A Simple Guide To CRD IV Reporting & XBRL

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1 Experts in ixbrl A Simple Guide To CRD IV Reporting & XBRL This guide is divided into three main sections, covering what s happening, what s actually required of you and what your options are for getting help with meeting those requirements.

2 What s happening?

3 What s CRD IV? The European Union s legislative package Capital Requirements Directive IV, known as CRD IV, covering prudential rules for banks, building societies and investment firms, was formally published in the Official Journal of the EU on Thursday 27 June The bulk of the rules contained in the legislation will apply from 1 January CRD IV is intended to implement the Basel III agreement in the EU. This includes enhanced requirements for quality and quantity of capital, a basis for new liquidity and leverage requirements, new rules for counterparty risk, and new macroprudential standards including a countercyclical capital buffer and capital buffers for systemically important institutions. CRD IV also makes changes to rules on corporate governance, including remuneration, and introduces standardised EU regulatory reporting - referred to as COREP and FINREP. These reporting requirements will specify the information firms must report to supervisors in areas such as own funds, large exposures and financial information. CRD IV is made up of the Capital Requirements Regulation (CRR), which is directly applicable on firms across the EU, and the Capital Requirements Directive (CRD), which must be implemented through national law. As this guide focusses on the reporting aspect of the new legislation we will not be going into detail on the definitions of the new requirements but for parties wishing to explore this further there is a helpful and comprehensive FAQs page on the EU web portal that gives more detail What s COREP & FINREP? Both FINREP and COREP are European regulations which apply to 'credit institutions' (e.g. banking organisations) that will significantly increase the level of reporting of financial information to the regulator.

4 Common Reporting (COREP) will become the prudential reporting framework for credit institutions and some investment firms according to the framework established by the Capital Requirements Directive IV (CRD IV) and Capital Requirements Regulation (CRR). COREP will apply to all firms that are regulated under BIPRU, the FSA prudential sourcebooks for Banks, Building Societies and Investment Firms. The COREP templates are split as follows: Part 1: Capital adequacy (five templates) Part 2: Group Solvency (one template) Part 3: Credit and Counterparty Credit risk (nine templates) Part 4: Operational risk (two templates) Part 5: Market risk (seven templates) Financial Reporting (FINREP) is a standardised EU-wide framework for reporting financial accounting data, based on IFRS. As with COREP, the FINREP framework has been developed by the EBA, and aims to achieve a high level of harmonization and strong convergence in regular supervisory reporting requirements [EBA]. FINREP is expected to apply to credit institutions (consolidated groups) and unlisted groups applying IFRS. The FINREP templates are split into the following groups: Part 1: Primary Statements (Balance Sheet and Income Statement). Part 2: Disclosure of financial assets and liabilities. Part 3: Financial asset disclosures and off balance sheet activities. Part 4: Primary Statements (Comprehensive Income and Equity). Part 5: Financial asset disclosures and off balance sheet activities and non financial instrument disclosures. The Reporting Changes As of January 2014, the EBA and EIOPA will require all 28 European NSAs (National Supervisory Authorities) such as the FSA in the UK or the Central Bank in Ireland, to use the localised COREP and FINREP reporting standards to submit information to them. This is known as Level 2 filing. That is, as one commentator neatly summarises it working on the assumption that the legislation will be implemented by 1st January so if you read-between-the-lines this means they will require firms to start collecting data from the period beginning 1st January 2014, assuming the legislation and related standards are in force by that date

5 All the individual companies (CI in the diagram below) who report to each NSA will also need to supply the information so it meets these standards so the NSA can aggregate it and send it on the EBA. This is referred to as Level 1 filing. CI Level 1 Level 2 CI CI CI CI CI NSA NSA EBA How is XBRL involved? The NSAs filing aggregated information to the EBA must use XBRL format to do so. The consultation period on this finished in June, the official release version of the COREP taxonomies will be launched in September 2013, the requirement is likely to be mandated January 1 st 2014 and the first reports have will likely follow in May Note that, despite its name, the XBRL format used is a different format than that used for UK HMRC and Revenue in Ireland where ixbrl was prescribed. How does this affect me? If you re one of those who have to do COREP and/or FINREP (i.e. a company that has to comply with some or all of BIPRU), you will need to find out what format your NSA requires you to file in; this may well be XBRL or it may be another format. We will keep informed as to which countries are trending towards using XBRL as the collection format, although there has been no definite commitments at this time. Currently, the UK, Ireland, Spain, Germany and France among others are all looking likely to choose this route. Hold on a minute, what s XBRL? XBRL or Extensible Reporting Language is a special language that can be read easily by computers as opposed to people; it s meant to make analysis of information easier by enabling automated

6 analysis of data and reporting to be done by computers where real people used to have to do all the hard graft sifting through individual sets of financial statements. If XBRL is the language the data is written in then taxonomies are different accents, there are different taxonomies that are used for specific countries and disciplines, such as Irish GAAP (Generally Accepted Accounting Principles) or Irish IFRS (International Financial Reporting Standards). Whilst the templates released by the EBA are in Excel format, they need to be in XBRL format when they are submitted back to the EBA from the FSA/CBI etc. To make this process smoother the FSA/CBI may want you to use this format to send information to them. Practical Help with XBRL If you re struggling to get your head around this, open up a web page from the internet, any one will do! Use the right hand button on your mouse to click and select view page source from the little menu that appears. All the code that appears is HTML, another computer language that sits behind web pages making them work; you read the web page without seeing any of this complicated coding but it is the coding that enables the computer to understand what it should display and XBRL works in the exact same way, you input your version so you can read it and then convert it to something the computer can understand. Here s an image of XBRL, do you see the similarity between this and the web page example?

