Consultation Paper
06/11
Financial Services Authority
Integrated Regulatory
Reporting (IRR):
Credit institutions and
certain investment firms
Including feedback on Discussion Paper 05/1
(Integrated Regulatory Reporting for: deposit
takers, principal position takers and other
investment firms subject to the Capital
Requirements Directive – the CRD)
May 2006
Contents
1
Overview
2
Scope
9
21
Part I: reporting proposals for credit institutions and investment firms
affected by the CRD
3
CRD specific issues
30
4
Consolidated reporting
36
5
Changes arising from the CRD
40
6
New data
53
7
Other reporting changes
59
8
Transitional arrangements for CRD firms reporting during 2007
68
9
Data requirements that are not yet finalised
76
Part II: reporting proposals for the non-CRD investment firms and nonfinancial reporting
10
Remit of the proposed reporting
83
11
Changes to existing reporting and new data items
90
Part III: general
12
Auditors’ reports for certain investment firms and consistency review
101
13
Next steps
106
Annex 1:
Integrated Regulatory Reporting (IRR): The overall picture
Annex 2:
Electronic submission methods
Annex 3:
Feedback Statement on Discussion Paper (DP) 05/1
Annex 4:
List of questions on which we are consulting
© The Financial Services Authority 2006
Annex 5:
Cost benefit analysis
Annex 6:
Compatibility statement
Annex 7:
Overview of reporting requirements
Annex 8:
What this means for firms in practice
Annex 9:
Outline of why we need the data and how we will use it
Annex 10:
Consolidation Groups
Annex 11:
‘Taster’ data items not subject to formal consultation
Annex 12:
Glossary
Annex 13:
Streamlining the Handbook
Appendix 1: Draft Handbook Text
The Financial Services Authority invites comments on this Consultation Paper.
Comments may be sent by electronic submission using the form on the FSA’s
website at (www.fsa.gov.uk/pubs/cp/cp06_11_response.html).
Part I
Comments should reach us by 31 July 2006.
Please send comments in writing to:
Graham Fraser
Contact Revenue and Information Management (CRIM) Policy
Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
Telephone: 020 7066 0668
Fax:
020 7066 9707
E-mail:
[email protected]
Part II and Part III
Comments should reach us by 31 August 2006.
Please send comments in writing to:
Anthony Wills
Contact Revenue and Information Management (CRIM) Policy
Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
Telephone: 020 7066 2084
Fax:
020 7066 9707
E-mail:
[email protected]
It is the FSA’s policy to make all responses to formal consultation available
for public inspection unless the respondent requests otherwise. A standard
confidentiality statement in an e-mail message will not be regarded as a
request for non-disclosure.
Copies of this Consultation Paper are available to download from our
website – www.fsa.gov.uk. Alternatively, paper copies can be obtained by
calling the FSA order line: 0845 608 2372.
Financial Services Authority 3
Firms impacted by this Consultation Paper – Road Map
Table A overleaf shows a Road Map to help firms identify whether this CP is
relevant to them, and if so which parts are most relevant. Table B identifies firms
who are not directly affected by the CP. It is recommended that all firms affected
should read Chapter 1 (Overview) which explains the overall context of the
content of the CP and changes being proposed.
Firms should look at the ‘Regulated Activity’ column and compare the regulated
activities listed with those they have permission to undertake1. If a firm has
permission to undertake any of the regulated activities listed in Table A they
should read this CP. However, whether Part I or Part II and which
chapters/annexes they should specifically read depends on whether or not the
firm is affected by the Capital Requirements Directive (CRD) and / or the Markets
in Financial Instruments Directive (MiFID). We have also included a column
‘Directive Status’ which is meant to be indicative only, as a guide to what sections
of the CP firms should read as set out under the ‘Relevant material’ column. It is
not intended to represent guidance as to whether the CRD or MiFID applies to a
particular firm.
Guidance on the scope of the Capital Requirements Directive and the Markets in
Financial Instruments Directive can be found in CP06/3 Strengthening Capital
Standards 2 (February 2006) and in CP06/9 Organisational systems and controls:
common platform for firms2.
The CRD will apply to many investment firms. We will be contacting these firms as
appropriate to assist them in determining their categorisation under the CRD.
1
The regulated activities a firm has permission to undertake will be listed in their Statement of Permission which is
sent to them on authorisation and updated following any variation subsequently made
2
Chapter 10 and Annex 5 of CP06/9 refer
Financial Services Authority 5
Table A: Firms directly impacted by this CP
Regulated Activity
Indicative firm type
Directive
Status
Relevant
material
• Accepting deposits
• Issuing electronic money
•
•
•
•
Banks
Building Societies
Non-EEA bank
EEA bank that has permission to
accept deposits, other than one
with permission for cross-border
services only
EEA bank that does not have
permission to accept deposits,
other than one with permission
for cross-border services only
E-money issuers
Small e-money issuers
Credit unions
Subject to
the CRD
Chapters 1 to
9, 12, 13
Investment management firms
Securities and futures firms
UCITS investment firms
Wholesale personal investment
firms
Collective investment schemes
managers
Operators of stakeholder pension
schemes
UCITS firms
Venture capital firms
Oil or energy market participants
Corporate finance firms
Depositaries and custodians
Trustees
Operators of personal pension
schemes
Appendix
•
Note: Does not apply to
insurers that accept deposits
•
•
•
Annexes 1-13
Appendix
Not subject
to the CRD
Annexes 1 to
6, 9, 12, 13
• Dealing in investment as
principal
• Dealing in investments as
agent
• Advising on investments
(excluding retail
investment activities)
• Arranging (bringing about)
deals in investments
(excluding retail
investment activities)
• Managing investments
• Establishing, operating or
winding up a regulated
collective investment
scheme
• Establishing, operating or
winding up an unregulated
collective investment
scheme
• Establishing, operating or
winding up a stakeholder
pension scheme
• Acting as depository or
sole director of an Open
Ended Investment
Company
• Acting as trustee of an
authorised unit trust
• Safeguarding and
administering investments
• Establishing, operating or
winding up a personal
pension scheme
•
•
•
•
• Recognised bodies
• Recognised Investment Exchange N/A
• Recognised Clearing House
•
•
•
•
•
•
•
•
•
Chapters 1,
2, 7, 12, 13
Financial data
items:
Subject to the (as above)
CRD
Non-financial
data items:
Chapters 1, 2,
10 to 13
Annexes 1, 2,
4 to 9, 12, 13
Not subject to Chapters 1, 2,
the CRD
10 to 13
Annexes 1, 2,
4 to 9, 11 to
13
Appendix
6 CP06/11: Integrated regulatory Reporting (May 2006)
Chapter 10
Annex 13
Table B: Firms not directly impacted by this CP
Firms carrying out only the activities listed below (and not any covered in
table A above) are not affected by the bulk of this CP.
Regulated activities
Firm type
Relevant material
• Effecting contracts of
insurance
• Carrying out contracts
of insurance
• Entering as provider
into a funeral plan
contract
•
•
•
•
Annex 13 – Streamlining
of the Handbook
• Mortgage mediation
• Insurance mediation
(non-investment
insurance contracts)
• Mortgage brokers
• General insurance
brokers
Life insurers
Non-Life insurers
Friendly Societies
Non-Directive Friendly
Society
Chapter 12 – Consistency
review and auditors’
reports
Annex 13 – Streamlining
of the Handbook
• Retail investment
activities
• Advising on pensions
transfers & opt-outs
• Arranging (bringing
about deals) in retail
investments
• Personal investment
firms – who will not be
subject to the CRD or
carry out any nonretail investment
activities listed in the
second section of
table A above
Chapter 13 – Consistency
review and auditors’
reports
Annex 13 – Streamlining
of the Handbook
Financial Services Authority 7
1
Overview
Integrated Regulatory Reporting (IRR): the overall context
1.1
Improving our business capability and effectiveness is a principal FSA
strategic aim and covers: devising policies which are risk-based and
proportionate; using resources efficiently; and making us an easier
organisation to do business with. IRR is one of the ways we will meet that
strategic aim.
1.2
IRR has been developed to meet the commitment we made in the 2003/04
Plan & Budget to review the type and quality of regular standardised
information we need from firms to be an effective risk-based regulator and to
harmonise the multiplicity of inconsistent reporting formats inherited from
pre-N23 regulators.
1.3
Over the past two years we have been progressively moving regulatory
reporting from being:
1.4
•
based on pre-N2 firm types to being based on the regulated activities a
firm carries out;
•
based on the various operating frameworks and reporting formats of the preN2 regulators to those of the FSA, in particular aligning it with ARROW4;
•
almost exclusively used as a supervisory tool for monitoring and
mitigating risks to our objectives arising from our prudential requirements
to also being used to monitor and mitigate risks arising from the way
firms conduct their business; and
•
fixed to calendar year reporting periods to reporting aligned to firms’ own
financial years.
The revised information will enable us to use regulatory reporting more
effectively as one of the supervisory tools for monitoring and mitigating risks
3
1 December 2001, when the FSA was given its statutory powers
4
Advanced Risk Responsive Operating frameWork (ARROW): the FSA’s risk assessment model
Financial Services Authority 9
relative to the mix of regulated business a firm undertakes. This is essential to
our risk-based approach to regulation. In Chapter 2 paragraphs 2.4 to 2.8 we
discuss further how we use regulatory reporting as a supervisory tool and how it
fits within ARROW which guides the way in which we risk assess and supervise
firms, and target thematic work relating to consumers, sectors or multiple firms.
We also believe that the revised information will better enable firms to use the
information we require for regulatory purposes for their own internal
monitoring purposes as well. Finally, we have used this staged review of
regulatory reporting to identify redundant data which we will no longer collect.
1.5
Since 2003 we have reviewed the reporting requirements for all regulated
activities. In addition to the regulated activities covered by this CP we
developed the reporting requirements for mortgage and general insurance
business which was first regulated by us in October 2004 and January 2005
respectively. At the same time we revised the reporting for financial advisers
and complaints reporting for all firms with eligible complainants. We have
also revised the published annual financial return for insurers and certain
friendly societies. Annex 1 describes IRR and what has been implemented to
date in more detail.
1.6
During this time we have been phasing in mandatory electronic reporting
(MER)5 for firms, as and when particular reporting requirements are
reviewed for different sectors. We introduce appropriate rules as the revised
reporting requirements are rolled out (only credit unions are exempt from
MER). We believe that investing in technology to collect data from firms and
analyse it brings benefits for both parties: it can be more efficient for firms,
and enables us to use the data more effectively in monitoring firms’ business.
Full details of our further plans for applying MER and the electronic
submission methods that will be available are contained in Annex 2. This
includes details of the IRR Advisory Group which we have set up to seek
input from the industry on the development of the MER system.
This Consultation Paper
1.7
This CP follows on from Discussion Paper (DP) 05/16 we issued in February
2005. The changes to be brought about by the implementation of the Capital
Requirements Directive (CRD) in 2007 and 2008 require us to revise the
reporting necessary to monitor the capital adequacy of firms that undertake
the regulatory activity of accepting deposits and investment firms also affected
by the CRD. At the same time we are taking the opportunity to review all
their financial reporting requirements, as well as for those firms that:
•
accept deposits but are not subject to the CRD; or
5
MER was consulted on in CP198 Regulatory reporting – a new integrated approach published September 2003 and
PS04/8 Feedback on CP198 and made text published March 2004.
6
DP05/1 Integrated Regulatory Reporting (IRR) for: Deposit takers, principal position takers and other investment
firms subject to the Capital Requirements Directive
10 CP06/11: Integrated regulatory Reporting (May 2006)
•
issue electronic money; or
•
are investment firms that carry on investment activities, other than retail
investment acivities7 but are not subject to the CRD.
1.8
The implementation of the Markets in Financial Instruments Directive
(MiFID) during 2007 has a particular impact on investment firms and we
have used this as an opportunity to review both the financial and nonfinancial reporting for such firms, whether they are affected by MiFID or not.
We have also reviewed our needs for non-financial reporting from investment
firms affected by the CRD.
1.9
In order for firms to have a overview of the implications of the changes
arising from the review covered by this CP they should refer to Annex 8 –
What this means for firms in practice.
1.10
The rest of this CP sets out in detail our proposals for these revised reporting
requirements. It also sets out our proposals as to when these requirements
should be implemented. These range from:
•
minimal transitional implementation of reporting relating to the CRD
commencing 1 January 2007; to
•
certain MiFID affected financial reporting from 1 November 2007; to
•
full implementation from 1 January 2008.
1.11
Wherever possible we have given firms 12 months’ notice from the date
finalised rules are published to when they have to begin submitting the new
returns and have only shortened this notice where fixed Directive timetables
override our discretion. Where shorter notice is necessary, we have aimed to
only require submission of the key data relating to the Directive-driven
changes, supplemented by allowing firms to continue to submit the existing
returns completed on the ‘old’ basis during that period. Overall we feel this
approach strikes the right balance between minimising changes that give less
than 12 months notice and meeting our obligations under the Directives to
monitor firms’ compliance with their requirements. Table 1.1 at the end of
this chapter shows the feedback and implementation timetable for the
proposals contained in this CP.
1.12
We will introduce MER for the reporting covered by this CP in two stages.
MER will first be applied to the submission of the key data from 1 January
2007 by credit institutions and investment firms affected by the CRD. Such
firms who also chose to move to the Standardised, Foundation and/or Retail
IRB8 approaches to credit risk during 2007 will have the option to complete
new data items. If they do, those firms will use MER when submitting the
7
Throughout this CP unless otherwise stated the term ‘investment firm’ means firms that carry on investment
activities other than retail investment activities
8
Internal ratings based (IRB) approach
Financial Services Authority 11
data. For those firms for which financial reporting is affected by MiFID
(specifically Article 67 (3) firms) but not the CRD, MER will be applied from
1 November 2007 as that is when MiFID is implemented. For the remaining
firms covered by this CP, MER will apply from 1 January 2008. Full details
of our plans for applying MER and the electronic submission methods that
will be available are contained in Annex 2 – Electronic Submission Methods.
1.13
This CP is relevant to senior management of the firms because of the greater
emphasis put on senior management responsibility for calculating and
verifying data provided to us in future. It is also particularly relevant to staff
dealing with regulatory reporting and for staff dealing with systems
development, especially those developing systems to take account of the CRD
and MiFID. Although the proposals may be subject to some changes, we do
not expect these to be major. It is up to firms to decide whether to proceed
with reporting system changes before our requirements are finalised in
October 2006 and the first quarter of 2007.
Part I: reporting proposals for credit institutions and investment
firms affected by the CRD
1.14
The CRD represents a fundamental change in the way credit institutions and the
investment firms affected by it calculate their regulatory capital. These changes
are set out in CP06/3 Strengthening Capital Standards 2 published in February.
The revised reporting requirements in this part of the CP reflect those changes.
We now define firms according to whether they are BIPRU 730K firms, BIPRU
125K firms, or BIPRU 50K firms9. In categorising investment firms this way for
reporting purposes, firms should note this does not accord with the way that
capital requirements apply to such firms in GENPRU10. This is a consequence
of the Directives. For these purposes, the firms are categorised as full scope
BIPRU investment firms, BIPRU limited activity firms and BIPRU limited
licence firms11. Firms should refer to CP06/9 Organisational systems and
controls: common platform for firms for detailed guidance.
1.15
Our proposals take account of the work undertaken by the Committee of
European Banking Supervisors (CEBS) to develop a common reporting
(COREP) framework across the European Union (EU). We have been closely
involved in this work and CEBS published the outcome in January 200612.
The CEBS package is broadly made up of two layers of data – ‘core’ data of
around 1,200 items, which it expects most EU supervisors to collect, and
9
BIPRU is the prudential sourcebook for banks, building societies and investment firms. These firms have an initial
capital requirement of €730,000, €125,000 and €50,000 respectively.
10
GENPRU is the general prudential sourcebook for banks, building societies, investment firms and insurers.
11
In line with paragraphs 2.11 to 2.16 of CP06/3, we are treating UCITS investment firms as BIPRU limited licence
firms provided that, where they have a ‘dealing in investments as principal’ permission, this is limited to box
management activities.
12
See 13 January 2006 at www.c-ebs.org/standards.htm
12 CP06/11: Integrated regulatory Reporting (May 2006)
‘detailed’ data consisting of about 21,000 items, where it is expected
individual EU supervisors will be more selective in using.
1.16
The average usage of the ‘core’ data by EU supervisors is expected to be
around 83%, while usage of the ‘detailed’ data will average about 63%.
However, the UK will be an outlier in this respect. Our focus on risk-based
supervision means that we will only be collecting approximately 20% of the
‘core’ data, and our usage of the ‘detailed’ data will be even less, at
approximately 5%. It is important to note that, irrespective of CEBS, this
data would be collected for supervisory purposes.
1.17
The reporting requirements relating to CRD are more complex than at
present, particularly for investment firms, but they need to cover all
eventualities. On this basis there are likely to be increases in data required for
CRD investment firms. However, where we consider it reasonable, we
propose reporting thresholds for some of the data items to minimise the
burden on firms. It is unlikely that firms, other than the very large and
sophisticated, will need to complete all the data items proposed. Overall, the
level of reporting has reduced for banks and building societies.
1.18
Most of the CRD-related reporting requirements relate to Pillar 113 but, for
investment firms, we do include a Pillar 214 questionnaire to inform the
intensity of our risk assessment of these firms.
1.19
In reviewing the above reporting requirements affected by CRD we have not
only taken into account the development of ARROW but also the changes in
the markets in which these firms operate that have occurred since the original
requirements were devised several years before N2. We have also taken these
changes into account when reviewing our other financial reporting
requirements not impacted by CRD e.g. on liquidity. Most of this non-CRD
related data will only be provided by banks and building societies but,
whereas there are some new data items included, the overall level of
reporting is still less than at present.
Part II: reporting proposals for the non-CRD investment firms and
non-finacial reporting
1.20
This part of the CP covers our proposed revised financial reporting
requirements for those investment firms that:
•
undertake any of the regulated activities listed in the second section of
Table A ‘Road map’ on page 6, which are not subject to the CRD; and/or
•
are Article 67(3) MiFID firms15; or
13
Pillar 1 – a quantification of the risks arising from financial firms’ trading and credit businesses.
14
Pillar 2 – a stronger constructive dialogue between regulators and firms on the risks run by the latter and the level of
capital which they should hold.
15
For an explanation of this please see Chapter 10 paragraphs 7 to 10.
Financial Services Authority 13
•
are recognised bodies16.
