Event summary

www.lombardrisk.com Managing collateralised trading | enabling regulatory compliance

Summary of: Basel III / EBA

Common Reporting

(COREP) online business

briefing –

18th May 2012

Introduction

On Friday 18th May 2012 Lombard Risk held the 2nd in a series of online business briefings on “Basel III and the European Banking Authority (EBA) Common Reporting (COREP) impact on regulatory compliance”.

This webinar gave the audience an UPDATE since the first one in the series that took place a month before.

Today’s agenda

Basel Committee’s progress report on Basel III implementation internationally: emerging differences, and what these mean for you

European impact of these differences: update from the European Parliament’s Economic and Monetary Affairs Committee sessions (14th & 15th May) on potentially un-leveling the playing field

Output from feedback to EBA consultations: responses to CP50/CP51 (supervisory reporting, large exposures), and indications on what to expect regarding the current compromise text for CRDIV/CRR

XBRL submissions: what to expect your regulator including the UK FSA to make available to you

Key activity deadlines: the need to act this year in order to achieve compliance by January 2013

Two other events in this series will take place on the following topics:

The need for regulatory transparency

Basel III: what to do if you’ve left it late!

Visit www.lombardrisk.com/events for more information on the Online Business Briefings series.

Speakers

The event commenced with “Welcome and opening remarks” from Rebecca Bond, Group Marketing Director rebecca.bond@lombardrisk.com

The main presentation, explaining the impact of Basel III / EBA Common Reporting legislation, was given by: James Phillips Director of Regulatory Strategy at Lombard Risk james.phillips@lombardrisk.com

James is an industry expert on regulatory issues monitoring

them on a global, regional and country/regulator basis through

frequent interaction with regulatory groups and financial

institutions. As a result he fully understands financial services

institutions’ operational procedures relating to internal and

external monitoring and reporting demands.

Where does Basel III sit?

Basel III is an international standard, whereas Capital Requirements Regulation (CRR – regulations do not have to be transcribed into national law, but are effective right away across all 27 countries in the European Union and are therefore uniform) and Capital Requirements Directive (CRD – Directives do have to be taken into national law) are European. Taken together, the CRR and the latest CRD, are labeled CRD IV.

The European regulations are hitting @ 8000+ institutions and CRD IV is causing substantial upheaval of reporting.

The Lombard Risk online business briefings continue to be in popular demand from both business and IT specialists at financial institutions around the world.

Lombard Risk also runs business briefings on Collateral Management and Dodd-Frank reporting. Visit the EVENTS section of the www.lombardrisk.com website for more information

Event summary

www.lombardrisk.com Managing collateralised trading | enabling regulatory compliance

Basel III implementation status

James showed a detailed table illustrating how member countries of the Basel committee are proceeding in implementing their own guidance, showing how the different members of the committee had been progressing with regulations. See the data for the table James displayed at http://www.bis.org/publ/bcbs215.pdf

It is interesting to note that quite a number of committee countries have not made any move yet to even publish draft guidelines; a couple of locations have gone to final; and others have been clear about dates to go final. Japan and Saudi Arabia for example have already published final rules.

Draft regulations have of course been published for the bulk of the European geography, as legislation drafted by the European Commission goes through approval stages for the whole EU en masse, with consultation on this driven by the European Banking Authority.

Lombard Risk IS monitoring Basel III internationally - please contact us for more information regarding any Basel III computations you need, wherever you are located.

European CRR and CRD

When the regulations were initially drafted in 2011 they comprised 3 CRR documents (547 pages of detailed rules, regulations and maths) followed by a smaller CRDirective (154 pages covering governance-related items) = 701 pages of extensive documentation.

James explained the European process towards harmonised reporting, and the emerging power of the European Banking Authority (subverting the FSA’s autonomous regulatory position at least in respect of reporting requirements) (see below):

July 2011 - the European Commission issued the first

draft of proposed legislation for implementing Basel III

in Europe (CRR and CRD)

April 27th

2012 - 4th

edition of the Danish presidency of

the European Council text - now 1058 pages – that will

be put forward to Parliament

June 2012 – European Parliament (everyone’s local

MEP approving legislation collectively): likely date for

approval, although there are expected to be some

issues.

James looked at what has been AGREED - and explained how George Osborne, Chancellor of the Exchequer, had taken quite a position in respect to maintaining as much autonomony as possible, which is contrary to the whole point of unified regulations, reporting requirements and supervisory standards. Obviously the EBA (and ECB) are not particularly keen on dilution of the unification objective.

Key dates

21st May - EBA expected to publish XBRL Data Point Model

23rd

May – Danish Presidency kicks of negotiating the ECOFIN approved text with EU Parliament (which has its own flavours too).

