| Harmonising prudential and financial reporting requirements across Europe |
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| The recent introduction of the new International Financial Reporting Standards (IFRS) and the impending implementation of the new Capital Requirements Directive (CRD) provide the Committee of European Banking Supervisors (CEBS) - established in 2003 - with the ideal opportunity to harmonise reporting requirements across Europe, writes Debra McCarthy. |
CComprising high-level representatives from the banking supervisory authorities and EU central banks, the Committee of European Banking Supervisors (CEBS) is tasked with contributing to the consistent implementation of European Directives and the convergence of supervisory practices across Member States.
In addition, the Committee has an advisory role to the EU Commission. One area of convergence on which CEBS is currently focused is the reporting requirements in place across Europe, both in terms of prudential reporting and financial reporting. Such harmonisation will be beneficial both to banks active in various Member States as well as to banking supervisors. Standardisation will reduce the reporting burden of cross-border banking groups, while also allowing for better understanding of the information which is exchanged between European supervisors.
Despite the fact that all European banks adhere to a common capital adequacy framework, soon to be amended by the new CRD, the manner in which banks report to supervisors differs across Europe. A CEBS working group, referred to as COREP (Common Reporting), was established in July 2004 for the purposes of preparing a common prudential reporting framework consistent with the new CRD. A first draft of this framework was presented to and approved by CEBS in October 2004, followed by an informal industry consultation to enable national regulators to present to industry the work completed to date. A more formal industry consultation was recently launched to run for three months. Although CEBS will be recommending that the new framework is adopted in all jurisdictions once the CRD is implemented, the Irish Financial Services Regulatory Authority (IFSRA) has not as yet taken a decision on this. The Irish Bankers Federation will nevertheless be participating in the consultation exercise.
A separate working group has been tasked with the harmonisation of financial reporting requirements. Although the prudential and financial reporting projects are interlinked, due to the fact that IFRS is now effective, the timeline on this project is more pressing. The objective of this working group is to develop a common European format to be used throughout the EU for submitting consolidated financial statements to banking supervisors. The most significant divergence from current financial reporting requirements will be the addition of an income statement format. However, it is not certain at this stage whether this will be adopted by all European regulators. A draft format will be submitted to CEBS for approval in the coming weeks, to be followed by a formal industry consultation at the end of March. It is envisaged that the reporting framework will be in place in 2006. While in principle the Irish Bankers Federation welcomes these initiatives, both projects will result in very significant operational changes for banks. We will be working very closely with the regulator to assess the practical implications and suitability of the proposed frameworks.
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Debra Mc Carthy is research analyst with the Irish Bankers Federation.
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| Article appeared in the February 2005 issue.
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