1.21
We refer to the group of firms in the first two bullet points collectively as
non-BIPRU firms.
1.22
Part II also includes our proposed non-financial reporting requirements for
these investment firms (except recognised bodies). These non-financial or
conduct of business reporting requirements also apply to credit institutions
and the investment firms affected by CRD that carry on any of the regulated
activities which are covered in Part I.
1.23
Part II also includes our proposed reporting requirements for the new regulated
activity of establishing, operating or winding up a personal pension scheme.
1.24
Overall the review of reporting requirements and the proposed revised
reporting that is covered by Part II is mainly driven by our commitment to
align reporting with our risk-based approach to regulation represented by
ARROW and harmonise the multiplicity of inconsistent reporting formats
inherited from pre-N2 regulators. This is because the underlying prudential
requirements have not, on the whole, changed. In particular we have sought
to address the disparities in financial reporting between the Investment
Management Regulatory Organisation (IMRO) and the Securities and
Futures Authority (SFA) reporting forms. In terms of increase or decrease in
financial reporting, the outcome has resulted in a:
1.25
•
decrease for securities and futures firms to correct what we believe was
over reporting in a number of areas in the former SFA return; and
•
increase for investment management firms as we believed that the
amalgamated Balance Sheet and Income Statement (Profit and Loss)
should have a higher level of granularity than the former IMRO return.
To help us monitor and mitigate risks posed by the way firms conduct their
business relating to the regulated activities referred to in paragraph 1.20 (first
and second bullet point) above we have introduced a number of new data items
as non-financial reporting. The new data includes information relating to the
value of funds under management, sources of clients, and information about the
holding of client money/assets. These are discussed further in Chapter 11. This
proposed new data represents a relatively small increase in overall reporting for
the firms that carry on these regulated activities.
Part III: general – Chapter 12 Auditors’ reports for certain
investment firms and consistency review
1.26
16
This Chapter generally applies to the firms covered in both Part I and Part II.
In this chapter we discuss the inconsistencies that occur between the
The term ‘recognised bodies’ includes: recognised investment exchanges; recognised clearing houses; recognised
overseas investment exchanges; recognised overseas clearing houses; and alternative trading systems operators.
14 CP06/11: Integrated regulatory Reporting (May 2006)
reporting requirements we require from firms carrying out one group of
regulated activities with another. We refer to these as regulated activity
groups (RAGs)17. The inconsistencies we identified relate to:
•
the continued routine requirement for the auditor’s of certain investment
firms to submit a report;
•
annual audited reporting statement and annual reconciliation;
•
frequency of submission of data items; and
•
cross regulated activity data items for professional indemnity insurance
(PII), client money, threshold conditions and fees and levies information.
1.27
Chapter 12 sets out how we propose to resolve these inconsistencies. In
relation to auditors’ reports and the linked requirements for annual audited
reporting statements and annual reconciliations we are proposing in this CP
to discontinue these reporting requirements for investment firms that are
subject to CRD from 1 January 2007 and Article 67 (3) MiFID firms from 1
November 2007 pending a separate review of the routine submission of
auditors reports.
1.28
Pending the outcome of the review we will be continuing the requirements
for non-CRD and non-MiFID investment firms covered by this CP.
Better Regulation
1.29
In December 2005 we published our Better Regulation Action Plan which
outlines how we have improved – and will continue to improve – the
regulation of financial services. This means regulating less where we believe
we can, but more where we think it is necessary. Despite our desire to remove
unnecessary regulations, there are areas where regulation may increase.
1.30
In the Action Plan we highlighted some of the changes we have made in
recent years and what we aim to deliver in the next few years that will most
directly contribute to these objectives. An outline of the contribution that our
work on reporting has already made to date was featured. Our summary
above of the areas of proposed changes to our reporting requirements
contained under Part I and Part II of this CP gives an indication of where we
have been able to reduce our reporting requirements and where we believe it
is appropriate to increase our reporting requirements. We will publish later in
the year a more detailed analysis of the overall impact of the finalised
changes to reporting.
17
We first refer to RAGs in Chapter 7 of PS04/8 Regulatory reporting – a new integrated approach and Feedback on
CP198 and made text published March 2004.
Financial Services Authority 15
1.31
This consultation will conclude the commitment we made in the 2003/04
Plan & Budget referred to in paragraph 1.2 above. However, in line with our
better regulation approach we will continue to assess changes in the
regulatory environment and our operating framework to ensure that the
regulatory data we collect from firms is the right information, that we use it
effectively and it is not too onerous for firms to collate. Where gaps in our
data needs emerge, we will seek to fill them and where data is no longer
needed, we will stop collecting after due consultation. In doing so we will
take account of our Principles of Good Data and Good Data Collection
which we set out in Annex 1, paragraph 1.15.
1.32
In paragraph 2.9 of this CP we highlight that given the CRD has introduced
such a fundamental change in the calculation of regulatory capital for credit
institutions and investment firms subject to the Directive, we need to have
some experience of supervising firms under the new regime before being
conclusive on the precise content of reporting. We therefore intend to carry
out an assessment of the effectiveness of the revised reporting in this CP in
two to three years. In proposing any further changes we will take account of
the one-off cost to firms.
1.33
On a similar basis the relatively new Retail Mediation Activities Return
(RMAR), Mortgage Lending & Administration Return (MLAR) and
Complaints return have been submitted by firms since July 2005. We have
some experience of the usage of the data submitted through these new
returns and in our 2006/07 Business Plan we have undertaken to review these
returns in the light of that experience and assess whether any data needs to
be added or taken away. We will commence this review in Q3 2006.
Structure of this CP
1.34
1.35
As Chapter 1 this Overview is aimed at summarising in broad terms the
changes proposed to all firms that this CP impacts. Chapter 2 on Scope also
applies to all firms impacted by this CP and sets out in more detail:
•
which firms this CP applies to and refers the reader to the our ‘Road map’
in the front of this CP starting on page 5. This ‘Road map’ also gives an
indication of which chapters and annexes are applicable;
•
the rationale for the data items we are proposing to collect;
•
how the data will be submitted;
•
submission times, reporting dates, and reporting currencies; and
•
the publication of aggregated data.
The rest of the CP is split in three parts.
16 CP06/11: Integrated regulatory Reporting (May 2006)
1.36
Part I – specifically relates to the financial reporting of credit institutions and
investment firms affected by CRD. Here seven chapters set out our proposals:
•
Chapter 3 – discusses in detail the issues arising from CRD and how it
impacts on reporting;
•
Chapter 4 – outlines how we will deal with consolidated reporting. In Annex
10 we also include a decision tree identifying a UK consolidation group;
•
Chapter 5 – covers the specific reporting changes that arise as a result
of CRD;
•
Chapter 6 – deals with new data items, resulting from our general review
of reporting requirements;
•
Chapter 7 – deals with other changes necessary to bring reporting in to a
consistent basis under IRR e.g. relationship with the Bank of England
(BoE);
•
Chapter 8 – explains the transitional reporting requirement for 2007; and
•
Chapter 9 – shows some outline proposed requirements that are not yet
finalised.
1.37
Part II – specifically relates to the financial reporting of investment firms not
affected by the CRD but includes, as a ‘Taster’ (see also Annex 11), our
provisional financial reporting requirements for Article 67 (3) MiFID firms.
1.38
This part also sets out our proposals for non-financial reporting
requirements for investment firms (except recognised bodies). These nonfinancial or conduct of business reporting requirements also apply to the
firms whose financial reporting is covered under Part I if they carry out any
of the regulated activities listed in the second section of Table A ‘Road map’
on page 6.
1.39
For Part II, two chapters set out our proposals:
1.40
•
Chapter 10 – explores the remit of reporting for the firms covered by Part
II; and
•
Chapter 11 – discusses changes to existing reporting and highlights where
new data items are proposed.
Part III – as with Chapter 1 Overview and Chapter 2 Scope, this part of the CP
relates to all the firms impacted by this CP and has two chapters covering:
•
Chapter 12 – discusses reporting by auditors and linked reporting of
annual audited reporting statements and annual reconciliations and how
we propose to discontinue such reporting for certain investment firms
pending a review of the role of routine auditors reports. It also covers
Financial Services Authority 17
other inconsistencies in reporting and how we propose to address them;
and
•
1.41
1.42
Chapter 13 – sets out next steps.
Annexes – these support the main body of the CP and apart from Annexes
10 and 11 already mentioned:
•
Annex 1 and 2 – respectively gives an overall picture of IRR and the
electronic submission methods we will be using;
•
Annex 3 and 4 – respectively provides feedback on DP05/1 and lists all
the questions posed in this CP;
•
Annex 5 and 6 – respectively provide cost-benefit analysis and
compatibility statement;
•
Annex 7 – provides an overview of all the reporting requirements for all
the firms covered by this CP;
•
Annex 8 – provides an outline of what the changes mean in practice for
firms relating them to both current and the revised reporting and when it
will be applied;
•
Annex 9 – summarises how we will use the revised and new reporting
requirements categorising the usage under compliance, risk and markets;
•
Annex 12 – collates in one place all the italicised defined terms that we
use in this CP which are in or will be in the main Glossary to the
Handbook. We also include the acronyms we use in the CP such as MER
for mandatory electronic reporting; and
•
Annex 13 – sets out how we will be restructuring the way reporting rules
and guidance is presented in SUP 16.7 which is aimed at streamlining this
part of the Handbook and making it easier to navigate.
Appendix – the draft Handbook Text.
Responses
1.43
We are seeking comments to Part I of this CP by 31 July 2006 and Parts II
and III by 31 August 2006. These will be taken into account in finalising our
proposed requirements.
1.44
In relation to Part I, we plan to issue a Policy Statement and Feedback
Statement, together with finalised Handbook text in October 2006. Our timing
is dependent on the Handbook text in CP06/3 which is also scheduled to be
finalised in October. Any delay in that will have an impact on our timetable.
18 CP06/11: Integrated regulatory Reporting (May 2006)
1.45
In relation to Part II, we plan to issue a Policy Statement and Feedback
Statement, together with finalised Handbook text in the first quarter of 2007.
Our timing is dependent on the MiFID consultation (specifically relating to
Article 67(3) firms) scheduled for July with the Handbook text scheduled for
finalisation in the first quarter of 2007. Any delay in that will also have an
impact on our timetable.
Small firms
Most firms covered by this CP will be affected by the CRD which is
introducing a fundamental change in they way firms affected by it calculate
their regulatory capital. Many firms affected by CRD will be small firms
whether they are banks, building societies or investment firms. The
provisions in the CRD apply even-handedly to all sizes and types of firms
within its scope. The underlying prudential requirements for firms, which our
reporting requirements are designed to monitor firms’ compliance, is set out
in CP06/3 Strengthening Capital Standards 2 (February 2006). At the end of
Chapter 1 of CP06/3 we ‘sign-post’ which sections of that CP are likely to be
particularly useful for investment firms and other smaller firms.
The ‘Road map’ at the front of this CP aims to assist firms in identifying
which sections of this CP apply to them and explain how they can establish
whether they are affected by CRD.
In this CP, we aim to keep reporting requirements to a minimum. For smaller
firms, where certain aspects of reporting relating to CRD (such as market
risk) will be less relevant, we propose having reporting thresholds to further
minimise reporting or reduce the frequency of reporting.
Consumers
This paper does not raise any issues that directly affect consumers. However,
the collection of regulatory data enables us to monitor compliance with our
rules and make it less likely that institutions will fail. This will help us meet
our statutory objective of maintaining market confidence, which would have
positive implications for consumer protection.
Financial Services Authority 19
20 CP06/11: Integrated regulatory Reporting (May 2006)
Q1 2007
12 months
Q1 2008 (expected 1
February 2008)
Q1 2008 (expected 1
February 2008)
1 November 2007
9 months
12 months
1 January 2007 ‘early’
1 January 2008 ‘full’
New Reporting
Commences
2 months ‘early’
14 months ‘full’
Notice Period
(iii) For both these we are not tied to a Directive timetable so are able to give standard consultation period of three months
and the full 12 months notice of when reporting begins.
(ii) Via the MiFID CP through which we will consult on the underlying prudential rules. A ‘taster’ of what these reporting
requirements will look like is given in this CP at Annex 11. Aligned to the MiFID CP/PS final rules timetable and fixed
implementation date (we aim to make final rules for the 31 January 2007 transposition date).
(i) Aligned to the final rules for the 2nd Strengthening Capital Standards CP and the fixed CRD implementation dates.
Notes
3 months
Non-financials for 31 May 2006
all investment
activities (excluding
retail) whether or
not impacted by
CRD or MiFID (iii)
Q1 2007
Q1 2007
3 months
3 months
Oct 2006
PS & Final Rules
Published
2 months
Consultation
Period
Financials for non- 31 May 2006
CRD or non-MiFID
(iii)
Credit institutions
31 May 2006
and CRD investment
firms financials (i)
Financials impacted July 2006
by Article 67(3)
MiFID (ii)
CP Published
Table 1.1: Consultation and implementation timetable for
reporting requirements
2
2.1
Scope
In this chapter we set out in greater detail:
•
which firms this CP applies to;
•
the rationale for the data items we are proposing to collect;
•
how the data will be submitted;
•
submission times, reporting dates and reporting currencies; and
•
the publication of aggregated data.
Firms this CP applies to
2.2
This CP is relevant, to varying degrees, to all banks, building societies and
electronic money institutions; it also affects a range of investment firms that
will and will not be subject to the CRD. The road map at the front of this CP
(pages 5 to 7) assists firms to identify which parts of this CP is relevant to
them. We are aware that determining whether a firm will be subject to the
CRD is complicated.
2.3
This lack of clarity is largely due to the complex way in which the CRD
interacts with MiFID, which has yet to be finally agreed and with which
firms will need to comply from 1 November 2007, the date on which it
comes into force. Guidance on the scope of the CRD and MiFID can be
found in CP06/3 Strengthening Capital Standards 2 (February 2006) and in
CP06/09 Organisational systems and controls: common platform for firms.18
18
May 2006
Financial Services Authority 21
Rationale for the data items we will collect
Regulatory reporting as a supervisory tool
2.4
ARROW guides the way in which we risk assess and supervise firms, and
target thematic work relating to consumers, sectors or multiple firms.
ARROW sets out our process for assessing risks and deciding upon the
action (if any) that needs to be taken to mitigate those risks. We have several
approaches for supervising firms within ARROW which are used on a
differentiated basis. For firms deemed to be a higher impact (generally ‘large’
firms) we expect to maintain a continuous regulatory relationship in order to
develop and sustain a detailed understanding of the risks these firms pose to
our statutory objectives. This involves using tools such as regular meetings
with firms’ senior management, firm specific risk assessments, visits, thematic
reviews, and ‘skilled persons’ reports, together with regular standardised
regulatory reporting. We also request information on an ad hoc basis but
seek to keep this to a minimum. Regulatory reporting is an important
supervisory tool for the identification of risk as part of our ‘baseline
monitoring’ which includes the analysis of firm-specific and industry data to
identify trends and anomalies. This helps us to determine the thematic (sector
wide) and firm specific work we should undertake.
2.5
Smaller firms on the other hand are likely to represent a low impact in terms
of risks to our statutory objectives but collectively the risks they pose may be
higher. For these firms the regular use of some of these tools would not
necessarily be proportionate. Our supervision of such firms therefore tends to
centre on ‘baseline monitoring’.
2.6
As a supervisory tool the reporting covered by this CP will be contained in
Chapter 16 of the Supervision Manual (SUP 16) which is part of the block in
the FSA Handbook that sets out the rules relating to our regulatory processes.
The current reporting rules in SUP 16 predominantly relate to what data we
need to monitor and mitigate risks to our objectives associated with whether
firms are maintaining adequate financial resources required under Principle
419 and the underlying prudential rules. This started to change over the past
two years with the introduction of the Retail Mediation Activities Return
(RMAR) and Mortgage Lending & Administration Return (MLAR) which
also used reporting to monitor and mitigate risks to our objectives associated
specifically with the way firms conduct their business. This approach is
continued for firms undertaking investment activities in this CP.
2.7
We have also been progressively moving regulatory reporting from being
based on pre-N220 firm types to being based on the regulated activities a firm
carries out, along with aligning all reporting periods to firms’ financial years.
19
Financial prudence: A firm must maintain adequate financial resources.
20
1 December 2001, when the FSA was given its statutory powers
22 CP06/11: Integrated regulatory Reporting (May 2006)
The information will enable us to monitor and mitigate risks to our objectives
relative to the mix of regulated business a firm undertakes; this is essential to
our risk-based approach to regulation. It will also better enable firms to use
the information we require for our regulatory purposes for their own internal
monitoring purposes as well. We again continue this approach in this CP.
2.8
Overall the reporting requirements proposed in this CP cover firms that
undertake a very wide range of regulatory activities and where there will be a
mixture of ‘large’ and ‘small’ firms within which the sophistication of the
mixture of activities will vary quite considerably. They also cover reporting to
monitor prudential and conduct of business risks at a firm level and a market
level. Our underlying aim has been for reporting to be used as a supervisory
tool where it embodies our values as a regulator, embedded within ARROW:
•
risk-based;
•
proportionality;
•
economy and efficiency; and
•
principles-based and outcome-focused.
Impact of EU Directives
2.9
In developing the reporting requirements in this CP we were conscious of the
impact that EU Directives can have on what is required of firms and hence how
we need to supervise them. This is particularly so of the CRD which has
introduced a fundamental change in the calculation of regulatory capital for
credit institutions and investment firms subject to the Directive. Where such
fundamental change occurs we need to have some experience of supervising
firms under the new regime before being conclusive on the precise content of
the reporting. Therefore, we intend to carry out an assessment of the
effectiveness of the revised reporting in this CP in two to three years. Generally,
we intend to keep our reporting requirements under review to ensure they
continue to meet our needs and as far as possible enable firms to make use of
the same data as changes occur in the regulatory environment in which both
we and the firms operate.
Requirements of supra-national organisations
2.10
Supra-national organisations, such as the International Monetary Fund (IMF)
and the European Central Bank (ECB) have an impact on the data collected
for the credit institutions covered by this CP. We do challenge any request for
data these organisations make on us and consequently on firms to provide it.
In doing so we aim to strike the right balance between continuing to fulfil
existing commitments to provide data to the IMF/ECB and our commitment
to only collect data we use.
