FINREP: FINancial REPorting, created in 2008, is a consolidated accounting reporting based on the IFRS standards.
After setting up the Single Supervisory Mechanism (SSM) and the CRD4 Directive since 2014, a new skills division is set between national regulators and the European Central Bank (ECB). The latter became responsible for the direct supervision of the biggest banks in the Euro zone.
- Legal context
The ECB regulation (EU) 2015/534 of 17 March 2015 determines the conditions for the declaration of prudential financial information to be communicated to the competent national authorities (ACN) by credit establishments.
- Objective of this Regulation
The prudential financial reporting is one of the ECB supervision tools. Currently, the FINREP is only mandatory for establishments using the IFRS accounting standards on consolidated financial reports.
The ECB regulation aims to:
- extend the supervision scope to establishments publishing their consolidated accounts to national accounting standards, as well as independent establishment (separate legal entity),
- adapt the prudential financial reporting according to the establishment size and a certain type of criteria (geographic, status, SSM member states or not, accounting reference database).
- What are the concerned establishments?
All credit establishments are concerned:
- “Significant” establishments under the direct supervision of SSM
- “Less significant” establishments under indirect supervision
The Single Supervision Mechanism (SSM) recognizes 3 entities types:
- Significant entities
- Less significant entities (Total balance-sheet assets > 3 Billion EUR)
- Less significant entities (Total balance-sheet assets < 3 Billion EUR)
The EU 2015/534 regulation determines the reporting requirements according to entities type
- What reporting type?
The European Finrep reporting is standardized; it meets the ITS standard (Execution technical standards) on the prudential reporting requirements and apply to all the Euro zone countries. The execution regulation 680/2014 determines the terms of reference of reporting standards linked to supervision.
Four levels of reporting are defined according to the criteria presented in paragraph 3 of the presentation file (Full Finrep, Simplified Finrep, over simplified Finrep and Finrep data points).
- The Principle of proportionality
In accordance with the principle of proportionality, specifications concerning financial information to be provided are differentiated according to the supervised establishments.
– Less strict reporting requirement in terms of data content
– Longer setup periods
– Reporting exemption possibility for subsidiaries of significant entities established in non-SSM countries and branches of credit establishments in in non-SSM countries.
- What are the impacts?
Heavy tasks for concerned establishments:
- More data,
- Increased production frequency,
- Shorter deadlines,
- New concepts: forbearance*.
- Dates of constraint
The project implementation is staggered between December 31st, 2015 and June 30th, 2017 depending on the establishment size.
Assigned setup period:
- Significant entities = until 31/12/2015
- Less significant entities = until 30/06/2017
– The (EU) regulation 2015/534 determines the dates of FINREP reports remittance by competent national authorities to the ECB, but does not determine the date of FINREP reports remittance by supervised establishments to their national regulator.
- Working points to be considered
– This new reporting requirement is recently added to the SURFI reporting
– Regulatory reporting complexification for small establishments
– Subject linked to execution technical norms (IRS) of the prudential declaration, notably on moratoriums (forbearance*), and classification of debts into non-performing loans.
*Forbearance: Banks tolerance in their eventual decision to authorize a borrower to delay a repayment of doubtful debts to cover their assets deterioration.
Sources / for further reading:
Regulation (EU) 2015/534 of the European Central Bank on 17 March 2015
Document of Ernst &Young on the ECC Finrep (regulatory monitoring department forum: regulatory reporting domain)
Revue Banque n° 787 September 2015
Revue Banque n° 788 October 2015