 – By: Ed Royan, Chief Operating Officer, EMEA

Liquidity reporting will be at the top of the agenda for many compliance teams in Europe throughout 2015, as regulators demand new and more frequent disclosures and banks negotiate the ongoing uncertainty surrounding the transition to the Capital Requirements Directive IV (CRD IV).

AxiomSL - Liquidity Coverage RatioIn October, I wrote a post about the reduction in the remittance period for liquidity coverage ratio (LCR) reporting from 30 days to 15 days in 2015. This 50% cut in the time market participants will have to report on their liquidity will significantly impact their operations. However, the reporting deadlines will be even more aggressive in some countries.

CRD IV gives local regulators the option to require daily liquidity reporting. In October 2014, BaFin confirmed it will exercise this option. As a result, from October this year, banks in Germany will be obliged to file daily liquidity reports. In the UK, the Prudential Regulation Authority (PRA) has also said it will introduce a rule requiring daily liquidity reporting. Market participants must now wait to see when the PRA rule will be implemented and which regulator will be next to mandate daily liquidity reporting.

For regulated entities, changing reporting deadlines raise important questions about the performance of their software. To comply with sharp reductions in remittance periods for liquidity reporting, banks need high-performance technology that can process millions of records each day.

The above changes are taking place within a wider context of uncertainty about the full implementation of the CRD IV liquidity reporting regime.

Banks in Europe began reporting LCR and Net Stable Funding Ratio (NSFR) last year, as part of CRD IV. In countries that already had liquidity reporting programs, banks have been required to implement LCR and NSFR while still complying with the incumbent disclosure requirements. This dual reporting has created a significant overhead for banks, which would rather focus their resources on complying with a single reporting regime.

In the UK, there was hope the PRA would discontinue its incumbent daily flows (FSA047) and enhanced mismatch reporting (FSA048) liquidity requirements in 2015, and would only require banks to report LCR and NSFR. However, these hopes were dashed in November, when the regulator announced that it will continue to require FSA047 and FSA048 for “up to two years” after the introduction of the full range of CRD IV liquidity reports in 2015. Regulators in other countries are expected to continue dual reporting requirements for a similar period.

The extension of dual reporting will be a costly drain on resources for market participants unless they can use a single platform to comply with both sets of requirements. As well as reducing the cost of compliance, using a single platform has the benefit of ensuring consistency between both sets of reports.

In 2015, banks will not only have to support LCR, NSFR and other existing reporting requirements; they will also have to begin making new, more detailed disclosures about their liquidity. In July, the European Banking Authority’s (EBA) additional liquidity monitoring metrics (ALMM) requirements will come into force. These new templates require data at the counterparty level, and cover topics such as concentration of funding by counterparty and prices for various lengths of funding. The new ALMM requirements call for a robust data management system, which can both source data from multiple databases and decompose it into the necessary granularity.

A final cause of concern for banks in 2015 is the lack of certainty about the form their liquidity reports should take. At present, standardized reports are being used throughout Europe for CRD IV liquidity reporting. However, domestic regulators have the option to tailor these to local requirements. Banks are still waiting to see what the final version of the reports will look like.

The best way for banks to reduce the impact of changing reporting templates is by partnering with a vendor that continually monitors regulatory announcements and updates the templates it provides. This gives market participants confidence that they are always working with up-to-date templates and it leaves them free to focus on other projects.

Many questions are yet to be answered about the roll-out of CRD IV in Europe. However, by ensuring they have the right technology and are working with the right vendor, market participants can minimize the impact of the changes that are to come in 2015.

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