Financial Services Authority 23
Principles of Good Data and Good Data Collection
2.11
2.12
In determining our reporting requirements we have followed our own
Principles of Good Data and Good Data Collection which we previously made
public in DP05/121 and which we reproduce in Annex 1. These challenge us to
ensure we are clear why we need to collect each data item, and how we will
use it. We classify the use of data under three general headings:
•
Compliance – data used for monitoring compliance with specified FSA rules;
•
Risk – data used to monitor, manage and mitigate risk; and
•
Market – data used for sector and theme analysis.
Annex 9 contains an overview of the benefits and uses of the data proposed,
based on these general areas of compliance, risk and market data.
Pre-consultation
2.13
In developing our reporting requirements we have engaged extensively with
many of the wide range of trade associations whose members will be affected
by this CP. This was in addition to setting out our provisional proposals in
DP05/1 for credit institutions and investment firms impacted by the CRD.
The feedback statement for that DP is contained in Annex 4.
How returns will be submitted
2.14
We will introduce mandatory electronic reporting (MER) for the reporting
covered by this CP. However, this will be achieved in phases, as discussed
below. Mandatory electronic submission of new data items will be a more
timely and efficient collection method for us, and will make us easier to do
business with as most firms will be able to use existing applications on their
desktop to submit via the web based system being developed. Full details of
our plans for applying MER and the electronic submission methods that will
be available are contained in Annex 2 – Electronic submission methods.
Credit institutions and investment firms subject to the CRD –
financial reporting
2.15
From 1 January 2007 these firms will have transitional reporting
arrangements (as discussed in detail in Chapter 8) applied to them. All such
firms will be expected to supply their normal returns plus a key data item.
They should submit their current returns via existing submission methods.
For example, for banks this will be via the Bank of England (BoE) reporting
21
DP05/1 Integrated Regulatory Reporting (IRR) for: Deposit takers, principal position takers and other investment
firms subject to the Capital Requirements Directive published in February 2005.
24 CP06/11: Integrated regulatory Reporting (May 2006)
system. The key data item must be submitted under MER through the new
FSA system being built.
2.16
However, any firm who chooses to move to the Standardised, Foundation
and/or Retail IRB approaches to credit risk during 2007 will have the option
to complete new data items. For those firms, data will be submitted under
MER using the new FSA system.
2.17
From 1 January 2008, all firms subject to the CRD will have to submit the
new set of financial data items, under MER through the new FSA system.
Non-CRD investment firms – financial data items
2.18
For Article 67(3) MiFID firms (where their financial reporting is affected by
recast CAD Articles 7 & 8) MER will be applied from 1 November 2007
(MiFID implementation date).
2.19
For remaining investment firms covered by this CP MER will be applied from
the first quarter 2008 (expected 1 February 2008).
All firms undertaking investment activities (excluding retail
investment activities) – non-financial data items
2.20
Firms will be required to submit non-financial data items outlined in Chapter
12 via MER from Quarter 1 2008 (expected 1 February 2008).
2.21
Full details of our plans for applying MER and the electronic submission
methods that will be available is contained in Annex 2 – Electronic
submission methods.
Data item naming conventions
2.22
Until now, we have used the term ‘return’. However, the term ‘return’ is no
longer being used to describe the data firms must submit to us. Throughout
this CP the proposed reporting will be referred to in new terms. Reports have
been replaced by the concept of ‘data items’ (please see Annex 13 on the
Streamlining of the Handbook for further details on the new terminology).
2.23
We will introduce a naming convention for each data item using ‘FSA’
followed by three digits such as FSA001 (Balance Sheet), FSA002 (Income
Statement) and so on (which is a change to that proposed in PS04/8). The
data items will be numbered consecutively and, when a data item is replaced,
the new data item will take a new number. We intend all current data items
to be included in a single Annex to SUP 16, as individual data items will be
applicable to more than one type of firm in the future. By showing what the
reporting frequency is for each data item across firm types, it will be clear to
firms and us where there are differences. It will be for us to explain why
Financial Services Authority 25
these differences in frequency (and submission times) are necessary. It will
also ultimately lead to a simpler Handbook, with data items and the
guidance for completing them being in a single place in the Handbook. We
believe this will improve the clarity of this area of the Handbook from its
current layout.
Submission times, reporting dates and reporting currencies
Submission times
2.24
Before N2, a limited number of firms had arrangements with their previous
regulators to submit certain regulatory returns to a timetable that was different
from the norm. This was to address timing issues faced by these firms, often
because they had worldwide operations and were complex businesses. These
arrangements continued after N2 as ‘grandfathered concessions’22. However,
these firms should note that these concessions will fall away on 1 January
2008, or for the non-CRD firms when the forms they relate to stop being
reported. After that, they may apply for a waiver on the submission time. We
will consider each case independently and on its own merits.
Reporting dates
2.25
22
As we outlined in PS04/8 and DP05/1, one of the changes being implemented is
that the reporting dates will in future be aligned with a firm’s accounting
reference date (ARD). The move away from reporting at the end of calendar
quarters is unlikely to affect most firms as they tend to have a financial year
end of 31 December or 31 March. But some firms may be affected, particularly
those with an ARD that does not fall at the end of a month. The following
table 2.1 illustrates the impact of different ARDs on reporting. Although the
list of dates is not exhaustive, the scenarios should cover most circumstances.
See the Ttransitional Provisions in SUP TP 1.3.
26 CP06/11: Integrated regulatory Reporting (May 2006)
Table 2.1: Examples of accounting reference dates (ARD) and
reporting dates
Scenario
ARD is the end of a
month with 31 days
Accounting reference date Quarterly reporting dates
to FSA
31 December
31 March, 30 June, 30
September and 31 December
ARD is the end of
e.g. 28 February (29
another month (that
February in a leap year)
does not have 31 days)
28 February, 31 May, 31
August and 30 November
ARD is not at the end e.g. 5 April
of a month, but is a
fixed date
5 July, 5 October, 5 January
and 5 April
ARD changes in
reporting year
15 January 2006, 21 April
2006, 21 July 2006, 21
October 2006, 21 January
2007 etc
e g. 15 January 2006
changes to 21 January 2007
(notifies FSA in February
2006 under SUP 16.10.4R)
Note: in scenario 4, the change in accounting reference date can either occur on
a regular basis e.g. a firm whose accounting year end is always the third Saturday
in January, or on an ad hoc basis in response to a particular event e.g. a merger.
2.26
We are aware that some firms change their ARD each year. SUP23 16.3.17R
and SUP 16 Annex 18G notes the requirement to notify us of any change of
ARD. However, the guidance in SUP 16.3.18G provides us with the
discretion to require ad hoc submission of data items where a change to ARD
may result in a reporting gap. This should be resolved with the firms’ normal
supervisory contact.
Reporting in currencies
2.27
At present, banks and building societies only report in sterling, while
investment firms can report in the currency of their annual financial
statements. Although in response to question 8 in DP05/1 (see Annex 4)
firms generally saw little difficulty in reporting in sterling, we realise that to
make such a change would be more costly for the firms that currently report
in a currency other than sterling. So we propose to allow all firms to report
to us in the currency of their annual audited accounts. Initially, we intend to
specify the currencies firms may report in and propose using the currencies of
the G10 countries, ie Sterling, Euro, US Dollar, Canadian Dollar, Swedish
Kroner, Swiss Franc and Japanese Yen.
Q1:
23
Is there any currency that a firm currently uses or
intends to use in the near future that is not listed
above, which if you were not able to use, would impose
Supervision Manual
Financial Services Authority 27
a burden? If so, please specify the currency involved,
and an indication of the costs that would be involved.
Publication of aggregated data
2.28
In previous reporting consultation and policy documents, we have noted our
long term intention to publish aggregated data. This would give firms access,
electronically, to information to enable them to benchmark themselves
against their peer group. Firms have expressed an interest in this. We would
of course ensure that in any aggregated data published, no individual firm’s
data could be identified.
2.29
This remains our aim and the date when we begin providing such a service
will partly depend on our timetable for completing the development of our
electronic collection, validation, storage and analysis systems as well as
building up a reasonable time series of the revised data to make it useful for
firms. We therefore do not yet have any definite plans other than the data
required under CRD24 and CEBS’ guidelines on supervisory disclosure25.
However, we welcome views on the extent that the publishing of aggregated
data covered by this CP would be of benefit to firms and other stakeholders.
Q2:
What data covered by this CP if any, would you find
beneficial to be aggregated and published by us?
24
Article 144 of 2000/12/EC.
25
These were issued on 1 November 2005 and set out some aggregate regulatory data which all EU countries will
publish (see www.c-ebs.org/pdfs/GL05.pdf).
28 CP06/11: Integrated regulatory Reporting (May 2006)
Part I: reporting proposals
for credit institutions and
investment firms affected
by the CRD
Financial Services Authority 29
3
3.1
CRD specific issues
This chapter aims to help firms understand in more detail the issues arising
from the CRD and how this impacts on reporting. The other chapters in Part
I will cover:
•
Chapter 4: how we will deal with consolidated reporting;
•
Chapter 5: the specific reporting changes that arise as a result of the CRD;
•
Chapter 6: with new data items, resulting from our general review of the
reporting requirements;
•
Chapter 7: with other changes that will not be introduced until 1 January
2008;
•
Chapter 8: the transitional reporting arrangements for 2007; and
•
Chapter 9: some outline requirements that are not yet finalised.
CRD issues
Identifying firm categories
3.2
One consequence of the way in which the CRD is being implemented in
our Handbook is that new terminology is used to describe firms. For
example, we have determined the reporting frequencies for BIPRU
investment firms26 based on the CRD requirements, which means we
define firms according to whether they are BIPRU 730K firms, BIPRU
125K firms, or BIPRU 50K firms27.
3.3
In categorising investment firms as BIPRU 730K firms, BIPRU 125K
firms and BIPRU 50K firms for reporting purposes (based on these firms’
26
BIPRU is the prudential sourcebook for banks, building societies and investment firms.
27
These firms have an initial capital requirement of €730,000, €125,000 and €50,000 respectively.
30 CP06/11: Integrated regulatory Reporting (May 2006)
base capital resources requirement in GENPRU 2.1.29R28), firms should
note this does not match the categorisation that is used for the capital
resources requirements in GENPRU 2.1.16R. This is a consequence of the
Directives. For the latter purposes, the firms are categorised as full scope
BIPRU investment firms, BIPRU limited activity firms and BIPRU limited
licence firms29.
3.4
We have also indicated at the start of chapters 4 to 9 which firms are
particularly affected and the relevant paragraph references. This will help
firms focus on the requirements that particularly affect them.
Implementation dates
3.5
We had originally intended to implement all the changes arising from our
proposals at a single date and, in DP05/1 proposed 1 January 2007 as the
date when the new data items would become effective. However, feedback
from industry indicated that this would give rise to reporting problems for
those firms that could not adopt the advanced approaches to credit risk until
1 January 2008.
3.6
It has since become clear that there are changes that all firms within the
scope of the CRD will need to comply with as appropriate from 1 January
2007, irrespective of when a firm adopts the new approaches to credit risk.
These elements of the GENPRU and BIPRU rules and guidance will apply
when the transitional arrangements set out in the BIPRU Transitional
Chapter of the draft Handbook text30 come into force ie 1 January 2007.
These elements cover:
•
capital definition and the new fixed overhead and base capital requirements;
•
the consolidated regime for groups, including the revised rules for solo
consolidation and ‘CAD waivers’;
•
the trading book definition and updated position risk requirement (PRR)
for market risk, including the PRR for foreign exchange currency risk and
commodity positions that may be held outside the trading book;
•
valuation, including the requirements for prudent valuation in the trading
book; and
•
systems and controls requirements (SYSC module), subject to a separate
consultation in May 2006 (CP06/9).
28
GENPRU is the general prudential sourcebook for banks, building societies, investment firms and insurers.
29
In line with paragraphs 2.11 to 2.16 of CP06/3, we are treating UCITS investment firms as BIPRU limited licence
firms provided that, where they have a ‘dealing in investments as principal’ permission, this is limited to box
management activities.
30
In Appendix: Volume 1 to CP06/3.
Financial Services Authority 31
3.7
We had the option of changing all reporting for all the CRD firms from 1
January 2007, which would mean giving much less notice than the 12
months we prefer to give for substantial reporting changes. Alternatively, we
could continue to use existing reports during 2007 and introduce the new
reports for all firms from 1 January 2008. We concluded after discussions
with the relevant trade associations that firms would prefer the latter option.
To enable all firms to start reporting in full under the new requirements from
1 January 2008, we are proposing a set of transitional provisions which are
set out in Chapter 8. For an overview of the reporting changes for different
types of firm, see Annex 8.
3.8
The delay in finalising the CRD and consulting on our final Handbook rules
means we will not be able to give firms the 12 months’ notice of the changes
that we had hoped. But we hope that by limiting this ‘short notice’ only to
the transitional arrangements set out in Chapter 8, we are limiting the impact
on firms. However, to allow firms maximum flexibility, once they adopt the
standardised, foundation and/or retail IRB approaches to credit risk, they
may alternatively submit only certain elements of the new data items31 in
place of some of the existing returns.
Dual reporting
3.9
In order to be sure firms are clear on this, we do not intend at any stage to
require firms to report figures to us on both a pre-CRD and a post-CRD
basis at the same date through the reporting provisions in SUP. Firms will
only have a single reporting requirement. For firms that adopt any of the IRB
approaches to credit risk, they will be required to calculate floors during the
first three years of the operation to the new rules32 but, apart from reporting
the figures if relevant on FSA009 during 2007 and FSA003 thereafter (details
of these data items are set out in Chapters 5 and 8), we will not require firms
to provide a copy of the calculation behind these figures, although it may be
requested on an ad hoc basis.
Committee of European Banking Supervisors (CEBS)
3.10
CEBS’ role includes contributing to the consistent implementation of EU
Directives, to the convergence of supervisory practices throughout the
Community, and enhancing supervisory cooperation, including the exchange
of information. One of their early tasks was to consider common reporting
arising from the CRD to bring consistency in the way countries address
regulatory reporting of solvency. We had to bear this in mind in drawing up
our proposals.
31
FSA001, FSA002, FSA003 and FSA008.
32
See paragraph 1.26 and Table 1.1 in CP06/3.
32 CP06/11: Integrated regulatory Reporting (May 2006)
3.11
Since our DP, which came out only shortly after CEBS had published its own
Consultation Paper 04 on Common Reporting (COREP), CEBS’ have had
extensive discussions on their proposals. The original proposals were very
detailed and our initial reaction was that we would not need to collect as
much detail. However, we did ask firms33 whether they would have that level
of detail within their own systems if we opted for a lighter reporting regime
and expected firms to provide any CEBS information we asked for on an ad
hoc basis. The general consensus of respondents was that they would have
most of this data available.
3.12
We have been closely involved in CEBS’ subsequent discussions on the shape
of the COREP package and the detail contained in it. Its final proposals were
announced in January 200634. In essence, it has two layers of data – ‘core’
data of around 1,200 items, which it expects most supervisors to collect, and
‘detailed’ data consisting of about 21,000 items, which supervisors are likely
to be more selective in using. The average usage of the ‘core’ data by EU
supervisors is expected to be around 83%, while usage of the ‘detailed’ data
will average about 63%.
3.13
However, the UK will be an outlier in this respect. Our focus on risk-based
supervision means that we will only be collecting about 20% of the ‘core’
data, and most of that is in the capital adequacy data item FSA00335. Our
usage of the ‘detailed’ data will be even less at around 5%.
3.14
We believe there is one aspect of the CEBS proposals that is particularly
important to our firms. Financial groups headquartered in jurisdictions that
require a significantly lower level of granularity in regular reporting (in other
words, the UK) will not be expected to develop group-wide systems to
comply with the entire COREP framework. Subsidiaries of such groups
located in other Member States may, however, be asked to develop a more
granular version of the framework. While this may not immediately benefit a
UK firm with a highly integrated reporting system (where the coding to
extract that detail has to be done at the centre, even though it is might be
required only for a single firm), it should contain the burden on other UK
firms. It means too that we do not have to collect data because it is required
in another country. For firms located in the UK that do not have any
European subsidiaries, they will not be subject to as detailed reporting
requirements as their European counterparts.
3.15
To help firms which do have activities across Europe, we have included in
our notes for completing the data items36 cross-references to those items on
the COREP templates which are broadly equivalent. This mainly affects
FSA003, FSA004, FSA005 and FSA007.
33
Question 1 in DP05/1 – see Annex 3 for the feedback from firms.
34
See 13 January 2006 at www.c-ebs.org/standards.htm
35
See paragraphs 5.6 to 5.13.
Financial Services Authority 33
Pillar 1 and pillar 2 requirements
3.16
Our reporting proposals help us to monitor firms’ compliance with the
minimum prudential standards (Pillar 1) of the CRD. The CRD also includes
requirements for firms to have processes to assess their own internal capital
adequacy and for supervisory authorities to review these (Pillar 2 – the
Internal Capital Adequacy Assessment Process “ICAAP”). In general, we do
not intend to impose any detailed reporting requirements in respect of firms’
ICAAPs. We will write to firms individually as and when we would like to
review their ICAAP and discuss practical requirements and timeframes within
which they should report at that time.
3.17
Two reporting requirements that do relate to pillar 2 are those for FSA019
(see paragraphs 4.8 and 5.44 to 5.51) and FSA003 (paragraphs 5.6 to 5.13).
We propose that FSA019 is completed by the majority of BIPRU investment
firms and is designed to help us implement pillar 2 in a proportionate
manner. All BIPRU firms are required to report their pillar 1 capital
adequacy position on FSA003 and it also includes four data elements in
which firms are asked to report to us the amount of capital they should hold
at the reporting date calculated in line with any Individual Capital Guidance
(ICG) that they might have received from us. ICG is our view, formed after
having carried out a pillar 2 review, of the capital which a firm should hold.
Use of thresholds in setting reporting requirements
3.18
Where possible, we have limited the amount of data we aim to collect from
firms. In some cases this is by restricting reporting to a specific type of firm.
In other cases, we propose a reporting threshold based on a reported figure.
The thresholds included in these proposals are provisional and will be
confirmed when our rules are formally incorporated into the Handbook.
However, we intend that the reporting requirements for firms should not
change for each reporting period as thresholds are breached, so there will
normally be a lag before a change takes effect. This is to give firms greater
consistency in their reporting requirements and aid their planning.