June 2012 – EBA reporting taxonomy expected

1st

January 2013 – Legislative start date (i.e. demonstrable compliance with CRD IV from this date); reporting will start, with 30 days remittance period on next calendar quarter period.

Even though there is no consultation yet, don’t forget LCR etc also required from 1

st January 2013

2015 – Expect substantive new liquidity regime and potential for Leverage Ratio (forward from 2018).

Event summary

www.lombardrisk.com Managing collateralised trading | enabling regulatory compliance

What’s NOT going to change now?

The consultation period of CP50 (common reporting) and CP51 (large exposures) is now closed – the EBA have received 44 responses (including some from Lombard risk) relating to timing, resource, justification, materiality, the COREP group solvency and reporting instructions.

Rather than focus on all the uncertainties – James wanted to summarise what would NOT change (much).

What about XBRL?

XBRL stands for eXtensible Business Reporting Language. It is one of a family of "XML" languages which is becoming a standard means of communicating information between businesses and on the internet.

Firms must make submissions, following the EBA’s standard to the letter, to the National Supervisory Authority (NSA) (likely to be in XBRL). The NSA though may want MORE information than the EBA so that will have to be incorporated, and the NSA will transmit the necessary data to the EBA using XBRL.

Online survey

The audience was polled twice: “Which of these statements best reflects your attitude to the timetable?”

A. We’re doing nothing about this until it is

finalised – it will be wasted effort

B. Getting nervous – need to take a deep dive

before the summer

C. Too much risk to wait – have to start now, looks like the

timetable will stick

More than 80% of the audience indicated that they now believed the regulatory timescale would stick and it was too much risk to wait any longer to select and implement a solution.

The second and final question posed to the audience was related to budget. We asked whether it had already been approved for spend in 2012? Had it been applied for but not approved yet – or not even applied for yet? It’s easier to show the result graphically: quite a split!

Questions raised by the audience

Two questions had been submitted in advance:

1. “What is the risk of work being ‘throw-away’, if we start now? We want to get ahead of the obvious 2nd half-year crush, but cannot afford to do the work twice?” to which James answered that there was PLENTY of work to do now in identifying where data that is going to be required is located in the firm’s source systems, and how he did not believe that the reporting templates would change that much.

2. “How far is Lombard Risk progressed with EBA product development?” James confirmed not only that we are already working with a number of our existing clients along the above lines i.e. helping them extract the detailed information required for the reports, but that furthermore Lombard Risk has already created the reporting templates and will make final changes when these are finalized, with the remainder of the development program all on plan.

Several other questions were asked during the webinar, including:

1. Is the EBA publishing a data point model?

Yes – expected to be published 23rd

May 2012

2. Is FINREP reporting required?

If the text approved by ECOFIN is what is finally enacted by EU Parliament, then FINREP reporting will be down to the local National Supervisory Authority. The UK FSA (and some others) is expected to exercise that discretion and FINREP would not – on that basis – be needed in the UK for the time being.

Event summary

www.lombardrisk.com Managing collateralised trading | enabling regulatory compliance

3. Is COREP reporting based upon calendar quarters?

Yes, so firms that have different Accounting Reference Dates and are accustomed to reporting in line with these will need to now get used to calendar reporting periods.

N.b. we will send out a separate note to address 2 other questions that were raised which require further clarification from the regulators

How Lombard Risk can help

For more information on any of these topics visit www.lombardrisk.com and/or email info@lombardrisk

About Lombard Risk: visit www.lombardrisk.com

Lombard Risk operates from ten offices: London (HQ), 2 in the United States, Shanghai, Tokyo, Singapore, Hong Kong, Luxembourg, Cape Town and Mumbai.

For more information on any of these topics visit www.LombardRisk.com and/or email info@LombardRisk.com

For Basel III / COREP specific details visit: http://www.lombardrisk.com/products/regulatory-compliance/reporter/eba-common-reporting-corep

Lombard Risk regulatory compliance solution

Firms seeking competitive advantage in this new world are rapidly evolving their business models and their internal systems and controls.

The greater ease with which firms are able to manage these reporting requirements, and thus control exposure to regulatory censure whilst at the same time gaining efficient use of capital and liquidity, the better off firms will be.

Lombard Risk offers an extensive portfolio of tools for Basel III which enable firms to deliver efficient solutions to these new marketplace demands and to do so with the objective of obtaining competitive advantage, not just to comply with the rules. Lombard Risk delivers:

Comprehensive capital, exposure and liquidity computation engines

Reporting tools which cover complex structured regulatory reporting requirements

Management information reporting

Powerful data management tools to ease integration and deal with data issues

As an integrated solution set, delivered by Professional Services personnel acknowledged as experts in their area, Lombard Risk provides persuasive solutions to the opportunity arising.

Time is short and firms need to start implementation for Basel III now, even though the legislation which will finalise implementation requirements is not yet complete.