By Niall McGowan, Senior Regulatory Analyst, AxiomSL EMEA
Next year will mark 10 years since the financial crisis. The industry has come a very long way in that time having implemented a number of regulations and requirements to ensure banks can accurately calculate and mitigate their risks.
One of the most significant initiatives to have been introduced at a Eurozone-wide level by the European Central Bank (ECB) is AnaCredit (Analytical Credit Dataset), a harmonised reporting scheme of granular credit data from credit institutions on a loan-by-loan basis. It is intended to be complementary to the Central Credit Registers (CCRs), which already exist in many European countries and are debtor-by-debtor focused. In addition, AnaCredit currently requires data on loans to legal entities (companies), while CCRs typically include data on natural persons (individuals). The threshold for reporting, determined by the cumulative exposure for a single counterparty both on and off-balance sheet, is EUR 25,000. Central Banks also have discretion over this amount, with the Central Bank of Ireland and the National Bank of Belgium, for example, setting the local reporting threshold at zero euros.
AnaCredit is mandatory for all credit institutions located in a member state of the Eurozone. This also includes foreign branches of credit institutions. A number of non-Eurozone countries have also indicated their intention to voluntarily opt-in to the AnaCredit Regulation. These countries are Bulgaria, the Czech Republic, Croatia, Hungary, Romania and Sweden.
With less than one year to go before the deadline for reporting of the complete dataset (both counterparty and credit), October 2017 marked the beginning of the test submission of counterparty reference data in Germany, with live counterparty data reporting scheduled from month end January 2018.
In a number of jurisdictions, Central Banks have taken the opportunity to overhaul the existing counterparty credit risk (CCR) framework to implement the AnaCredit requirements and enrich their data collection by adding additional attributes. Portugal, for example, increased the number of attributes collected in the existing CCR from 24 to approximately 180 and will now also include interest rate data.
Among the challenges facing reporting institutions is the level of granularity required over a large number of datasets, including counterparty data, loan level data as well as collateral and guarantor data. Despite the ECB’s goal of harmonising the data collection, the discretions granted to Central Banks mean that disparities naturally exist between reporting agents from one Eurozone country to the next. The requirement to validate and reconcile granular data against aggregated capital requirements directive (CRDIV) and supervisory reporting submissions will also prove challenging. Additionally, reporting agents will be required to demonstrate the data lineage and transparency mandated by the Basel Committee on Banking Supervision (BCBS) 239 requirements. This means that any reporting solution needs to be flexible enough to cater for the reporting needs of multiple jurisdictions with unprecedented levels of granularity in a transparent and compliant manner.
With the anticipated expansion of AnaCredit to include an increased reporting population as well as increasing the scope of products and debtors under examination, reporting agents cannot afford to look to take a short term view when it comes to compliance with AnaCredit and similar regulations that will follow.
Therefore financial institutions should begin examining their current data structure and reporting architecture and address any gaps to tackle the AnaCredit requirements before they fully enter into force in the EU in September 2018.
As featured in Börsen-Zeitung.