3.19
Initial reporting requirements for 2008 (relating to thresholds) will be
assessed from the data we receive during 2007. We will generally review a
firm’s requirements annually after its accounting reference date (ARD). Then,
if they are above the threshold and have been for the last two reporting dates
at their ARD, they will become liable to report that data item. If they are
below the threshold and have been for two consecutive periods, the reporting
requirement will fall away. By only reviewing the thresholds annually and not
basing it on individual quarterly movements, we aim to give firms some
stability in their reporting requirements.
36
Contained in SUP 16 Annex 25G in Appendix 1.
34 CP06/11: Integrated regulatory Reporting (May 2006)
3.20
Where a firm undertakes an acquisition or disposal of another firm or has a
major shift in its business we may, however, require a firm to change its
reporting immediately.
3.21
When the full range of new reporting comes in from 1 January 2008, we
intend to set reporting thresholds for some data items so that firms whose
risks are less significant need not provide the data. We need to do further
work to assess the correct cut-off point before the rules are finalised37, so any
thresholds indicated in the draft Handbook rules set out in Appendix 1:
Annex A Part 6 may be subject to change. We will also need to review them,
probably in early 2009, to ensure they are, in retrospect, set at the right level.
3.22
A practical example of how the thresholds will work for the market risk data
item (FSA005)38, where we propose a threshold of £50 million, is set out in
below. On the assumption that the firm has an ARD of 31 December and is
reporting this data item quarterly, we set out in Table 3.1 below when their
reporting requirements would change.
Table 3.1: Monitoring reporting thresholds
Reporting date
Market risk value
Impact
(31 December 2007)
(ARD)
(£52 million)
Liable to report FSA005 in future (based on data
reported on FSA009)
31 March 2008
£49 million
Required to report
30 June 2008
£48 million
Required to report
30 September 2008
£51 million
Required to report
31 December 2008 (ARD) £49 million
Reviewed – no change in reporting as not
below threshold for two consecutive quarters
at review date
31 March 2009
£54 million
Required to report
30 June 2009
£60 million
Required to report
30 September 2009
£48 million
Required to report
31 December 2009 (ARD) £49 million
37
See also chapter 12
38
See paragraphs 5.31 to 5.33.
Review would lead to this firm no longer
completing FSA005 until the next review date
(31 December 2010)
Financial Services Authority 35
4
4.1
Consolidated reporting
In this chapter, we deal with consolidated reporting for those firms subject to
BIPRU 839. So it is potentially relevant for UK banks, building societies, and
BIPRU investment firms that are subject to it.
Principles
4.2
Under the CRD, there are two main types of consolidated reporting. Both take
effect on 1 January 2007. The first is for firms that are part of a UK
consolidation group. A flow chart that takes firms through the steps to
determine if they are a member of a UK consolidation group is set out in
BIPRU 8 Annex 1R. This type of consolidation is similar to what currently
exists and covers electronic money institutions40 that are members of such
groups. However, in comparison with the current reporting, we have decided
that from 1 January 2008, we will only require reporting by a firm itself on an
unconsolidated or solo-consolidated basis, and also at the UK consolidation
group level. After that date, there will be no reporting at interim levels of
consolidation, as happens now. This should reduce the reporting burden on
large groups which are often complex and can have various sub-groups.
4.3
Because the capital rules which should apply to the UK consolidation group
will be determined by the activities that are undertaken, firms will also need
to look at BIPRU 8 Annex 2R41 that sets out which capital rules apply to the
group. They are set out in more detail in GENPRU 2.1.16R42. Further details
of the reporting requirements that will flow from this are set out in
paragraphs 4.7 to 4.11 below.
39
See CP06/3 Appendix: Volume 2.
40
Electronic money institutions are only affected if there is a BIPRU firm in the group.
41
See Annex 10.
42
In Appendix: Volume 2 of CP06/3.
36 CP06/11: Integrated regulatory Reporting (May 2006)
4.4
In Annex 10, we have attached copies of the draft Annexes 1R and 2R to
BIPRU 8 to explain what are UK consolidation groups and the consolidated
capital resources requirements that apply to them.
4.5
The second type of reporting is new under the CRD, and we need to monitor
the capital adequacy and large exposures of non-EEA sub-groups.43 As we do
not necessarily know whether a firm is in such a group, and because firms
can set up or sell such subsidiaries without necessarily needing to notify us,
we will have to ask each firm to confirm whether it is, or is not, a member of
a non-EEA sub-group. This will be done through the balance sheet reporting
(FSA001) for each firm44. If a firm is a member of a non-EEA sub-group at
the reporting date, there will be an additional reporting requirement for each
firm that is a member of such a sub-group. It will be up to firms to identify
each of the non-EEA sub-groups that are required to report to the FSA.
4.6
In those cases where there are a number of firms within the same group,
technically, under SUP 16.3.25R, each firm is required to provide data on the
non-EEA sub-group or UK consolidation group. However, the provision of
the relevant data by one of the firms will be regarded as meeting the
obligations of the other firms that have the same requirement. (See also
paragraphs 4.12 to 4.14 for more information.)
Reporting by UK consolidation groups
4.7
Although there are changes arising from the CRD that take effect at 1
January 2007, we believe the reporting requirements can be satisfied in 2007
by the existing forms, in conjunction with a new data item, FSA00945.
Chapter 8 sets out the arrangements for 2007 in more detail. For reporting
on this basis, we propose as a minimum the four key data items – balance
sheet (see data item FSA001 at paragraphs 5.14 to 5.17), the income
statement (FSA002 at paragraphs 5.18 to 5.20), capital adequacy (FSA003 at
paragraphs 5.6 to 5.13) and large exposures (FSA008 at paragraphs 5.21 to
5.27). Fuller details of these data items can be found in Chapter 5.
4.8
For 2008 onwards, we do not propose any data items that are specific to UK
consolidation groups. But we have decided that some of our other data items
applicable to firms need only be provided at the UK consolidation group
level if a firm is a member of such a group. Our reporting rules for these data
items have been drafted accordingly. The data items this applies to are:
•
43
Pillar 2 questionnaire46 (FSA019 within SUP 16 Annex 24R in the
Appendix: Annex A Part 7) which is to be reported by BIPRU investment
firms that are members of a UK consolidation group that:
See BIPRU 8.2.4R to BIPRU 8.2.7R.
44
During 2007, it will be picked up on FSA009.
45
See SUP 16 Annex 24R in the Appendix.
46
For more details, see paragraphs 5.41 to 5.47.
Financial Services Authority 37
• does not contain a UK bank or building society that is a BIPRU firm;
and
• has not been granted an investment firm consolidation waiver under
BIPRU 8.4.
(Firms that are members of a UK consolidation group that contain a bank or
building society that is a BIPRU firm are not required to complete FSA019
for the UK consolidation group or at their solo level.)
•
if a firm has a treasury concession under BIPRU 10.747, then the interest
rate gap report (FSA017 within SUP16 Annex 24R in the Appendix:
Annex A Part 7), and asset and deposit maturity (FSA018 within SUP 16
Annex 24R in the Appendix: Annex A Part 7) may be provided by the UK
consolidation group;
•
if a firm has a waiver to GENPRU 2.1.40R on a UK consolidation group
basis, the supplementary market risks report (FSA006 within SUP16
Annex 24R in the Appendix: Annex A Part 7); and
•
stock liquidity where a firm is subject to IPRU(BANK) Chapter LS
(FSA013 within SUP16 Annex 24R in the Appendix: Annex A Part 7).
4.9
For consolidated capital adequacy reporting, including the balance sheet and
income statement, we propose half-yearly reporting, which is the Directive
minimum. However, in the case of the large exposures, we are required by
the underlying Directive to collect data on a quarterly basis. As the data item
is considerably reduced from the previous large exposures return, it should be
more pertinent for monitoring and less burdensome for firms to complete.
The supplementary market risks report, interest rate gap reports and the
stock liquidity reports, if relevant, will also be reported on a quarterly basis
from 1 January 2008. The Pillar 2 questionnaire, on the other hand, will be
completed annually.
4.10
We set out in CP198, paragraph 3.45, some standardised submission times
for reports depending on the frequency of submission. These proposals were
ratified in Chapter 6 of PS04/848. For half-yearly reporting, firms will have
30 business days to submit their data items. This is an increase in the time
for submission for banks in particular which currently have only between 20
and 24 days to submit consolidated data items, but a reduction in the time
currently provided to securities and futures firms of three months.
4.11
By designing the data items to cover a number of types of firm, we expect
that compiling the consolidated returns will be simpler than at present. For
instance a bank with a subsidiary that is a full scope BIPRU investment firm
will already have the data identifiable for inclusion in the consolidated
47
By its very nature, this only applies to UK consolidation groups that are subject to the capital rules at Stage 1 in
BIPRU 8 Annex 2R – see Annex 10.
48
PS04/8 Regulatory reporting – a new integrated approach: Feedback on CP198 and made text
38 CP06/11: Integrated regulatory Reporting (May 2006)
report. In the past, the parent would have had to manipulate the subsidiary’s
supervisory data for the different reporting forms the parent completed. As
with unconsolidated and solo-consolidated data, the main thrust of our data
collection is in relation to Pillar 1 data.
Q3:
Do firms feel that our proposals for reporting at a UK
consolidation group level are proportionate, given the
level of detail and the frequency? In particular, it would
be helpful to know which data items will be most
demanding to produce at that level, and why. Will this be
temporary until systems and processes have bedded in?
Reporting by non-EEA sub-groups
4.12
As indicated above, this is a new requirement under the Directive and comes
into effect from 1 January 2007, so there is an immediate reporting
requirement. It will for instance capture firms that have wholly owned
subsidiaries in the Channel Islands or the Isle of Man. Although we are
required to collect and monitor the capital adequacy and large exposures, we
intend to collect a minimal amount of data, because it is of limited use for
risk-based supervision. We therefore propose a special data item for
reporting; this is data item FSA028 and is included in SUP 16 Annex 24R in
the Appendix: Annex A Part 7. The data item includes the key components
of capital adequacy as well as minimal information on large exposures.
4.13
For each firm that is a member of a non-EEA sub-group, it will have a
reporting requirement, but a firm that fulfils that requirement will be
regarded as meeting the requirement for other members of that sub-group
too. The frequency of reporting will depend on the frequency of balance
sheet reporting of the firm that is the member of the group. If two firms, a
BIPRU 125K firm and a BIPRU 50K firm, were members of the same nonEEA sub-group, we propose that the frequency of reporting would be based
on the more frequent reporter, in this case quarterly based on the BIPRU
125K firm’s reporting requirements. We propose 30 business days for
submission, irrespective of the frequency of reporting.
4.14
A firm may be in several separate non-EEA sub-groups and the requirement
to report each of them. It is also possible that firms reporting on a solo
consolidated basis may report figures that cover exactly the same grouping as
the non-EEA sub-group but, because that may not always be so, we will still
require separate reporting.
Q4:
Are there any particular issues firms believe they will
face in providing non-EEA sub-group data to the
frequency and timescales that are proposed? Are these
likely to be temporary until systems and processes
have bedded in?
Financial Services Authority 39
5
5.1
Changes arising from the
CRD
This chapter sets out the data that will be required from firms as a direct
result of implementing the CRD. The firms that are directly affected by the
whole of this chapter are:
•
UK banks;
•
building societies;
•
BIPRU 730K firms;
•
BIPRU 125K firms (including UCITS investment firms); and
•
BIPRU 50K firms.
When will firms start reporting this data?
5.2
All of these firms will start reporting this data from 1 January 2008. For
reporting during 2007, these firms should see Chapter 8 which sets out the
transitional arrangements. However firms that adopt the standardised,
foundation and/or retail IRB approaches for credit risk during 2007 may
start to report on certain of the new data items earlier49 if they choose.
5.3
We could have changed the reporting immediately for firms that adopt the
new approaches to credit risk during 2007 but this would result in our giving
them less than the 12 months’ notice of significant reporting changes that we
prefer. We do expect every firm that adopts any of the new approaches to
credit risk in 2007 (where of course the choice of implementation date is up
to the firm) to be able to measure and monitor its capital requirements on the
new basis, irrespective of the notice period given for new reporting.
5.4
The new data items in 2008 have greater consistency across firms
undertaking different activities, but are subject to the same underlying rules.
There is for example, only one capital adequacy data item (FSA003)
49
See paragraph 3.8 above.
40 CP06/11: Integrated regulatory Reporting (May 2006)
applicable to all BIPRU firms. However, it does mean that there may be a
number of elements within each data item that are not directly relevant for
every firm completing it, but that is no different from existing reporting.
What will firms have to report?
5.5
We have set out in Annex 8 a summary of the changes to reporting that a
firm will face. Firms should note that, with effect from the beginning of
2008, reporting will be based on a firm’s ARD. All the data items beginning
‘FSA’ can be found in the Appendix: Annex A Part 7.
Capital adequacy (FSA003)
5.6
The proposed data item for reporting capital adequacy is set out in the draft
rules as FSA003. The layout is largely based on CEBS’ template CA50 but we
have made some changes to make it more relevant to the UK:
•
we have removed items which we do not require or are not considered
relevant in the UK; and
•
we have created an alternative calculation of capital resources, so that
firms can correctly distinguish between the capital resources used for the
large exposures and solvency calculation and those required to meet
GENPRU 2.1.9R (the base capital resources requirement)51 – these are
columns A and B respectively in FSA003.
5.7
Although firms do not have to start reporting on FSA003 until after 1
January 2008, all firms should follow the methodology set out there to
calculate their capital resources during 2007 (for reporting their key data on
FSA009 which will be required from all BIPRU firms from 1 January 2007).
Firms that adopt any of the new approaches to credit risk during 2007 will
also have to follow the methodology to calculate the correct capital
requirements that apply to them for reporting to us on FSA009.
5.8
FSA003 covers the rules for how different types of firms will have to calculate
their capital resources requirements, as set out in GENPRU 2.2.14R and
GENPRU 2.2.42R. Rather than produce several versions of the same basic
reporting format, we feel there is benefit in having only one version in the
Handbook for firms. This means only one set of guidance is required, and any
changes in future can be made in one place. However, where an item is only
relevant to a particular type of firm, or is not applicable to a certain type of
firm, we make that clear in the draft guidance notes for the data element in
50
See www.c-ebs.org/documents/GL04_CA.xls.
51
The difference between the two is that we do not allow innovative tier one capital to be included in tier one capital
resources for the purposes of the capital resources requirement (see the draft rule GENPRU 2.1.16R in Appendix:
Volume 1 of CP06/3).
Financial Services Authority 41
the Appendix: Annex A Part 8. As there are different rules around the precise
calculation of the capital requirements for different types of firm, firms will
need to identify which type of firm they are. This will enable firms to identify
those data elements that do not apply to them and the capital rules applicable.
5.9
We know that some firms, particularly smaller firms with less sophisticated
business models, will think that FSA003 is complex and contains unnecessary
detail. However, it is possible for most firms to raise any of the types of
capital shown, or have the various deductions from capital. As with existing
forms, firms will leave blank those elements that are not applicable to them.
UK consolidation groups reporting on FSA003 will apply the relevant capital
rules under BIPRU 8 Annex 1R).
Q5:
Are firms happy that the rules will contain a single
version of the capital adequacy data item (FSA003), the
guidance notes and the validations that will apply to it?
If not, in what ways do you think it could be improved?
5.10
The CAD52 requires us to monitor capital adequacy monthly for BIPRU
730K firms. However, UK banks and potentially building societies that
undertake similar business are not currently subject to such close monitoring.
For most of these firms, closer monitoring is unnecessary because their
market risk capital requirements (and potential volatility in their total capital
requirements) will not be as significant, but this may not always be the case.
Therefore, we propose that we adopt monthly reporting on FSA003 for those
UK banks and building societies whose market risk capital requirements
constitute a high percentage of the total capital requirement during the first
six months of 2007. We aim to identify the precise level at which the
threshold will be set when the rules are finalised. This will be an increase in
the frequency of reporting for those latter firms.
5.11
For the remaining UK banks and building societies, monitoring is required
under the BCD53 at least half-yearly54. In the UK, we have traditionally had
quarterly reporting for these firms. On the basis that we intend to collect
much less detail from these firms than other European countries, we believe
that quarterly reporting continues to be appropriate. For BIPRU 125K firms,
the CAD55 require us to undertake at least quarterly monitoring, while at
least half-yearly reporting is required for BIPRU 50K firms. We have adopted
these minimum requirements. These firms should not see more frequent
reporting than at present and indeed some firms may be asked to report halfyearly rather than quarterly. For reporting by UK consolidation groups, we
propose half-yearly reporting. These reporting frequencies will apply from 1
January 2008.
52
Under Article 35(2) of 93/6/EEC.
53
Banking Coordination Directive.
54
Under Article 74(2) of 2000/12/EC, as extended by Article 35(4) of 93/6/EEC.
55
Under Article 35(2) of 93/6/EEC.
42 CP06/11: Integrated regulatory Reporting (May 2006)
5.12
With regard to the time given for a firm to submit regulatory data from the
reporting date56, we are proposing that 15 business days should be allowed
for those reports, submitted either monthly or quarterly. This is a marginally
longer time than currently allowed for UK banks, but a few days shorter
than currently allowed for building societies. For investment firms, with the
exception of some personal investment firms, the timing is no different from
the present, but current Category A2 firms will see the submission time
halved. For BIPRU 50K firms that will report half-yearly, we propose that
the submission times are unchanged at 30 business days.
5.13
For a UK consolidation group, a submission time of 30 business days is
proposed for its half-yearly reports. This is generally no tighter than at
present for such firms, and is a slight relaxation for UK banks.
Q6:
What are firms’ views on the reporting frequencies for
FSA003, having regard to the EU directive
requirements? Do firms envisage any particular issues
with the submission times proposed?
Balance sheet (FSA001)
5.14
FSA001 includes information on broad categories of assets and liabilities, and
some limited detail on capital. (However, most of the detail on capital is set
out in FSA003 referred to above.) At the time of DP05/1, we had envisaged
dropping the need for a split of the assets into trading book and non-trading
book, but we have decided to retain this, especially as firms will need that
information to assess their capital requirements. This data item also includes
certain memorandum items. It will also pick up information on membership
of non-EEA sub-groups to drive the reporting requirements for that57.
5.15
Of particular note is the new information we seek on derivative contracts
held by the firm at the reporting date. In DP05/1, we sought firms’ views on
whether there would be any difficulty in providing this information, and the
firms that responded did not suggest there would be58. We have however
changed some of the detail since then.
5.16
For those firms that accept deposits, we have also included a breakdown of
their non-bank deposits, in particular identifying e-money which they have
issued, as this is likely to be of growing importance in coming years.
