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Business insight: August 1st

2012

www.lombardrisk.com Managing collateralised trading. Enabling regulatory compliance

Lombard Risk business and regulatory

experts explain: latest EBA

Common Reporting

regulations

Introduction

Basel III starts internationally on 1st

January 2013 in

principle this applies to firms anywhere in the G20 sphere,

but there are international differences in the level of

preparedness for the reporting impact.

Here in Europe, firms are depending on the European

Banking Authority (EBA) being able to publish final binding

technical standards, and the EBA is unable to do this until

the CRDIV and CRR legislation, which implements Basel III

(and other items around governance and remuneration), is

finally agreed.

On 31st

July 2012 theEBA published statementsand the

following day the UKFSA issued a further update. Lombard

Risk has analysed these announcements and concludes the

following.

Review of EBAs position

On 31st

July 2012 the EBA announced that finalisation of the

Implementing Technical Standards (ITS) on supervisory

reporting requirements for institutions has been pushed

back pending the adoption by the EU legislators of the

Capital Requirements Regulation (CRR). Lombard Riskexpects this to take place around September/October 2012.

The EBA sets out that 1st

January 2013 is still expected to be

the CRR application date; this date will only be further

delayed if the entire CRR does not make the EU legislative

timetable within 2013. Lombard Risk does not consider this

likely as the areas of disagreement outstanding when the

Cypriot presidency took over from Denmark are not that

great, and a tentative slot in the agenda this year is

available.

The EBA recognise that institutions may face challenges to

immediately comply with all the reporting requirements in

the ITSand note that some flexibility is needed via

phase-in, or

implementation dates.

Lombard Risk is not surprised by this open statementit is

inevitable that some form of interim reporting will be

needed in the absence of European agreement.

Candidates for later phase-in are data items not directly

used to assess compliance with specific CRR requirements.

The EBA also recognise that similar flexibility may be needed

for otherImplementing Technical Standards(i.e. not just

those for COREP, FINREP and Large Exposures). In particular,

the output from consultation on these reports (not

mentioned again at this time by the EBA) is not expected to

reach conclusions until November. Accordingly LombardRisk expects some variation on when Liquidity Coverage

(LC), Net Stable Funding (NSF) and Leverage Ratio (LR) will

be required.

Given the focus placed by EBA on items enabling assessment

of compliance with CRR, the EBA confirms that FINREP will

be postponed to 1st

January 2014, for those firms impacted.

At the moment this might be taken as no news for UK firms

where it has been expected that the FSA would still win a

concession to implement on an if-needed basis only. For the

moment Lombard Risk continues to assume no FINREP for

the UK, and clearly for others in Europe already reportingFINREP, there will be no short term revision. There may be

other reports phased in later with requirements phase-in

determined by EBA once the final CRR provisions are

available. Lombard Risk considers that this may mean e.g.

a relaxation of the monthly requirement for LC in the first

periods.New FINREP postponed till 1

stJanuary 2014

Interim or phased reporting needed from

1st

January 2013 details to be determined

Review of FSAs position

In respect to the EBA announcement, the

Financial Services Authority (FSA) states:

it does not appear feasible that the

legislation can enter into force in line with

the implementation date of

1st

January 2013

However the FSA also state that full preparatory work (in the

absence of final text) will be carried out mindful of the

original Basel III timetable.

http://www.eba.europa.eu/News--Communications/Year/2012/Update-on-the-finalisation-and-implementation-of-t.aspxhttp://www.eba.europa.eu/News--Communications/Year/2012/Update-on-the-finalisation-and-implementation-of-t.aspxhttp://www.eba.europa.eu/News--Communications/Year/2012/Update-on-the-finalisation-and-implementation-of-t.aspxhttp://www.fsa.gov.uk/library/communication/statements/2012/crd-iv.shtmlhttp://www.fsa.gov.uk/library/communication/statements/2012/crd-iv.shtmlhttp://www.fsa.gov.uk/library/communication/statements/2012/crd-iv.shtmlhttp://www.fsa.gov.uk/library/communication/statements/2012/crd-iv.shtmlhttp://www.eba.europa.eu/News--Communications/Year/2012/Update-on-the-finalisation-and-implementation-of-t.aspx

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Business insight: August 1st

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www.lombardrisk.com Managing collateralised trading. Enabling regulatory compliance

FSA expect all in scope CRD firms to do likewise, making it

clear that firms are expected to be compliant with Basel III

from the start date. Lombard Risk will reviewthe FSAs

interim proposals in this respect as soon as these are

available.

The FSA has also taken a position on start date, stating thatCommon Reporting (COREP) (as a tool for the

implementation of CRDIV) is dependent on final

Implementing Technical Standards and that the FSA will

begin collecting data under Common Reporting from the

period beginning 1st

July 2013.

Firms must prepare for Basel III from

1st

January 2013

Investment firms

FSA reminds investment firms currently in scope of CRD thatthey will be impacted by CRDIV and that they should prepare

accordingly. Lombard Risk has extensive experience helping

investment firms comply with regulatory reporting

requirements and looks forward to assisting firms with this.

Expected reporting requirements; Lombard Risks

recommendation

Interim requirements

Assuming CRR is agreed this calendar year, firms must

continue to plan for implementation of at least the Own

Funds requirements in order to be in a position to monitor

for compliance with Basel III from 1st January 2013.

Lombard Risk expect National Supervisory Authorities (NSAs)

to have to implement contingency reporting, and that in the

UK this could take the form of using existing FSA003 and

FSA004 reports to collect risk requirements (under Basel II

still) and to use the emerging COREP CA1, 2 and 5 templates,

or another interim template to collect capital Own Funds

data under the new definitions of acceptable capital.

In the UK this would continue until at least 1st

July 2013,

according to FSAs announcement, and firms will not want to

have to operate interim processes manually for that period.

Lombard Risk advises that firms will require a Basel III

solution from 1st

January 2013 this is unchanged:

Lombard Risk REPORTER COREP templates CA1, 2, 5 contain

the necessary Own Funds computations under Basel III.

Lombard Risk REPORTER contains Liquidity Coverage, Large

Exposures, Net Stable Funding and Leverage Ratio.

Interim reporting of capital requirements:

FSA/NSAs may provide interim templates or require current

legacy reporting of relevant data. Lombard Risk REPORTER

solution will continue to provide these details in FSA003 and

FSA004 data items.

Strategic solution, planned ahead: To wait now would beill advised.

The industry now has time to implement strategic solutions

to regulatory reporting, such as Lombard Risk REPORTER.

REPORTER assures clients that templates delivered in the

short term will provide the capital computations, and that

the validation and reporting outputs will be upgraded to

reflect the EBAs final requirements as they are confirmed.

In conclusion:

Lombard Risk can immediately advise firms of themajor data challenges associated with Basel III

reporting

Lombard Risk provides a strategic solution in

support of potential interim requirements

Software for COREP, Large Exposures, Liquidity

Coverage, Net Stable Funding and Leverage Ratio

available now; will be updated when finalised

Basel III is not going away; get ahead of the rush

For more information

on any of these topics visit

www.lombardrisk.comand/or

emailinfo@LombardRisk.com

Regulatory timeline (n.b. red months = busy holiday periods)

http://www.lombardrisk.com/http://www.lombardrisk.com/mailto:info@LombardRisk.commailto:info@LombardRisk.commailto:info@LombardRisk.commailto:info@LombardRisk.comhttp://www.lombardrisk.com/