Two becomes three: restructuring regulatory reporting
Executive Education / 27 April 2021
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Michelle Neumann is Marketing & Sales Coordinator Professional & Executive Education at Frankfurt School.

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On 24 June 2020, the European Banking Authority (EBA) published the final drafts of the standards governing supervisory reporting (EBA/ITS/2020/05) and public disclosures (EBA/ITS/2020/04) under CRR II. The aim is to adjust the Capital Requirements Regulation so that it is more flexible and less onerous for institutions – not least to safeguard lending within the EU.

This update, which came into force on the 30 June 2020 deadline, is undoubtedly the most significant new regulation for banks everywhere. But the regulatory momentum continues. Even as these standards are being implemented under CRR II, the next major innovation is already on the horizon – with significant implications for the banking industry.

Basel IV / CRR III

The banking and financial sector is regarded as exceptionally important for the wellbeing of Germany’s national economy. For this reason, one of the banking supervisory authority’s highest priorities is to present itself as increasingly resilient in crisis situations. The next regulatory review (Basel IV) will revise the standardised and internal risk-measurement models for determining minimum capital requirements and impose a far-reaching revision of the European rules currently in force. Due to the COVID-19 pandemic, a first draft of the EU implementation originally scheduled for 2020 – in the form of CRR III – has been deferred until 2021. However, the European Commission is expected to publish preliminary details of how it expects to implement Basel IV by the summer at the very latest. For the package of reforms due to come into force in 2022, the Commission currently envisages a five-year inception phase ending in 2027.

The consequences

Basel IV is already having a tangible impact on regulatory reporting. To comply with Basel IV, you will have to identify and make any necessary adjustments to your interfaces and processes for providing data in the very near future – especially if your regulatory reports represent the main reference point for your risk-bearing capacity. As soon as the draft regulation is in place, you will have to ensure that you meet the necessary standards of transparency when reporting current transactions, and that you are capable of responding flexibly to rising capital costs (ideally by calculating any pricing fluctuations in advance).

In any case, banks should take a very close look at their existing projections to ensure that the figures for their future capital requirements are as robust as possible. The upcoming changes will have a significant influence on how all banks calculate their risk-weighted assets and capital ratios. The implementation of Basel IV under CRR II and CRR III will represent a major challenge for financial markets over the next five years.

While the proposed timetable for implementing Basel IV appears to be adequate, it is already clear that all banks will have to devote plenty of time, effort and resources to implementing the necessary changes across their business activities. CRR II has already introduced the first elements required by the Basel IV reforms; they have been in force since 2020 and 2021. Consequently, last year we updated our Regulatory Reporting Specialist certification programme to provide you with the best possible grounding in the new regulatory environment. Very shortly, further changes will be made under the aegis of CRR III, which is why our programme also covers these new elements – because only an in-depth knowledge and comprehensive understanding of the impact of these changes on the various business activities within your organisation will prepare you for the regulatory challenges to come.

The next iterations of the programme will start on 17 May and 6 September 2021. For budding experts in the field of European reporting, we also offer our European Regulatory Reporting Specialist certification programme.