5.17
We propose that the balance sheet will be completed quarterly by UK banks,
building societies, BIPRU 730K firms and BIPRU 125K firms and will be
submitted within 15 business days. For BIPRU 50K firms and also UK
56
Firms’ attention is drawn to paragraph 2.24 above regarding any existing concessions they may have on reporting
dates, which will fall away when the new data items are required.
57
See paragraphs 4.12 to 4.14 above.
58
See Question 9 in the Feedback statement in Annex 3.
Financial Services Authority 43
consolidation groups, we propose it is submitted half-yearly, in which case
firms would be allowed 30 business days for submission.
Q7:
Given the wide range of firms that will complete this
balance sheet (FSA001), are firms happy they can
identify where their data would be reported? Are there
any data elements for which you feel the guidance
could be improved to aid completion? Which data
element details would give rise to the greatest cost to
produce?
Q8:
What are firms’ views on the proposed frequency of
reporting and submission times for FSA001?
Income statement (FSA002)
5.18
The income statement (FSA002) provides information on the main sources of
income and expenditure, and has again been designed to suit as many firms
as possible59. We have also included a split of the main income and expense
items, and pre-tax profit, into trading and non-trading book.
Q9:
5.19
Will the split of the income statement (at a high
level) into trading and non-trading on FSA002 be
possible by firms? Can you provide the level of detail
required on the main income and expense categories,
and if not, which ones in particular will require the
most effort and expense to produce?
The reporting frequency will be the same as FSA001 reported by the firm ie
either quarterly or half-yearly, and will have the same submission times as the
balance sheet of 15 or 30 business days respectively. It should also be
completed by UK consolidation groups.
Q10: Do firms have any issue with the either the proposed
frequency or submission times proposed for FSA002?
5.20
BIPRU investment firms should note that FSA002 is cumulative during the
accounting year, and does not relate solely to the income in the reporting
period. This will be a change of practice for these firms, but brings them in
line with the reporting of income across all other firms we regulate.
Large exposures (FSA008)
5.21
59
FSA008 is the new large exposures report that will apply to all BIPRU firms,
irrespective of size or type of firm. Although the measure of capital resources
a firm uses to measure its large exposures changes for all firms from 1
January 200760, the other limits (including the calculation of the
We propose in chapter 7 that this income statement is also used by branches of non-EEA banks.
44 CP06/11: Integrated regulatory Reporting (May 2006)
concentration risk capital component (CNCOM)) do not apply until the firm
adopts one of the new approaches to credit risk.
5.22
At present, different types of firm report large exposures in different ways.
From 1 January 2008, however, we intend FSA008 to cover large exposures
reporting by all BIPRU firms, thereby bringing consistency. The report is
more closely aligned to reporting only those exposures that are large at the
reporting date. Part 1 deals with all large exposures, including an aggregate
figure for all exposures to connected counterparties61, while Part 2 breaks
down the connected counterparty exposure into its major component parts.
For most firms, only Parts 1 and 2 will be relevant.
5.23
Part 3 of FSA008 deals with all exposures to integrated groups62, so will only
apply to firms that are part of an integrated group. Part 4 deals with trading
book concentration risk excesses, and Part 5 picks up our obligations under
the Financial Groups Directive63 to identify significant transactions with the
mixed-activity holding company and its subsidiaries. The latter reporting
requirement is unchanged from the present requirement.
5.24
Within Part 1, columns A to M of FSA008 will be relevant for most firms,
while columns N to R will be relevant for firms with large trading book
exposures. However, large exposures are not always the riskiest exposures.
To give us a feel for the actual capital being held against each large exposure,
we have introduced column V, which we believe all firms should be able to
provide. For firms on the foundation and advanced IRB approaches, we also
seek information in columns S, T and U on the probability of default (PD),
the loss given default (LGD), and the expected loss (EL) for those exposures
dealt with under their models.
Q11: How easy will it be for firms to calculate the capital
requirements in column V of FSA008 for each
counterparty (or groups of related counterparties),
especially if the exposures are subject to different
model treatments? Do you think there is there any
alternative measure that might be easier for firms to
provide that would give a better indication of the risk
attached to each individual large exposure? Also, for
those firms on the advanced approaches, will the
information for columns S-U be readily available?
5.25
This report has to be provided quarterly by all firms, as required by the BCD64,
including at UK consolidation group level65. Nil returns will be required.
60
To that set out in BIPRU 10.5.2R and BIPRU 10.5.3R. To give effect to that, draft guidance is included in Appendix
1 to explain how current large exposures reporting should take account of this during 2007. See also chapter 8.
61
See BIPRU 10.5.5R.
62
Under BIPRU 10.8 and BIPRU 10.9.
63
Financial Groups Directive (2000/87/EC)
Financial Services Authority 45
Personal investment firms that are currently Category A3 firms should note that
this will be an increased frequency of large exposures reporting for them. For
UK consolidation group reporting, we propose 30 business days for submission;
in all other cases, we propose a submission time of 15 business days.
Q12: Do firms feel they will be able to meet the timetable
for the submission of the data on FSA008 and, if not,
for what specific reasons?
5.26
UK banks in particular should see a reduction in the amount of data they are
required to provide. In part, this is because we have dropped the requirement
to report those exposures that are no longer large at the reporting date66, but
were at some point during the reporting period. On the other hand, building
societies may see an increase, as they only provide data on either a group or
a society basis.
5.27
As the large exposures are based on the firm’s capital resources67, we will no
longer be setting a large exposures capital base (LECB) for each bank.
Instead, each firm will use the figure reported in its previous FSA003 (data
element 73A of FSA003, or data element 21A in FSA009 during 2007). This
is much more efficient for firms and for us. As we mentioned earlier in
paragraph 3.26, we expect firms to have reconciled their capital adequacy
data item (FSA003) at their ARD with their annual accounts as general good
practice. We may therefore, on an ad hoc basis, ask firms to give us a copy of
the reconciliation so we are satisfied the capital resources figure reported is
accurate. In the Appendix and also in Chapter 8, we set out some proposed
changes to guidance for existing large exposures reporting to move firms on
to using the capital resources figure calculated on the previous reporting date.
Credit risk data (FSA004)
5.28
Under the CRD, firms have to categorise their exposures into specified
exposure classes, and the aggregate credit risk numbers are collected in data
elements 93A to 98A in FSA003. We will, however, need a breakdown of the
capital required under each of the exposure classes, not least for the Pillar 2
reviews of firms. We also want to understand how a firm’s risks are changing
and need some means of doing that. For UK banks and building societies,
that is currently provided by the breakdown of a firm’s assets into riskweighted bands, but that will no longer be possible once a firm moves onto
the new approaches for credit risk (because the rigid risk weighting bands
will no longer apply)68.
64
Under Article 110 (1)(b) of 2000/12/EC
65
Information from non-EEA sub-groups is also required but that is collected in data item FSA028.
66
Except trading book concentration exceptions under BIPRU 10.5.13R.
67
Calculated in accordance with GENPRU 2.2.12R.
46 CP06/11: Integrated regulatory Reporting (May 2006)
5.29
Under the CRD, there are a number of ways that firms can mitigate their
risks, and so comparing the capital required for each exposure class with the
balance sheet figure would give a misleading result. However, we decided
that we would opt for the exposure value (after credit risk mitigation
techniques), which is part of the CEBS core data (in their tables CR SA and
CR IRB, columns 20 and 11 respectively69). In deciding to collect relatively
little detail, we recognise that if the numbers move substantially, we may
need to ask the firm to explain what lies behind the movements. We do not
think that will be a very regular event, and believe it is better than collecting
too much detail.
5.30
We propose collecting this information quarterly from UK banks, building
societies, BIPRU 730K firms and BIPRU 125K firms, and half-yearly from
BIPRU 50K firms and UK consolidation groups. However, it would only be
provided by those firms whose credit risk capital requirement had been above
a threshold, which we currently envisage as 10% of a firm’s capital
requirements70. Under our proposals, firms would be given 15 business days
to submit the data if they report quarterly on FSA001, or 30 business days in
the case of those that report half-yearly (which includes UK consolidation
groups).
Q13: What difficulties would firms have in providing the
data in FSA004 on the basis of the frequency and
submission times proposed?
Q14: Are there any particular difficulties you will face in
providing the figure of exposure value in column B of
FSA004 from your systems? Is the operation of a
reporting threshold for this item helpful to firms?
Market risk (FSA005)
5.31
This data item allows us to see in greater detail where market risks are arising.
This is important as markets can move quickly, as can the capital required to
back them. The level of detail is generally not as comprehensive as CEBS’
templates, and most of this data falls into its description of detailed data71.
5.32
As this is mainly relevant to firms with a larger amount of market risk, we
propose that we only collect it from firms (and UK consolidation groups)
with total market risk greater than £50 million or its equivalent72, and is
68
However, in the period between 1 January 2007 and 1 January 2008, any firm that does move on to one of the new
approaches to credit risk will need to continue to enter amounts in the risk weighting cells on the BSD3 (also on the
Form QFS1 for building societies) even although these will result in an incorrect capital requirements figure being
reported. See Chapter 8 for more information.
69
See www.c-ebs.org/documents/GL04_CR.xls
70
See paragraphs 3.18 to 3.22. This threshold is currently indicative and will be reviewed ahead of the rules being
finalised.
Financial Services Authority 47
reported quarterly. We think it is unlikely that any BIPRU 125K firms or
BIPRU 50K firms will report this data item. We propose that firms will have
15 business days to submit the data.
5.33
Firms with a lot of market risk are already providing data that is quite
similar to this, so we do not believe that this data will be particularly onerous
for these firms.
Q15: What difficulties would firms, who are above the
reporting threshold, have in providing the data in
FSA005 on the basis of the frequency and submission
times proposed?
Operational risk (FSA007)
5.34
This is a new risk measure arising from the CRD. It only applies to UK
banks, building societies and full scope BIPRU investment firms that will
have an operational risk requirement. It could also apply to BIPRU limited
activity firms and BIPRU limited licence firms that wish to calculate an
operational risk capital requirement and seek a waiver to modify GENPRU
1.173. It would also be reported by a UK consolidation group that has an
operational risk capital requirement. However, this information is only
required from those firms that use the standardised (or alternative
standardised approach) or the advanced measurement approach (AMA).
5.35
Some high-level information on the operational risk capital requirement is
provided by data elements 99A to 102A on FSA003. However, we require
some additional information on these risks to understand how they are
arising and are measured. In addition, we want to know what major
operational risk loss events (defined as those above 1% of capital resources
at the previous ARD) are occurring, by business type and by event type for
those firms using the AMA. There is a comments field for each reported loss
for those firms to provide a brief explanation of the loss.
5.36
We propose that this detail is collected quarterly from those firms that are on
the relevant approaches and, for those firms that complete FSA001 quarterly,
FSA007 would be submitted within 15 business days. For those firms that
submit FSA001 half-yearly (this would include reporting by UK consolidation
groups), we propose that they would report FSA007 half-yearly, and within
30 business days of the reporting date.
Q16: Do firms envisage any difficulties in providing the
information in FSA007 within the time scales and
the frequencies proposed?
71
See paragraphs 3.12 and 3.13 above.
72
This threshold may change in future.
73
See BIPRU 6.1.2R.
48 CP06/11: Integrated regulatory Reporting (May 2006)
Solo consolidation data (FSA016)
5.37
One direct consequence of the CRD and our decision to offer firms the
opportunity to apply for a solo-consolidation waiver (see BIPRU 2.1) is that
we need to collect, and publish, aggregate data74 on the:
•
total amount of capital resources of parent firms which are held in
subsidiaries in other countries;
•
percentage of capital resources of parent firms which are held in
subsidiaries in other countries; and
•
percentage of the capital resources requirement (excluding any
adjustments under transitionals for capital floors75) represented by capital
resources held in subsidiaries in other countries.
5.38
To be able to do that, we need to collect data on the book value of the firms
in both EEA and non-EEA countries that are solo consolidated. Publication
of annual data will however not be possible until 2009 at the earliest, after
the 2008 data is available.
5.39
In CP05/3 (January 2005), we proposed that solo-consolidation would not be
permitted if the firm’s solo Tier 1 capital, after deduction of its aggregate
investments in solo-consolidated entities, would fall below half of its solo
capital requirements, in order to limit the extent to which solo-consolidated
subsidiaries could drain capital from a firm (“the hard test”). This proposal
was super-equivalent to the CRD, but was thought necessary at the time,
given the risks arising from the practice of solo-consolidation and potential
impact on the capital held by a firm.
5.40
In CP06/3, we explained that firms would in future need to apply for a
waiver for new solo-consolidation requests. In their waiver application, firms
would need to demonstrate that granting a solo-consolidation waiver would
not result in undue risk to those whose interests the rules are intended to
protect. As a result of this clarification, and having considered other industry
feedback, we concluded that a hard capital distribution test was no longer
necessary. We explained that we would expect firms to submit information
about the overall profile of the subsidiaries they solo consolidate and their
impact on the firm. From that, we could assess whether granting the waiver
would cause undue risk to consumers, and enable us to monitor on an
ongoing basis the risks arising in existing solo-consolidated subsidiaries.
5.41
The case for additional information regarding solo-consolidated subsidiaries
was recognised by the Integrated Groups/Solo-Consolidation Expert Group
(EG) in their paper to the Capital and Groups Standing Group76, where the
EG suggested that the cost impact of producing information would be
74
Under Article 70 (1c)(c) of 2000/12/EC.
75
See BIPRU TP2 in Appendix: Volume 1 of CP06/3.
Financial Services Authority 49
minimal. The proposals in FSA016 are intended to provide FSA with
sufficient information to understand the impact and profile of soloconsolidated subsidiaries on the balance sheet in the absence of a “hard
capital test”, while at the same time limiting the information requested to the
most material solo-consolidated subsidiaries as defined by three key measures
– the amount of capital invested by the parent, exposures of the parent to the
subsidiary, and flows of funds from the parent to the subsidiary.
5.42
5.43
This proposal includes more data items than the minimum requirements of
the CRD, which requires member states to report annually to the
Commission on the overall use of solo-consolidation made by firms.
However, we feel this reporting requirement is justified for the following
reasons:
•
the UK is the only country where solo-consolidation is currently used to
any significant degree, meaning the potential risks from an absence of
information on the interaction between the parent and these subsidiaries
are more significant;
•
it is designed to replace the need for the “hard test” considered previously;
and
•
we would expect firms to hold this information in order to monitor their
compliance with solo-consolidation requirements.
We intend to collect the data from firms with a solo consolidation waiver
under BIPRU 2.1 half-yearly, allowing firms 30 business days to submit the
data.
Q17: Do firms envisage any particular difficulty in providing
the information in FSA016 half-yearly, in the time
frame proposed? Do you agree this is a proportionate
approach to monitoring solo-consolidated firms?
Pillar 2 (FSA019)
5.44
In CP05/3, and more recently in CP06/3, we published draft rules and
guidance on internal capital adequacy which implements the provisions of
Part 3 of the Basel Framework (Pillar 2) and the CRD. In those consultation
papers, we explained that a firm must have an Internal Capital Adequacy
Assessment Process (ICAAP) and that we will review the ICAAP as part of
the Supervisory Review and Evaluation Process (SREP).
5.45
We also explained that the SREP will vary in intensity depending on the size,
nature and complexity of a firm’s activities. To enable us to take a
proportionate approach to the SREP for BIPRU investment firms, we said in
CP06/3 that we would require them to provide relevant information on
76
www.fsa.gov.uk/pubs/international/cg-solo.pdf
50 CP06/11: Integrated regulatory Reporting (May 2006)
aspects of their risk management procedures and capital assessment under
their ICAAP as part of their regular returns to us.
5.46
This data will be collected on FSA019 and, supplemented by other relevant
data also reported as part of the IRR framework, will inform the intensity of
our risk assessment of the firm or its group under the SREP.
5.47
FSA019 will serve two main purposes:
•
It will reduce supervisory time (and hence regulatory cost) spent reviewing
many smaller investment firms. We expect that for most non-relationshipmanaged investment firms, there will be no other supervisory Pillar 2
work, as completion of FSA019 will be enough to form a view of the firm.
However, by analysing the data, we will seek to identify those firms with a
risk profile for which we will carry out additional individual or thematic
work.
•
For larger investment firms, FSA019 will help us to prioritise, and
determine the level of intensity of our work under the SREP.
5.48
FSA019 should typically be completed at the consolidated level and so
BIPRU investment firms will only be required to complete it at their solo
level if they are not a member of a UK consolidation group. There is however
one exception: if a UK consolidation group has been granted an investment
firm consolidation waiver under BIPRU 8.4, the individual BIPRU
investment firms in that group will need to complete FSA019 at their solo
level, rather than at the consolidated level.
5.49
We will not require all groups containing BIPRU investment firms to
complete FSA019. Paragraph 4.8 sets out which UK consolidation groups
need to complete FSA019: but broadly a UK consolidation group containing
a UK bank or building society or a group with the investment firm
consolidation waiver is not required to complete FSA019 at the consolidated
level. UK banks and building societies are not required to complete FSA019
at their solo level or consolidated levels. The SREP for UK banks and
building societies and their groups is described in CP06/3.
5.50
In addition, FSA019 will help compare and contrast the risk profile of firms
of similar nature. Peer group comparison is a key component of the SREP as
it ensures consistency of the approach and outcomes, for example, the giving
of Individual Capital Guidance (ICG).
5.51
FSA019 will also help us meet our obligations under the CRD to consider the
adequacy of ICAAPs at least annually.
Q18: Do firms envisage any particular difficulty in providing
the information in FSA019 annually, and in the time
frame proposed?
Financial Services Authority 51
52 CP06/11: Integrated regulatory Reporting (May 2006)
6
6.1
New data
This chapter sets out other information, in addition to that set out in the
previous chapter, we want from firms that is not directly related to the CRD.
The need for the data arises because of the changes that have taken place in
the way we supervise, with a greater emphasis now on risk-based supervision
than when the current data requirements were originally defined over 15
years ago. We are also placing greater emphasis on senior management
responsibility now. It covers some data that has previously only been
provided by some of the firms but is considered relevant to a wider range of
firms. It has also allowed us to stop collecting some data that is no longer
considered essential. We intend that regular reporting will also lead to a
reduction in ad hoc requests for information from supervisors. The
paragraphs applicable to each firm type are set out below:
•
UK banks (paragraphs 6.3 to 6.22);
•
Building societies (paragraphs 6.3 to 6.20); and
•
BIPRU 730K firms (paragraphs 6.21 to 6.22).
