Since the financial crisis in 2008, financial institutions have faced ever-increasing regulation and a substantial rise in reporting requirements. The resulting profusion of reporting obligations has proven a significant challenge for banks as well as for supervisory authorities. Ensuring data of high enough quality and coping with redundancies and a lack of harmonization are only a few of the ensuing problems. In addition, cross-border banks are faced with having to report to multiple national authorities according to varying requirements in the different countries in which they operate.
The long-term aim of the European System of Central Banks (ESCB) and its Statistics Committee (STC) is to standardize, harmonize and integrate as far as possible existing ESCB statistical frameworks across countries and reporting domains. This is to be achieved through the introduction of an integrated reporting framework (IReF) in the form of a single integrated set of reports for banks and a unique set of transformation rules for the derivation of statistics required by the authorities. The reporting burden on banking institutions should be decreased by replacing national reporting templates and redundancies. The national central banks (NCBs) as well as the national competent authorities (NCAs) will only receive one integrated set of reports rather than many separate reports, which should also lead to drastic efficiency improvement and cost savings. Additional advantages of the implementation of IReF are better data quality and data consistency, which should lead to enhanced risk assessment and higher transparency. The European Central Bank (ECB) will also benefit, as the improved data consistency leads to better data analysis and thereby lays the foundation for improved transparency, a better cross-country comparison, and a more flexible analysis of transmitted data.
The results of the qualitative stock-taking questionnaire on IReF carried out from June to October 2018 showed that reporting agents have considerable interest in implementing IReF between 2024 and 2027, as intended by the ESCB. This timetable ensures enough time to implement and stabilize the transmission of AnaCredit data and seems consistent overall with the envisaged timeline for possible further stages of AnaCredit. However, the qualitative stock-taking exercise is to be followed by a cost-benefit assessment questionnaire, focusing on the statistical requirements that are within the scope of the IReF, that will ultimately determine the ESCB’s approach.
Every time a statistical or supervisory regulatory framework is updated or a new one comes into existence, banks are left to their own devices to interpret it, extract the data from their internal systems and transform it such that they arrive to a final figure asked for in a regulation. It is not always straightforward which source data to use and how to process it to produce the number required in Legislation X, Table Y, Cell Z. The greater the misalignment among banks regarding the meaning of specific sections within a regulatory standard, the more questionable is the quality of the output data and the more difficult are the comparisons among banks. In-depth study of revised or new legal acts is a costly and time-consuming process for each bank.
Going hand in hand with IReF is the Banks’ Integrated Reporting Dictionary (BIRD), which is being developed in close collaboration by a group composed of members from the ECB, some euro area NCBs and the banking industry – including BearingPoint. The aim of BIRD is to alleviate the reporting burden for banks, “to help reporting agents efficiently organize information stored in their internal systems and fulfil their reporting requirements”. The BIRD's contents are published on its website and available as a “public good” to all interested parties. It contains a description of the data which should be extracted from the banks' internal IT systems (e.g. from accounting, risk management, securities or deposits) in an “input layer”, i.e., a standardized means of defining and identifying individual business transactions and positions. In addition to this, there are defined transformation rules to be applied to the extracted data to produce specific regulatory figures. The harmonized data model and the transformation rules together make up BIRD.
The BIRD is being designed to generate outputs that are compliant with the reporting schemes of secondary statistics; however, it does not consider how these requirements are fulfilled in the national collection frameworks. Significant country-specific adjustments may be required in order to implement the BIRD at national level. Thus, most of the benefits of BIRD will only be achieved if the IReF and the BIRD are implemented together. Implementing the BIRD will remain voluntary for the banking industry and is not a necessary condition for implementing the IReF. However, the more the reporting is incorporated in a single “primary reporting framework”, the more effectively the BIRD can support reporting agents. The BIRD and IReF together form the two pillars of the ESCB’s long-term strategy for banks’ data reporting.
BearingPoint is currently developing a prototype for BIRD as part of its continued commitment to the BIRD project. The BIRD technical prototypes will make the BIRD “executable” and not just a theoretical exercise.