Keeping complexity out of Simplified FINREP

AxiomSL | Inside View - Simplified FINREP

Feb 12, 2016 – By Alistair Hume, Senior Regulatory Analyst

The implementation of Financial Reporting (FINREP) in 2014 was a significant change for the European banking industry. AxiomSL | Inside View - Simplified FINREPHowever, the requirements only apply to banks that use International Financial Reporting Standards (IFRS) at the consolidated level. With Simplified Supervisory Financial Reporting (Simplified FINREP), the European Banking Authority (EBA) is now extending its requirements for standardized reporting of financial information to a much wider group of banks, raising important questions for those that operate in multiple European countries.

Simplified FINREP will be mandatory in the Eurozone (and other European Union countries that choose to implement the regulation) for a wide range of banks that use either IFRS or national Generally Accepted Accounting Principles (GAAP) at the consolidated, branch or solo levels. These banks will need to report 33 of the existing 46 FINREP templates. At a later stage, other categories of banks will be required to report smaller subsets of the FINREP templates and data, as part of what has been called Oversimplified FINREP and FINREP Data Points (more information about the requirements is available here).

Despite the name, Simplified FINREP presents a number of challenges, especially for banks that use GAAP. These organizations will need to do mapping between their GAAP disclosures and the Simplified FINREP templates, which are based on IFRS. They will also need to source additional, granular data.

The fact Simplified FINREP will be mandatory on a consolidated, branch and solo basis will cause particular challenges for multijurisdictional banks that use a separate reporting tool in each of the European countries in which they operate. Banks with this type of set-up will need to implement the Simplified FINREP requirements separately in each country, in what promises to be an extremely time-consuming and resource-intensive exercise.

The good news is this situation can be completely avoided by using a single regulatory platform to comply with Simplified FINREP – rather than relying on a patchwork of point solutions. As Simplified FINREP will be the same in all countries, banks can implement the reporting requirements on the platform in one project and then leverage it in multiple countries.

At AxiomSL, we have already helped a number of firms to use our regulatory calculation and reporting platform in this way to comply with other harmonized European requirements. For example, last year an American global systemically important bank (G-SIB) used our platform to implement the Liquidity Coverage Ratio (LCR) and Additional Liquidity Monitoring Metrics (ALMM) in Germany, France and the UK in a single project (you can read more about the project here).

Using a single strategic platform in this way has a number advantages. Firstly, it significantly reduces time to market and implementation costs because a bank only needs to update one system – rather than doing the same work multiple times on separate systems. This allows the bank to invest more time and money in data quality, reconciliation and validation functionality and management information (MI) reporting. These are important features that often get overlooked when unwieldy implementation projects overrun.

Once up and running, banks that go down the single platform route to implement Simplified FINREP will enjoy much lower infrastructure costs than other firms because they will not need to support an entire network of discrete reporting tools. There will also be a number of benefits on the business side, including an improved ability to compare financial information from different countries because all of the relevant data will be maintained within the same system.

Simplified FINREP is an important step in the EBA’s plans to increase standardized reporting of financial information in Europe. By using a strategic regulatory platform, banks can quickly achieve compliance in multiple countries and avoid the complexity of working with numerous reporting tools.