When will firms start reporting this?
6.2
This information will be reported from 1 January 2008, at reporting dates in
line with a firm’s ARD. The data items beginning ‘FSA’ can be found in the
Appendix: Annex A Part 7.
Interest rate gap report (FSA017)
6.3
Most building societies currently provide us with this data, albeit not in a
standardised format. It is also one of the risks which the CRD requires a firm
to consider when developing its ICAAP. Repricing gap analysis helps us to
understand the risks a firm may be exposed to from changes in interest rates
arising from the differences in the timing of rate changes for assets and
Financial Services Authority 53
liabilities, and the extent of such risk in the event of a 2% parallel shift in the
yield curve. It is also one of the key indicators which the International
Monetary Fund (IMF) look at in their Financial Supervision Assessment
Program review, when calculating the ability of the financial system to cope
with economic stress. For these reasons, we intend to widen the scope of gap
reporting to cover UK banks as well as building societies. For other firms, the
figure of the interest rate PRR (data element 108A in FSA003) will also
provide us with an indication of the relative importance of this.
6.4
The current proposals are similar to those set out in DP05/177. However, in
response to some concerns of the number of monthly time bands (see the
feedback to Question 12 in Annex 3), we have amalgamated these into larger
time periods. To ensure that the entire balance sheet is picked up, we have
also included lines for the trading book, the intention being to capture the
trading book as a single balance, and any non-trading book risk arising from
mismatch of funding to the normal tenor of the book. Each firm will be
expected to submit one report with all currencies aggregated, and firms that
operate with relevant internal limits should report them. Where a firm has a
treasury concession78, the information will be sought from the UK
consolidation group, or from the firm itself if it is not part of such a group.
6.5
We know that some firms already monitor interest rate risk in their own
management systems. Firms that can demonstrate they already have a
suitable means of monitoring this specific risk will be able to apply for a
waiver from this reporting requirement.
6.6
Whereas building societies currently provide this data monthly, we propose
quarterly reporting by all UK banks and building societies in the future with
15 business days for completion (the same as building societies currently
have). For firms reporting on a UK consolidation group basis, we propose
half-yearly reporting with firms being given 30 business days in which to
submit the data.
Q19: Do firms envisage any difficulties with the revised
time bandings in FSA017? Is the time allowed for
submission sufficient and, if not, what would be the
shortest time in which it could be prepared? Would
firms be able to provide the data, as proposed, on
both an individual firm basis and also on a UK
consolidation group basis?
Sectoral information and arrears (FSA015)
6.7
This information is required for broad analysis of sectoral credit trends and
to identify those firms where exposures and arrears are out of line with their
77
In Annex 5, Table M of DP05/1.
78
See BIPRU 10.7.
54 CP06/11: Integrated regulatory Reporting (May 2006)
peers. There are three broad types of data to be reported in FSA015. The
first, in column A, is intended to allow the FSA to monitor the aggregate of a
firm’s exposures to different types of counterparty. Columns B to H require
details of arrears (or equivalent) for these exposures, and the remaining
columns give details of impairment charges or stock relating to the
exposures.
6.8
We currently receive very limited information to monitor the quality of a
firm’s assets and in particular the loan book. The only data we collect is on
provisions and that is at a very high level. Our review identified this as a
significant gap, as had other bodies such as the IMF.
6.9
With the introduction of the Mortgage Lending and Administration Return
(MLAR), we started to collect data on arrears on the regulated mortgage
market, but this did not cover large sectors of most firms’ portfolios.
Collecting additional data for the various sectors in columns B to H will
enable us to get a complete picture of developing/potential problems in loan
books, both at individual firm level and in sectors of the economy. While the
data may not be as noteworthy when the economy is benign, it will be an
important leading indicator of incipient problems should economic
conditions start to deteriorate.
6.10
As BIPRU investment firms are not significantly involved in lending money
(or equivalent asset finance), we intend to collect the data only from UK
banks and building societies. We propose to collect this data at the individual
firm and UK consolidation group level, quarterly and half-yearly respectively.
Our proposal is for firms to have 15 business days for submission, while
those at a UK consolidation group level will have 30 business days to submit
FSA015.
Q20: Will there be any issues in collating and providing
these sectoral, arrears and impairment data on FSA015
on the frequencies and to the time scales proposed?
6.11
We have suggested a broad range of exposure classes which we believe align
reasonably well with CRD exposure categories. We would welcome feedback
on whether these classes are easily identifiable from firms’ systems or
whether different definitions would make the collation process easier (whilst
maintaining the general level of granularity implied by the current number of
classes). The intention to report arrears (or equivalent) on a percentage of
balance basis mirrors the layout of MLAR reporting and we believe should
provide a straightforward way of comparing very different types of exposure.
We are only collecting an arrears breakdown for those loans which are over
90 days in arrears; this is a fairly standard measure of those loans that are
‘non-performing’ used by the likes of the IMF, although we recognise that for
mortgages, a period of 180 days is used for the CRD. The provisioning and
Financial Services Authority 55
write-off data have been expanded (from what was previously collected from
UK banks and building societies), so we are able to build a complete picture
of the sectors where these are occurring.
6.12
As with other data, we will be evaluating both trends across time for a
particular firm and undertaking peer group review. In due course, we will be
looking to provide aggregate data back to the industry.
6.13
As the data is not being used primarily for compliance, but rather for firm
specific supervision and broader economic analysis, we have tried to draft the
rules to allow firms a degree of flexibility to decide what they put in the
bandings. However, we do not expect firms to make major changes in the
way they calculate these figures on a regular basis.
6.14
Some explanation of using arrears bandings based on percentage of balance
may be helpful. We recognise that the number of instalments missed
measurement of arrears reporting is more commonly used in collections
management, but for reporting purposes it suffers from the problem that the
number of instalments is usually calculated by dividing the arrears balance by
the current instalment amount. Under this method, if the instalment size
increases (for example as a result of an increase in rates), the number of
instalments overdue falls, which can make it look as if arrears are improving
even when they are in fact worsening. The alternative would be for firms to
keep details of all actual instalments due and then offset all payments
received on a ‘first in first out’ basis, to determine how long overdue the
earliest payment is. We think most firms would currently have difficulty
doing that, and the costs of developing a new system would be significant.
Also, a pure ‘days overdue’ measure would not give the same level of
information in one figure about the relative size of the arrears, compared to
the loan balance - unless we collected both arrears amounts and balances
(instead of just balances), the data item would simply reflect that a given
group of exposures was overdue by an uncertain amount for more than a
certain number of days. It could be a small amount, or it could be a very
significant amount. Finally, days overdue does not really work for things like
overdraft excesses, where there is no set repayment pattern.
6.15
Overall, the percentage balance approach seems to be the most
straightforward way of collecting useful arrears data in a format that would
be easier for firms to implement across a range of different lending platforms
(firms only need to know the amount of arrears and the total balance due).
The proposal to collect data only on loans that are 90 days overdue brings it
into line with standard CRD default definitions that should make it easier for
firms to identify79.
79
We may amend the Form MLAR to bring it into line in due course, since it currently seeks information on all loans.
We are due to start reviewing that form later in 2006.
56 CP06/11: Integrated regulatory Reporting (May 2006)
Q21: Does the proposed guidance on completion of FSA015
(in the Appendix: Annex A Part 8) give you sufficient
flexibility to source the data in the easiest and least
expensive way? If not, what are the particular
difficulties and what changes we could make it simpler
for firms?
Forecast data (FSA014)
6.16
This data is currently provided by building societies, but in much greater
detail. We feel the data will give a good indication of a firm’s expected
financial plans, and should enable us to see what trends are being forecast by
firms. It will allow us, at a broad level, to see where wide divergences are
occurring and raise questions accordingly.
6.17
We believe that firms will already have this data available for management
accounts purposes, since we assume all deposit takers will be carrying out
regular corporate planning, including preparing budgets and comparing these
with the actual outturn, to forecast end-of-year numbers. We have identified
how the various forecast items reported should reconcile to the balance sheet
and income statement, so that all three should be consistent. This data will
be provided only half-yearly by UK banks, building societies and UK
consolidation groups. Firms would have a submission time of 30 business
days for that data.
6.18
Initial discussions with firms and trade bodies have not identified any
problems with the provision of this data, although we did ask a question on
this in DP05/1 . We will be discussing this – and the rest of the data items – in
detail with the trade associations while the proposals are out for consultation,
including piloting these forecasts. We are aware of concerns about the
provision to the FSA of such market sensitive information. As we pointed out
in DP05/1 in paragraph 3.49, we have strict guidelines for our staff on the
price sensitivity of the information we collect and on keeping it confidential.
Q22: How easily do firms feels feel they could provide us
with the data in FSA017, with the frequency and
submission times proposed? Is there any particular
data element that would be more difficult than the
others to provide in terms of cost or effort?
80
See feedback to Question 13 in Annex 3.
81
It is possible that this will be addressed when our liquidity policy is fully articulated and consistent across firms – see
paragraph 3.31 in DP05/1 for further information on this.
82
See Annex 5, Table K in DP05/1.
Financial Services Authority 57
Asset and deposit maturity (FSA018)
6.19
We will use this data primarily to monitor funding profiles and trends (both
in terms of source and maturity mismatch) to identify firms that may be
developing funding difficulties. We are seeking summary information on
assets and liabilities across the whole maturity spectrum: we cannot use the
existing liquidity data for this because, firstly, not all firms monitor liquidity
on the same basis and, for those reporting on the mismatch basis, the
required information does not cover the whole maturity range81.
6.20
We intend only to collect this data from UK banks and building societies. For
firms however that have a treasury concession, it will be reported on a
consolidated basis. We propose that the data is collected quarterly from firms
but those reporting on a consolidated basis will provide the information halfyearly. Firms will be allowed 15 business days to submit the data, except for
consolidated submissions which will be allowed 30 business days.
Q23: Is the data for FSA018 already available within your
systems? If not, how much effort would it require to
provide it along with frequency and submission times
proposed?
Market risks – supplementary (FSA006)
6.21
In the draft of the market risk data we set out in DP05/182, we included
information on operational trading data and underwriting. We have taken
that data and moved it into this new data item, and also specified some
information on daily profit and loss and value at risk (VaR) which CAD2
firms currently provide voluntarily quarterly in arrears. So we propose this
data is only collected from those firms with waiver to GENPRU 2.1.40R
(i.e. a CAD waiver), irrespective of the size of their market risk. This will
affect some UK banks, building societies and BIPRU 730k firms. We
propose that it would be reported quarterly in arrears, as at present. This
puts that data collection onto a formal basis so the additional burden on
firms will be limited.
6.22
The information will be provided by the same grouping as has the waiver. In
other words, if the waiver is given on a consolidated basis, the quarterly
reporting of this data item will also be on a consolidated basis. We also
propose that FSA006 is provided in 15 business days of the reporting date.
Q24: Do firms envisage any problems in providing us with
the daily information quarterly in arrears (on FSA006)
and within the time envisaged? Do you think that the
report could be improved in any way?
58 CP06/11: Integrated regulatory Reporting (May 2006)
7
Other reporting changes
7.1
To bring all the reports for deposit takers and investment firms onto a more
consistent basis under IRR, we need to make changes to existing reports,
over and above the changes already discussed. The changes aim to
streamline, wherever possible, each firm’s reporting. This allows us more
easily to tailor reporting to different types of firm. We are also making some
changes to remove or correct shortcomings in existing reporting
requirements, and because we will no longer be using the Bank of England
(BoE) to collect some of the data.
7.2
Unlike previous chapters, which have focused on data items that are used by
a wide range of firms, this section is grouped by the type of firm. To help
firms to go directly to the relevant paragraphs, there may be some
duplication. This chapter is relevant to the following types of firm:
•
UK banks (paragraphs 7.3 to 7.9);
•
building societies (paragraphs 7.3, 7.10 to 7.17);
•
EEA banks, other than those with permission for cross-border services
only, and which have permission to accept deposits in the UK (paragraphs
7.3 to 7.5, 7.18 to 7.19);
•
EEA banks that cannot accept deposits in the UK (paragraphs 7.3 to 7.5,
7.20 to 7.23);
•
non-EEA banks (paragraphs 7.3 to 7.5, 7.24 to 7.26);
•
electronic money institutions, other than small e-money issuers
(paragraphs 7.3, 7.27 to 7.28); and
•
small e-money issuers (paragraphs 7.3 and 7.29).
Financial Services Authority 59
When will firms start reporting this data?
7.3
We propose that firms start reporting these data items after 1 January 200883.
All firms are reminded that when these new reports are introduced, they will
report according to when their ARD falls, and can report in the currency (as
specified in paragraph 2.27 above) of their annual audited accounts.
Relationship with the Bank of England
7.4
The supervisory data for banks is currently processed, on our behalf, by the
BoE acting as our agent. This arrangement was a consequence of the BoE,
before the FSA was formed, having responsibility for supervising banks. Both
we and the BoE feel the arrangement has worked well. However, with the
wide revision of our regulatory data and our new data items covering a much
wider range of firms, we propose that firms use consistent platforms to
report to us, and the BoE agrees with that proposal. Hence, for reporting
dates on and after 1 January 2008, the BoE will no longer act as our agent to
process the regulatory data for banks. Existing returns completed as at 31
December 2007 will, as at present, be processed by the BoE.
7.5
However, we and the BoE have some common objectives in relation to
financial stability and we will each continue to have an interest in the data
provided to each other. For instance, we will continue to get a copy of the
data that banks provide to the BoE under their statistical reporting
requirements, and this will of course be extended to cover building societies
once they provide statistical data direct to the BoE (see paragraphs 7.10 to
7.15 for more information). This data will still be available to supervisors
and is likely to continue to form the basis of the fee calculations for banks
and building societies.
UK banks
7.6
At present, UK banks provide liquidity reports on one of two bases. For
those banks that monitor their liquidity according to the sterling stock
liquidity approach set out in IPRU(BANK) Chapter LS, they currently
submit, on a group basis, the Form SLR1 monthly. Most banks monitor
liquidity according to the maturity mismatch approach set out in
IPRU(BANK) Chapter LM and report on the Form LR quarterly. UK banks
will continue to report on one basis only, dependent on which liquidity
chapter of the Handbook84 applies to them.
7.7
As we set out in paragraph 3.31 in DP05/1, a review of the liquidity regime
(encompassing more than just banks) is likely in the near future. We do not
83
Building societies should however see paragraphs 7.13 to 7.14 below.
84
IPRU(BANK) LM or LS.
60 CP06/11: Integrated regulatory Reporting (May 2006)
propose to make major changes to the reporting at this stage. However,
arising from our decision to process all the regulatory data we receive rather
than using the BoE as agent, we have decided to go ahead with the limited
changes which we proposed in DP05/1.
7.8
For stock liquidity reporting (data item FSA013 in SUP 16 Annex 24R in the
Appendix: Annex A Part 7), the reporting frequency will change to quarterly
and will be at dates based on a firm’s ARD. At present, firms report on the
second Wednesday of the month and have only 6 business days to submit the
data; after 1 January 2008, we propose allowing 15 business days for
submission. The report will still be submitted at the UK consolidation group
level, or by a UK bank that is not a member of such a group. The last report
on the Form SLR1 will therefore be as at 12 December 2007, with the first
submission of FSA013 being after 1 January 2008 and based on a firm’s ARD.
7.9
For mismatch liquidity (data item FSA010 in SUP 16 Annex 24R in the
Appendix: Annex A Part 7), we proposed in DP05/1 that we would reduce
the amount of data collected. So, for this data item which replaces the Form
LR, we will drop the inflow and outflow data out beyond six months so the
whole report is now on a cash-flow basis. The underlying mismatch
calculations are unchanged, and it will be reported on the same basis as at
present. One difference from DP05/1, however, is that we propose to drop
the information on deposit concentration that was in Part 5 of the form85.
Also, we intend to link the reporting dates to a firm’s ARD and not to the
frequency of completion of the BoE’s Form BT. We propose a submission
time of 15 business days for this, which is a few days more than at present.
Q25: Do firms envisage any particular issues in making
these changes to liquidity reporting on FSA010 and
FSA013, including the submission and timing
proposals? If you comment, please ensure you identify
which data item it relates to.
Building societies
7.10
At present, building societies report all their data to us, whether for
regulatory or for statistical purposes. This arrangement has been in place for
many years. We (and our predecessor, the Building Societies Commission)
aggregate the statistical data86 that is relevant for monetary analysis or which
feeds into the National Accounts and pass the data on to the BoE and the
Office for National Statistics. Banks, on the other hand, provide their
statistical data direct to the BoE, and the BoE undertake the aggregation of
the data and raise any issues directly with firms.
85
The client money information in Part 5 has now moved to FSA001, data element 95A.
86
This covers reporting on Forms MFS1, MFS1 Supp, MFS2 and QFS2 set out in SUP 16 Ann 3R.
Financial Services Authority 61
7.11
We proposed in DP05/1 that, in future, the statistical reporting would move
to the BoE. This is in line with the Bank of England Act 1998, under which
the BoE has responsibility for collecting statistical data. We believe it will
also be much more efficient – not only for firms but also for the BoE and
ourselves. Under existing arrangements, the BoE gives us a copy of the data
provided to it by banks, and this will also be extended to building societies,
so we will continue to have access to, and an interest in, that data87.
7.12
Also, once building societies are reporting to the BoE on the Form BT88, we
will be able to base the fees we charge UK banks and building societies on
exactly the same data.
7.13
In DP05/1, we suggested that the date for switching the reporting to the
BoE would be end of December 2006 and asked for firms’ views on
whether they would prefer the change at a single date89. At that time, we
envisaged that regulatory reporting would also change at the same date and
most respondents were in favour of that. Since then, the CRD has taken
longer than expected to be finalised, with the consequent slippage in the
timetable for this CP. We now feel that is preferable to delay the
widespread introduction of revised regulatory reporting until 1 January
2008, retaining existing regulatory reporting up to and including 31
December 2007 but with the need to provide some additional data on
FSA009 during 2007.
7.14
After discussions with the Building Societies Association (BSA) and the BoE,
we are now proposing that the change in statistical reporting will take effect,
for all building societies, at the end of December 200790. On that reporting
date, firms will report to us on the current statistical forms (MFS1, MFS1
Supp, MFS2 and QFS2) as well as to the BoE on the forms they require each
firm to complete. Our overriding principle is that we should not duplicate
data collection. However, in this case, the BoE would prefer one month’s
overlap of statistical data, to provide a data consistency check and a seamless
transition in their data series. After that, building societies would submit
statistical data to the BoE and the regulatory data set out in the draft
Handbook rules in the Appendix: Annex A Part 7 to us.