7 When are the changes happening? 12 Dec 2013 Draft Taxonomies Released 26 th March 2013 Consultation Begins Mid April CRD IV finalised 24 th June Consultation Ends June Final package will result in ITS in June. This will go to the European Parliament 09 Sept Taxonomy release COREP 2.0 /FINREP st Jan 2014 Mandate in Place for Level 2 Filings (effective date) May 2014 First XBRL Filings Received by EBA/IOPA from NSAs We are still awaiting information on when companies have to file with their respective NSAs and in some cases for a formal announcement of what format these submissions will be expected in.

8 What is actually required?

9 Data Collection & Input All the data required as part of the new reports will already be in existence somewhere in your business, the trick is to pull all those bits together and get them into the reporting templates. How you do this will depend very much on how your business is structured and what systems you use. You may wish to engage an outside consultant to ensure you are doing this correctly and in the most efficient manner. Excel to XBRL If your NSA requires you to use XBRL for your COREP or FINREP submissions you will have to have a way of allocating the correct tag from the taxonomy to the value in your Excel sheet that relates to that property. To give a very simple example if you have a revenue figure of 43,623 million in your data then the revenue tag from the taxonomy will need to be applied to this figure. There will be a whole series of tags throughout your document, hidden behind the data itself (a bit like the input data for a table). EBA XBRL Taxonomy: Contents Of Each Module In terms of actual data reporting volume, you ll be looking at these numbers of Excel templates, individual Excel tables and specific data format/tagging validation points that need to be produced and checked quarterly. This may seem daunting but most of the information you already have and as the format of the table remains the same, it is easy to update. NB: LE = Large Exposures

10 Validation There are three phases to the validation process and whatever solution you choose should be able to check all three and report back to you in easily understandable, human readable language as to what is wrong and why. The three areas are: XML and XBRL validations something is actually wrong with the coding Business Rules a value that is required within the reporting data is not present or is incorrectly formatted Formula Linkbase something is wrong with the calculations within your reporting What You Shouldn t Have To Worry About As with any regulatory change involving new technologies, there will always be a lot of additional supporting information or technical background that can appear daunting and unmanageable. Tagging You shouldn t have to worry about manually tagging spreadsheets with their correct XBRL tag from the taxonomy. As the templates are in a set format, all suppliers should be providing solutions that avoid you having to make any tagging decisions. Data Point Model This is simply the way that the data requirements, concepts and definitions relate to the data format and again your supplier s solution ought to have this in hand. Linkbases Each taxonomy is made up of multiples of two elements, schemas which define concepts and linkbases which express relationships or add labels to concepts. There are linkbases for calculation, labelling, definitions and presentation. Many solutions will use various linkbases in creating the validation process but you shouldn t have to interact with them. In Summary There are four phases to the reporting process, collection, input, conversion to XBRL and finally validation. Most financial institutions already have methods established for the first two phases, however they are unlikely to have had to deal with the third and fourth phases, hence we will now go on to explore how this can be done. Collect Data Input Data Convert Data Validate

11 What are my options for producing XBRL?

12 XBRL Enabled Excel This is by far the simplest and most cost effective solution for meeting your COREP and FINREP requirements. You engage a provider who supplies a pre-tagged set of templates with the XBRL already hidden behind the scenes and you continue to use, just inputting the figures as normal. Good quality systems of this type include a means of automatically updating changes in the taxonomy as they occur, so you only have to update the updated information incorporating the current quarter s figures not re-key the whole lot each time. Some of these solutions work as a desktop application, some are cloud based portals; Arkk offers both types of solution depending on your business requirement. For more information please call our London office on or our Dublin office on Outsourced XBRL Production If you would like someone else to take responsibility for the XBRL side of the reporting including validation, you might wish to outsource. Much like with the previous solution, you produce your figures as normal in Excel and then send them to an XBRL specialist to tag up and validate. There are limited efficiency gains with this method but this solution is particularly suitable for those who find they waste a lot of qualified persons time manually re-keying data from disparate systems. Bolt Ons To Your ERP If you are already using a comprehensive electronic reports production system, you may find that you are offered a bolt on option that allows you to render your current reports in XBRL. This makes a lot of sense if you have already invested in an all singing, all dancing system that everyone uses to do all the reporting within the business (i.e. no other systems are used, no bits that are done by hand in Excel etc.) It doesn t make financial sense to try and get one of these systems in place just to meet the XBRL requirement, however if you have one and your provider can supply the bolt on then this is the easiest way. Do All Your Business Reporting in XBRL This is not a quick or cheap fix, more of a long term strategic move by the business to use XBRL to improve the standard and efficacy of internal business reporting and analysis. This is an approach more commonly adopted in Australia and The Netherlands where Standard Business Reporting is used (i.e. you can use XBRL to report to all national authorities).

13 A Summary Of The Options Some of our current clients include: To find out more about how we can help your business, please call our London office on or our Dublin office on