By Ralf Menegatti, Product Owner, Asset Management, EMEA, AxiomSL
The European Central Bank (ECB) has credit exposures in its sights. In the wake of the financial crisis, the regulator has introduced a wave of new requirements aimed at gathering more granular information about different aspects of the European financial system, ranging from the capital held by banks (Common Reporting and Financial Reporting) to their liquidity (the Liquidity Coverage Ratio). The Analytical Credit Dataset (AnaCredit) regulation, which is currently being developed, means that credit exposures will soon be added to this list of topics under increased regulatory scrutiny.
AnaCredit is a plan to create a centralized European register of data about the credit granted by financial institutions to the non-financial sector. Many national central banks currently operate domestic credit register. However, there are differences in the data collected by these registers and the reporting thresholds they apply. With AnaCredit, the ECB will request more detailed information at more regular intervals and will harmonize the rules applied by credit registers, so that the regulator can more easily compare the situation in different European countries.
AnaCredit will be mandatory for firms in eurozone countries. However, European Union (EU) countries which do not use the euro also have the option to implement AnaCredit – Sweden and Denmark have already confirmed they will do so.
AnaCredit will be a major test of the regulatory reporting capabilities of financial firms. The regulation is expected to require firms to report more than 100 data attributes – many more than currently demanded by domestic credit registers. The data referred to in ECB discussion documents includes items that are not currently needed for external reporting purposes. As a result, firms are unlikely to currently have all of the data that is needed. The data they do have is likely to be distributed across different IT systems and spreadsheets, where it is maintained in different formats and subject to different quality controls.
The ECB has indicated that it intends to mandate a threshold of €25,000 for reportable credit instruments (including loans, derivatives and off-balance-sheet exposures) at borrower level. This is much lower than the current norm. It means firms will need to report on many more exposures, and smaller institutions that have until now been outside the scope of reporting will be impacted.
A final challenge presented by AnaCredit is the frequency of reporting. The ECB is expected to require firms to report non-prudential data on a monthly basis and prudential data quarterly. Again this marks a significant step change from the current requirements of domestic credit registers. In effect, it means that, under AnaCredit, firms will have far less time to produce far more detailed reports on a much larger number of credit exposures.
When will this all take effect? The ECB has said it plans to roll out AnaCredit reporting in three stages: from the end of 2017 firms will need to start reporting on credit granted to legal entities; from the middle of 2019, they will also need to report on a consolidated basis on significant institutions under ECB banking supervision; and from the middle of 2020, they will need to start reporting anonymized data on mortgage loans to households and credit granted to sole proprietors.
What can firms do to prepare? Now is the time for firms to consider whether they have the data management and regulatory reporting technology they will need in order to comply with AnaCredit. They should analyze whether they have the data integration functionality that will be important for aggregating and normalizing data that is currently maintained in different systems.
Firms should also consider whether their current systems and processes will scale to accommodate AnaCredit. Their systems and processes may be able to support the current volume of reports and frequency of reporting. However, will they still be up to the job when the number of reports and the frequency of reporting increase? Some firms may be able to do their current reporting to their domestic credit register manually. However, this is unlikely to still be the case when AnaCredit increases the number of reportable exposures.
Finally, firms should think about how they will be able to sign off on the large number of reports they will need to submit for AnaCredit. 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 for users to check and sign off on their reports before they are submitted, giving firms confidence that they have accurately executed all of their reporting.
As the ECB finalizes its AnaCredit requirements, it is time for firms to start thinking strategically about the reporting of credit data and begin preparing for a new world in which regulators scrutinize their credit exposures like never before.
This article was originally published by Börsen-Zeitung.
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