7.15
In the period leading up to that change, we will continue to work with the
BSA, the BoE and the building societies themselves to ensure the transition is
as smooth as possible. Firms wishing to find out what their likely reporting
requirements to the BoE will be should visit its website91. If you wish to
discuss the BoE’s reporting requirements, please contact:
87
See also paragraphs 7.4 and 7.5 above.
88
The balance sheet return – see www.bankofengland.co.uk/statistics/reporters/def.htm
89
See Annex 3 for the feedback to Question 14 in DP05/1.
90
This means that firms that adopt the standardised or foundation approaches during 2007 will have to continue to
report to us on the MFS1, MFS1 Supp, MFS2 and QFS2 up to and including end December 2007. The reporting of
these forms would not be linked to a firm’s ARD.
91
www.bankofengland.co.uk/statistics/reporters/index.htm
62 CP06/11: Integrated regulatory Reporting (May 2006)
Anne Smith
Senior Manager
Monetary & Financial Statistics Division
Bank of England
Tel: 020 7601 4216
E-mail: [email protected]
7.16
There is, however, one implication of these changes for regulatory reporting.
As building societies will no longer complete Form MFS1 after 31 December
2007, we will be unable to monitor liquidity unless we re-instate Table E
within that form with an equivalent data item.
7.17
As with UK banks, we set out in DP05/1 paragraph 3.31 that liquidity policy
would be reviewed in the near future but this is not immediately on the
horizon. We propose to introduce a new liquidity report for societies that
mirrors the existing Table E in Form MFS1 (this is data item FSA011 in SUP
16 Annex 24R in the Appendix: Annex A Part 7). There are two main
changes from Table E. First, the data will no longer be provided monthly but
will instead be provided quarterly within 15 business days (that is longer
than at present), at reporting dates based on a firm’s ARD. Secondly, we are
taking the opportunity of that data item, which is specifically for building
societies, to collect four other data elements that are specific to these firms.
These items cover business assets not fully secured on residential property as
a percentage of business assets; deposits and loans as a percentage of shares,
deposits and loans; the amount of offshore deposits; and large shareholdings
as a percentage of shares, deposits and loans.
Q26: Do these proposals for reporting on FSA011 cause any
particular issues for firms?
EEA banks (that can accept deposits)
7.18
For EEA banks, other than one with permission for cross-border services
only, and which have permission to accept deposits in the UK, we currently
monitor liquidity through the Form LR. As we set out in paragraph 3.31 in
DP05/1, a review of the liquidity regime (encompassing more than just
banks) is likely in the near future but this is not immediately on the horizon.
So we do not propose to make major changes to the reporting at this stage.
However, arising from our decision to process all the regulatory data received
from banks at the FSA, rather than using the BoE as agent, we have decided
to go ahead with the limited changes which we proposed in DP05/1. As a
result, we will drop details of inflows and outflows maturing after 6 months
in the replacement data item (data item FSA010 in the Appendix: Annex A
Part 7). We will also drop the linkage between the reporting date and when
the firm completes the BoE’s Form BT. Instead, the reporting date will, after
1 January 2008, be linked to each firm’s ARD. The calculation of the
Financial Services Authority 63
liquidity mismatch remains unchanged. We propose to allow 15 business
days for submission, marginally longer than at present.
7.19
For those firms which have a ‘global concession’92, they will continue to be
able to make use of that and not report on FSA010.
Q27: Do these proposals for reporting on FSA010 cause any
particular issues for EEA banks?
EEA banks that cannot accept deposits in the UK
7.20
This covers EEA banks, other than those with permission for cross-border
services only, which do not have permission to accept deposits in the UK. The
current reporting requirements for these firms is limited to liquidity
reporting, and are currently set out in SUP 16.7.9R. At the time the FSA
Handbook came into force at N2, the Handbook rules meant that these
passported firms, which cannot accept deposits in the UK and which were
not previously subject to any liquidity reporting, were required after N2 to
report on their liquidity to us. This fulfilled a technical requirement imposed
on us by the underlying Directive93.
7.21
However, reporting on the Form LR has proved imperfect both for these firms
and us. The liquidity mismatch regime by its very nature measures the mismatch
against total deposits: these firms, however, do not have any deposits.
7.22
We have therefore decided that, although our liquidity policy will be
reviewed within the next few years94, we need to introduce a section within
IPRU(BANK) Chapter LM now. It explains how we will monitor the
liquidity of branches which, although operating in the UK and classified as
banks, do not accept deposits. In particular, we are proposing to measure the
mismatch against the total assets of the branch – the proposed changes to
Chapter LM are set out in the Appendix: Annex B.
7.23
We will also introduce from 1 January 2008 a new liquidity reporting data
item (FSA012 in the Appendix: Annex A Part 7) for these firms which should
be more relevant for them. We intend to monitor liquidity six-monthly, as
compared with the current requirement for quarterly reporting, and will look
out to nine months on the maturity ladder to cover the period until the next
report is received. Compared with the draft version that appeared in
DP05/195, we have dropped the detail of inflows and outflows and instead
focused on the cumulative inflows and outflows and on the mismatch itself.
We propose that firms will have 30 business days in which to provide this
92
See IPRU(BANK) Chapter LM, Section 4.2.
93
Banking Consolidation Directive (2000/12/EC)
94
See DP05/1, paragraph 3.31.
95
See Table AG in Annex 5 of DP05/1.
64 CP06/11: Integrated regulatory Reporting (May 2006)
report. These firms may also be able to take advantage of the ‘global
concession’ policy96.
Q28: Do firms envisage any issues in providing the summary
data in FSA012 on the frequency and within the
timescale proposed?
Non-EEA banks
7.24
These firms currently report to us on the Form LR for liquidity and the
Form B7, which gives further information on the branch, mostly around the
income statement.
7.25
For liquidity reporting, the position is still as we set out in DP05/197, with
liquidity policy in general likely to be under review in the next year or two.
However, since we will process all the regulatory data received from banks
rather than using the BoE as agent, we have decided to go ahead with the
limited changes which we proposed in DP05/1. Therefore, on the new data
item replacing the Form LR (FSA010 in the Appendix: Annex A Part 7), we
will drop the inflow and outflow data out beyond six months, so the whole
report will be on a cash-flow basis. In addition, we are dropping the
information on deposit concentration in Part 5 of the Form LR. This will
reduce the quantity of data provided to us, but the mismatch calculation
itself remains unchanged. Also, for any firm that currently has a ‘global
concession’98, it will continue to benefit from that and will not be required to
complete this data item. The reporting date will also move to quarterly based
on a firm’s ARD. We propose allowing 15 business days for submission, a
slight increase on the time currently allowed.
Q29: Do non-EEA banks envisage any issues in providing
the data in FSA010 on the frequency and within the
timescale proposed?
7.26
96
As regards the additional information on branches currently collected on the
Form B7, that too will change when we start collecting data directly, rather
than through the BoE. We propose that firms will complete the same income
statement (data item FSA002 in the Appendix: Annex A Part 7) as UK banks
and BIPRU investment firms. Completion would remain six monthly (but
based upon a firm’s ARD), and firms would have 30 business days to submit
it. This is substantially longer than the time currently allowed (up to 12
business days) but is in line with the submission time proposals included in
paragraph 3.45 of CP19899.
See IPRU(BANK) Chapter LM, Section 4.2.
97
See DP05/1, paragraph 3.31.
98
See IPRU(BANK) Chapter LM, Section 4.2.
99
Regulatory reporting – a new integrated approach, September 2003.
Financial Services Authority 65
Q30: Do non-EEA banks envisage any issues in providing
the data in FSA002 on the frequency and within the
timescale proposed?
Electronic money institutions (other than small e-money issuers)
7.27
These firms currently report on the Form ELM CA/LE. To bring their
reporting in line with our proposed reporting structure and allow electronic
submission of the data, we have broken this report into its constituent parts.
With the exception of a few minor changes resulting from the CRD100 and a
slightly revised layout of the balance sheet (which picks up some information
that was previously given in other parts of the existing form), there are no
fundamental changes. These are data items FSA020, FSA021, FSA022,
FSA023, FSA024, FSA025 and FSA026 are set out in the Appendix: Annex A
Part 7. The frequency of reporting for each we propose will be half-yearly
(the same as the existing reporting) but will be aligned with a firm’s ARD
and, in line with the standardised submission times that were proposed in
CP198 (paragraph 3.45), firms will have 30 business days to submit the
reports, up from the current figure of 20 business days.
7.28
Firms are reminded that they may also be required to provide further reports
if they are part of a UK consolidation group (see chapter 4).
Q31: Do firms envisage any issues in providing the data in
FSA020 to FSA026 on the frequency and within the
timescale proposed?
Small e-money issuers
7.29
Unlike other reporting requirements that will be contained within SUP, the
reporting requirements for these firms are currently contained in ELM 8, and
will continue to be there. However, as these too are financial reports and
firms would benefit from the ability to report electronically, we have created
a new data item (FSA027 in ELM 8 Ann 2R in the Appendix: Annex C).
This replaces Form ELM-SI, with a correction to the wording of the third
condition, item 2(a), to agree with the underlying Handbook text101. The
report will continue to be required six monthly but, in line with the standard
submission times set out in paragraph 3.45 of CP198, we will in future allow
firms 30 business days to submit FSA027 compared with 10 days at present.
The draft rule change to ELM is included in the Appendix: Annex C. We do
not consider these changes to be unduly burdensome and will give the firms
the ability to report electronically. However, change reports will have to be
made manually using a copy from our website.
100
Mainly in how qualifying liquid assets are classified
101
See ELM 8.4.10G.
66 CP06/11: Integrated regulatory Reporting (May 2006)
Q32: Do firms envisage any issues in providing the data in
FSA027 on the frequency and within the timescale
proposed?
Financial Services Authority 67
8
8.1
Transitional arrangements
for CRD firms reporting
during 2007
This chapter explains the transitional reporting arrangements to be provided
to all firms as a result of the proposals in this CP and the tight
implementation timetable for the CRD generally. These arrangements aim to
address firms’ concerns about needing twelve months’ notice of the detailed
reporting requirements ahead of the new capital requirements coming into
force. This chapter applies to all firms affected by the CRD:
•
UK banks;
•
building societies; and
•
BIPRU investment firms.
Transitional reporting in 2007
Existing reporting requirements
8.2
Although we recognise that some aspects of the CRD will apply to all BIPRU
firms during 2007102, we do not intend to make any substantive changes to
the existing reporting forms during 2007. We feel that it is not cost-effective
to do so, as these reporting forms will be withdrawn after the end of 2007.
We are also conscious that it would not be cost-effective for firms to make
changes either. Where forms cover a range of aspects such as balance sheet,
profit and loss, capital adequacy and large exposures, we will retain
reporting on these forms throughout 2007.
8.3
However, it does mean that all firms will have to complete the existing
reports as fully as possible, based on the existing guidance, even though the
underlying rules may no longer be applicable to the firm and are replaced by
new rules. It is preferable to continue completing the forms using the current
rules than try to fit the new rules into the existing layout. In general, the
102
See paragraphs 3.6.
68 CP06/11: Integrated regulatory Reporting (May 2006)
changes are unlikely to impact on balance sheet and profit and loss data, but
rather on financial resources data and capital requirements, as well as (but to
a much lesser extent) large exposures data. Thus the forms will still contain
data that is relevant to us.
8.4
Firms are reminded that, irrespective of the data reported on the existing
forms, they should be calculating their capital resources and capital
requirements on the correct basis for monitoring by senior management. So
that we also know the correct capital position of each firm, they will have to
submit certain key data on FSA009, included in Appendix: Annex A Part 7,
during 2007 direct to the FSA. The draft transitional rules giving effect to
this reporting change is set out in Appendix: Annex A Part 2.
8.5
Once a firm has adopted the new approaches to credit risk during 2007, we
propose that the firm may opt to replace the existing reporting of balance
sheet data, profit and loss data, capital adequacy data and large exposures
data, as well as FSA009, with the new data items FSA001, FSA002, FSA003
and FSA008. They would not then have to complete the equivalent existing
returns, although other reporting requirements would continue unchanged
until 1 January 2008. In this way, it is up to firms to decide whether they
wish to adopt the new reporting requirements with potentially less than
twelve months’ notice of the final changes. To use the latter option, however,
firms must give us one month’s notice in writing of their intention to do so,
and that is also included in the draft transitional rules.
8.6
In the case of investment firms, many of them submit consolidated financial
returns that only contain information relating to capital adequacy. As these
figures will be fundamentally wrong during 2007, the need to report on these
forms will be dropped for firms affected by the CRD, but will be replaced by
the need to provide FSA009 to the same time scale.
Q33: Do firms feel that the proposals set out in
paragraphs 8.2 to 8.6 (and in more detail in
paragraphs 8.13 to 8.36) for transitional reporting in
2007 are proportionate, given the changes arising
from the CRD which will apply to all firms from the
beginning of 2007?
How reports will be submitted
8.7
For reporting purposes, the period from 1 January 2007 to 31 December
2007 inclusive will be known as the ‘early reporting period’. In this early
reporting period, firms will have either of two possible sets of reporting
requirements, as follows:
Financial Services Authority 69
•
Until 1 January 2008, the current reporting regime will apply with the
existing submission methods, together with a new key data item
(FSA009)103, with data reported according to the existing reporting dates
and frequency104; or
•
After a firm has adopted the Standardised, Foundation or Retail IRB
approaches for credit risk, it may submit (if it prefers) the new data items
FSA001, FSA002, FSA003 and FSA008 (and FSA0029 if relevant) only, as
defined in Chapters 4 and 5, but at dates coinciding with their existing
reporting requirements105. These are in place of the existing capital
adequacy and large exposures reporting, but in general all other reporting
will remain unchanged until 1 January 2008.
8.8
For reporting dates after 1 January 2008, all firms subject to the CRD must
report their data to us using the full set of data items, and the existing
reporting forms and methods of submission, will be withdrawn. Firms will
also have to report according to their ARD from this date.
8.9
During the early reporting period, we will provide data items FSA009 and
FSA028 (and also FSA001, FSA002, FSA003, and FSA008 for those firms
that would prefer to start submitting them as soon as possible) for
completion on a web browser. We are also assessing the feasibility of
providing firms with an upload facility for the early reporting period. We will
issue a further update on this on the IRR section of our website during the
third quarter of 2006.
8.10
These options are reflected in the draft transitional rules in Appendix: Annex
A Part 2.
8.11
We are continuing a longer term development of our systems for MER and
our current intentions on that are set out in Annex 2.
Dual reporting
8.12
We have set out earlier in paragraph 3.9 that firms will not be required to
report to us on both a pre-CRD and post-CRD basis at the same date.
UK banks
8.13
There are several areas where we envisage the Form BSD3 will not provide
the correct figures and Part D of the Form will end up potentially inaccurate.
During 2007, firms should not be trying to arrive at the correct figure in Part
D for the solvency ratio but instead report as much of the form as possible
according to the existing guidance, even if this means inputting ‘incorrect’
103
Firms that are also members of a non-EEA sub group will also have to report on FSA028 – see paragraphs 4.12 to 4.14.
104
Some firms may also have to report on FSA028 after 1 January 2007.
105
This means that a firm will have to change to reporting according to its ARD after 1 January 2008.
70 CP06/11: Integrated regulatory Reporting (May 2006)
data to get through the validation rules. The areas where firms are likely to
have to report such incorrect data are:
•
In Section A, firms that have adopted any of the new approaches to credit
risk will not be able to correctly allocate the risks to the risk weighting
bands defined. This might also be the case for any firm doing consolidated
reporting (even if it was still on the existing approaches to credit risk) that
uses the aggregation method to calculate the capital requirement. In both
cases, firms will have to allocate the figures in some way – to satisfy the
validations on the form – with the result that the capital requirements
calculated in Part D of the Form will consequently be incorrect.
•
Also in Section A, there may be implications for the figures reported in the
different tiers of capital, and how they then are carried forward into
Section D and the calculation of Own Funds. Nevertheless, firms should
complete this following the existing guidance as far as possible.
•
In Section B, the area that is most likely to be impacted by the changes is
the interest rate risk calculation (item B190) where a 12% risk band does
not exist. Although there are ways this could be reported without other
consequential changes to the form or its validations, we think the spurious
accuracy of one cell when others may be inaccurate does not warrant
firms trying to make this particular figure correct.
•
Section D is generally dependent on the data reported elsewhere on the
form and firms need to continue using these linkages so that the internal
validations on the form work. In terms of item D50, firms will of course
no longer have an individual capital ratio (ICR) but will nevertheless have
to fill in some figure here to make the validations work. We suggest firms
use the last agreed ICR figure.
8.14
Because of these issues, the figures in Section D will not be reliable and we
are therefore proposing that firms will, in addition, provide data at the same
time on FSA009 during 2007. The submission time for FSA009 will be the
same as the underlying BSD3.
8.15
For large exposures reporting on the Form LE3, the main change from 1
January 2007 is that the large exposures will be monitored against the capital
resources figures rather than a large exposures capital base. As this will be
reported to us automatically in FSA009, we propose that firms will not have
to apply formally for changes to the limits in future. However, until such
time as a firm first submits FSA009 to us, it should continue to use the LECB
last agreed with us. Thereafter, it should use the capital resources figures
reported to us at the previous reporting date (data element 21A in FSA009,
or 73A in FSA003).
Financial Services Authority 71
8.16
We intend to continue to use the LE3 during 2007, even although it may not
monitor the exposures in exactly the way required by BIPRU 10. We set out in
the Appendix changes to the guidance for the LE3 to give effect to using the
new capital resources figure rather than the LECB in future.
Building societies
8.17
The main impact is likely to be on Form QFS1, and Tables D, E and L
specifically. On Table D, the capital available figure may not be the same as
the capital resources figure which needs to be calculated, both at a society
and group level. On Table E, firms that have moved onto one of the new
approaches to credit risk may not be able to accurately reflect the risk
weightings or capital requirements of their exposures. However, firms should
continue to report the figures as presented on the form, even if the resultant
figures do not accord with internal management information. Firms should
not calculate the correct solvency ratio and then work back from that.
8.18
In order to monitor firms’ compliance, all firms will have to send in FSA009
at the same date as the QFS1. Firms will need a separate submission of
FSA009 for the society and for the group data reflecting the correctly
calculated figures for the actual outturn. We do not require revised
calculations for the expected and likely outturn figures, which we recognise
will be unreliable. The submission time allowed will be the same as the
QFS1. The draft transitional rules to give effect to this is set out in Appendix:
Annex A Part 2.
8.19
From FSA009 (data element 21A) or FSA003 (data element 73A), we and the
firms will be able to see the capital resources which will in future replace the
measure of own funds currently used in the large exposures calculations.
Included in Appendix is draft revised guidance for Table L in the QFS1 giving
effect to moving from the current quarter’s ‘group amount of capital available’
as the basis to using the previous quarter’s capital resources.
BIPRU investment firms – Securities and futures firms
8.20
Four forms are affected by the changes that are effective from the beginning
of 2007 – the Standard Reporting Statement (SRS), the Large Exposures
quarterly reporting statements (LEM1 and LEM2), and the Consolidated
Reporting Statement (CRS).
8.21
On the SRS, the form will not accurately reflect a firm’s capital and solvency
position after the beginning of 2007. Primarily, this is because the form is
completed by firms that will fall into one of three categories (full scope
BIPRU investment firm, BIPRU limited activity firm or BIPRU limited
licence firm), each of which has a different capital resources requirement
under GENPRU 2.1.15R. Rather than amend the form to cater for this, we
72 CP06/11: Integrated regulatory Reporting (May 2006)
decided that we would continue through 2007 without requiring any systems
changes by firms or ourselves.
8.22
The balance sheet and profit and loss data should be largely unaffected by
the changes, but there will be some parts of the form that will not be
accurate. While firms may be able to correctly show the treatment they are
adopting for illiquid assets, and may be able to manipulate the report to
reflect the changes to certain position risk requirements, it would be
preferable during 2007 if they followed current practice as far as possible
when reporting on this return. The correct figures will, however, be reported
on FSA009, which should be reported at the same frequency and to the same
timescale as the SRS. Firms should note however that FSA009 should not be
completed to accompany the annual reporting statement.
8.23
For the LEM1 and LEM2, we propose that firms use the new capital
resources figure for the measurement of large exposures. There does however
need to be a transition from the current use of own funds, or financial
resources and own funds, in the current quarter to using a previously
reported capital resources figure from data element 21A on FSA009 (or data
element 73A on FSA003). This will apply to both unconsolidated and
consolidated reporting on these forms. Draft guidance to give effect to that is
included in Appendix.
8.24
With the CRS where the information it provides relates entirely to capital
adequacy, we propose dropping the reporting requirement for it from 1
January 2007, but replacing it with the need to report on FSA009 at the
same dates and to the same timetable.
8.25
The draft transitional rules giving effect to this are included in Appendix:
Annex A Part 2.
BIPRU investment firms – Investment management firms
8.26
There are four reports that are potentially affected by the changes taking
place at the beginning of 2007. They are the Annual Financial Return (AFR),
Quarterly Financial Return (QFR), Monthly Financial Return (MFR) and the
Consolidated Financial Resources Return (CFRR).
8.27
The AFR, QFR and MFR are largely similar, and all would be affected by the
changes in the capital resources calculation from the beginning of 2007,
irrespective of when a firm adopts the new approaches to credit risk. They
would also be affected by the changes in the trading book capital
requirements, as well as the alternative methods of calculating the capital
resources requirement depending on which type of BIPRU investment firm is
involved. However, the balance sheet and profit and loss data should be
largely unaffected. Also, these returns are not exclusive to those firms that
are within the scope of the CRD, and that is a further justification for our
Financial Services Authority 73
not revising the forms. Instead, firms should endeavour to complete these
returns in a similar way to the present, although this will result in inaccurate
financial resources and liquid capital figures being reported. In addition to
submitting these returns according to their existing timetables, firms should
submit FSA009 (to the same timetable) as that will give the correct
calculation of their capital resources and capital requirements.
8.28
Within these returns, information is also provided on large exposures, based
on the percentage of own funds. In future, this will need to be based on the
capital resources reported by the firm on the previous reporting date. To get
from the current practice to the new practice, a revision to the guidance on
the QFR in SUP 16 Ann16R is included in Appendix.
8.29
Turning to the CFRR, which only gives information on capital adequacy, we
intend to drop the reporting requirement for that form and replace is with one
to report on FSA009 to the same timetable in 2007. The draft transitional
rules to give effect to that are included in Appendix: Annex A Part 2.
BIPRU investment firms – Personal investment firms
8.30
These firms submit the Retail Mediation Activities Return (RMAR), and
that will continue. In addition, those that are currently subject to the
Investment Services Directive (ISD) and are likely to be affected by the CRD
also report the consolidated financial return. In 2008, once the transitional
period is over, these firms will no longer complete certain parts of the
RMAR, because the information will already be collected on the new data
items. (As part of the redraft of the reporting requirements rules we discuss
in Annex 13, the RMAR will be broken down into its constituent sections in
2008 and the principle of de-duplication means that firms would then not
be required to report the same data twice.) However, during 2007, firms will
still need to complete the RMAR in its entirety, as well as submitting at the
same time FSA009.
8.31
Within the RMAR, we do however want the large exposures to reflect the
new capital resources against which they are measured. We have included
within the Appendix draft guidance for Section D5 to move firms from using
own funds calculated in the current period to using the previously reported
figure for capital resources in data element 21A in FSA009 (and ultimately
data element 73A in FSA003).
8.32
Those personal investment firms that are currently Category A3 firms and
become BIPRU 50K firms should note that large exposures reporting will
become quarterly after 1 January 2008.
8.33
Turning to the CFRR which only gives information on capital adequacy, we
intend to drop the reporting requirement for that form and replace it with
one to report on FSA009 to the same timetable in 2007. The draft
74 CP06/11: Integrated regulatory Reporting (May 2006)
transitional rules to give effect to that are included in the Appendix: Annex
A Part 2.
BIPRU investment firms – UCITS investment firms
8.34
These firms currently submit an Annual Financial Return, and a Quarterly or
Monthly Financial Return, each of which will potentially be affected by the
revised rules that come in to force on 1 January 2007. We propose that firms
continue to complete these as at present. Although the resultant capital
adequacy figures will not be accurate and will not reflect the figures
management should be calculating in accordance with the revised rules, the
balance sheet and profit and loss account data should be largely unaffected.
Firms should submit these returns according to the current timetable and, at
the same time, submit FSA009 with the quarterly and monthly returns that
will give the figures that management should be using; FSA009 will not be
required for the annual return, however.
8.35
The one change we do need to make, however, is to the calculation of large
exposures. This is currently based on own funds reported on the same date.
After 1 January 2007, we need to move firms from that onto using capital
resources as reported in data element 21A on FSA009 (or data element 73A on
FSA003) on the previous quarter. We have included in the Appendix changes to
the guidance on the Quarterly Financial Return in SUP 16 Ann16R.
8.36
Firms may also complete the Consolidation Supervision Return or the
Consolidated Financial Resources Return. However, as these only provide
information on capital adequacy, we have decided that UCITS investment
firms will no longer complete these forms, but will instead report on FSA009
on a consolidated basis to the same timetable during 2007. The draft
transitional rules giving effect to these reporting changes are set out in the
Appendix: Annex A Part 2.
Financial Services Authority 75
9
9.1
Data requirements that
are not yet finalised
We want to give you early sight of some proposals that are not yet finalised,
but relate to some aspects of a firm’s business that we wish to supervise and
monitor. At this stage, these are more provisional and we have therefore not
included any draft Handbook rules for collecting this data. As we do not
need to collect that data until January 2008 at the earliest, we will deal with
formal consultation in a Quarterly CP106. The firms likely to be affected are:
•
UK banks (paragraphs 9.2-9.4 for all, and paragraphs 9.5-9.14 for firms
with IRB models);
•
building societies (paragraphs 9.2-9.4 for all, and paragraphs 9.5-9.14 for
firms with IRB models); and
•
BIPRU investment firms (paragraphs 9.2-9.4 for all, and paragraphs 9.59.14 for firms with IRB models).
Significant exposures
9.2
We are conscious that, in moving from the current large exposures reporting
regime to the new data item FSA008 (in the Appendix: Annex A Part 7), we
will potentially be losing information on those exposures which fall just
outside the large exposures definition. While that may not be regarded as
significant for exposures to banks, for example, it can be much more
important for non-bank exposures.
9.3
Further, under the existing reporting, we do not identify those exposures
which would carry the greatest capital hit if the firm failed. We are therefore
considering asking firms to provide information on those exposures carrying
the greatest capital requirements. However, this gives rise to two issues:
•
106
The first is how easy it would be for firms to provide such data. In data
item FSA008 (paragraphs 5.21 to 5.30 above) which gives information on
large exposures, we have introduced column V to get some value reported
These are consultation papers that contain a number of separate proposals.
76 CP06/11: Integrated regulatory Reporting (May 2006)
for the capital required by those exposures that are regarded as large
exposures. And in Question 11, we ask whether firms will have any
particular difficulty in providing that data. Firms that do not have any
large exposures (as defined in BIPRU 10.5.1R) to report in FSA008, and
are not likely to, will not of course have to worry about that item on
FSA008. But, if we do move towards collecting data on the exposures that
require the largest amounts of capital to back them, this would be an issue
for all firms – unless some thresholds are introduced.
•
9.4
The second issue is around the reporting threshold, and where this should
be set. We believe that we will start to get some indication of how capital
requirements compare with large exposures once we start collecting the data
in column V on FSA008. For some firms, that sort of data will not start to
flow through until around mid-2008, which is likely to be the earliest we
could start to assess whether to consult formally on a data requirement.
Please also note that discussions are starting in Europe on the Large
Exposures Directive, but it is too early to say when the results of that work
will be available. However, from our perspective of risk-based supervision, it
does seem possible that focusing on capital requirements rather than a flat
limit of a specific percentage of capital resources could be the direction things
move in. If so, we would like to have an indication as soon as possible of
firms’ ability to monitor and report on that basis.
Q34: Following on from Question 11 above, what particular
difficulties would you see in monitoring exposures by
the amount of capital required? Do you monitor in this
way in your firm or group and, if so, can you tell us
what the largest credit risk capital requirement is as a
percentage of the current large exposures capital base
(LECB) or own funds? If not, how do you monitor such
risks in your firm?
IRB portfolio risk (Table 1 in Annex 11)
9.5
This information is only relevant for those firms on the Foundation or
Advanced IRB107 approaches, and is designed to allow us to monitor each
portfolio by asset class. Because the internal ratings should be more sensitive
to the drivers of economic risk and economic loss in each portfolio, the
capital requirements that result should provide us with a good picture of the
credit risk. It would leverage off firms’ own internal estimates.
9.6
We believe this data should be relatively simple for firms to provide as it is
part of the underlying requirements of the approaches and uses terminology
which is widely known. Although each firm’s models will differ, we think the
107
Internal ratings based
Financial Services Authority 77
figures would be sufficiently similar for us to undertake peer group analysis
based on it.
9.7
We are conscious that we are not intending to collect as detailed information
from firms on the standardised approach. This is because we feel the most
useful information will come from those firms with the model approaches
and, similarly, it is those firms that need to be monitored more closely. In
part, this is because they will generally have a lower capital requirement to
cover these risks, as a result of the models.
9.8
We have considered at some length the degree of granularity that is desirable
in the PD ranges to allow comparison across firms. We have tried to get the
right balance between a minimum of seven bands (which firms are required
to have) for this data, which would probably be too few for us to analyse in
a meaningful way, and too many.
9.9
In an attempt to keep the balance the quantity of data provided with its
usefulness, we would like to collect the data in respect on five asset classes.
These are mortgages; QRRE (qualifying revolving retail exposures); other
retail; securitisations; and sovereigns, banks and corporates combined.
9.10
We would propose that this data would be collected quarterly at the UK
consolidation group level, or at firm level if it is not part of such a group.
We would also propose that the data be provided within 30 business days.
Q35: What difficulties would firms envisage in providing the
data in Table 1 of Annex 11 within the time proposed?
Do you think the proposed granularity of the PD bands
will cause any difficulties, either for you in collating
the data or for us in interpreting it?
IRB portfolio outturn (Table 2 in Annex 11)
9.11
This data is similar to that in Table 1 in Annex 11, except we intend to look
at the outturn in relation to the PDs that applied to the exposures at the
beginning of the period. We believe this will be a powerful tool, but we
recognise that providing the data may be more problematic for firms. We will
have to provide specific guidance about how certain events are treated so
there is some consistency in the data. However, we are conscious that these
numbers would have to be treated with a degree of caution.
9.12
Taken in conjunction with the information in Table 1, which is forward
looking, the data will enable us to analyse the comparative performance of
IRB models at a high level – both within but more specifically between firms.
If the data suggests there are issues with a particular set of data, it is likely
we would have to fall back on the firm’s own management information to
understand its implications. It should be emphasised that the primary
78 CP06/11: Integrated regulatory Reporting (May 2006)
information we need to monitor rating system performance will come from a
firm’s own validation processes and the separate data it has to provide us
with on that, and this information is complementary.
9.13
Over time, it should help us to identify potential outliers at sector level by
identifying, for example, those firms with mortgage lending that are
experiencing comparatively more defaults than anticipated by the model.
9.14
As the data is retrospective, we only need to collect it annually at a firm’s
ARD, and then only from those firms with a waiver to adopt these
approaches. Although we would hope to introduce a reporting requirement
from 1 January 2008, for most firms that would mean the first completion
date would be at the end of 2008. This would be reported at UK
consolidation group level if applicable as with Table 1, otherwise at
individual firm level. We would propose allowing firms two months to
submit the information.
Q36: How much difficulty do you think you would have in
producing the analysis based on the PDs in force at the
beginning of the reporting period, in relation to
exposures at the reporting date, for Table 2 in Annex
11? Are there any other particular issues you would face
in collating the data for us in the timescale proposed?
Financial Services Authority 79
Part II: reporting
proposals for the non-CRD
investment firms and
non-financial reporting
Financial Services Authority 81
10
10.1
Remit of the proposed
reporting
This chapter explores the remit of reporting for those firms undertaking nonretail investment business, but who are not subject to the CRD (called nonBIPRU investment firms from this point). Broadly, we discuss:
•
the regulated activities that the data items discussed will apply to;
•
the position of Article 67(3) MiFID firms; and
•
the application of the proposed data items to different types of firms,
including commodities firms, locals, oil and energy market participants,
multilateral trading facilities, UCITS management companies, operators of
personal pension schemes and recognised bodies.
10.2
We have discussed the proposed changes to the financial reporting
requirements for BIPRU investment firms earlier in the CP. In Chapters 10
and 11, and supporting annexes, we consider further areas of financial
reporting outside of the scope of the CRD as well as non-financial reporting
for any firm carrying on investment activities (excluding retail investment
activities108).
10.3
IRR bases reporting requirements on the regulated activities a firm
undertakes. Table 10.1 indicates the activities to which the proposed
reporting in the following sections relates, along with an indication of the
types of firm affected:
108
Retail investment activity:
(a) advising on investments;
(b) arranging (bringing about) deals in investments; or
(c) making arrangements with a view to transactions in investments,
in relation to retail investments, except when carried on by a firm exclusively with or for intermediate customers or
market counterparties.
Financial Services Authority 83
Table 10.1: Regulated activities impacted by the proposed
reporting and indicative firm type
Regulated activity
• Dealing in investment as principal
• Dealing in investments as agent
• Advising on investments (excluding retail
investments)
• Arranging (bringing about) deals in
investments (excluding retail investments)
• Managing investments
• Establishing, operating or winding up a
regulated collective investment scheme
• Establishing, operating or winding up an
unregulated collective investment scheme
• Establishing, operating or winding up a
stakeholder pension scheme
• Acting as depository or sole director of an
Open Ended Investment Company
• Acting as trustee of an authorised unit
trust
• Safeguarding and administration of
investments
• Arranging safeguarding and administering
investments
• Establishing, operating or winding up a
personal pension scheme
10.4
Examples of firms affected
• Investment management firms
• Securities and futures firms
• Collective investment schemes
managers
• Personal investment firms
(wholesale)
• UCITS firms
• Operators of stakeholder pension
schemes
• Operators of personal pension
schemes
• Venture capital firms
• Oil or energy market participants
• Corporate finance firms
• Depositaries and trustees
• Custodians
We are making proposals for the financial reporting requirements for:
•
UK ‘exempt CAD109 firms’, which are subject to recast CAD Articles 7 &
8 but not full CRD requirements – also known as Article 67(3) MiFID
firms; and
•
those firms not subject to either the CRD110 or MiFID111.
10.5
We also propose non-financial reporting requirements for any firm undertaking
investment activities (excluding retail investment activities), including those
firms affected by the CRD (for instance, firms dealing as principal).
10.6
Generally, this would not affect IFAs or mortgage and general insurance new
scope firms, unless the particular firm in question undertook one or more of
the activities listed above. At that point they would move from their existing
reporting Retail Mediation Activities Return (RMAR) to the reporting regime
109
Capital Adequacy Directive
110
Capital Requirements Directive
111
Markets in Financial Instruments Directive
84 CP06/11: Integrated regulatory Reporting (May 2006)
(although if they undertook retail investment activities, they would still retain
the non-financial reporting obligations from the RMAR).
Article 67(3) MiFID firms
10.7
Under the existing regime, certain provisions of the CAD apply to investment
firms falling within the ISD112, although MiFID will replace the ISD.
Investment firms subject to MiFID will have to comply with the new CRD
requirements through the recast CAD. It remains the responsibility of firms
to establish whether they are subject to specific EU Directive requirements.
We have, however, provided guidance to help firms assess whether they are
subject to a directive, including the draft ‘Guidance on the scope of the
Markets in Financial Instruments Directive and the recast Capital Adequacy
Directive’ in CP06/9113.
10.8
There are a number of exemptions from the requirements of the CRD for
investment firms. Of particular relevance to the ongoing work of this IRR
Policy initiative are the exemptions relating to:
10.9
10.10
•
‘exempt CAD firms’, which are exempt from the risk-based capital
requirements of the recast CAD and subject to Article 7 or 8 of the recast
CAD instead (the ‘Article 67(3) MiFID firms’); and
•
specialist commodity firms and other non-ISD firms in respect of the
CRD capital resource requirement, pending a review prompted by
MiFID provisions.
For a full discussion about the application of the CRD, and the exemptions
that may be applied to investment firms, please refer to CP06/3 Strengthening
Capital Standards 2 (February 2006) and CP06/9.
We aim to consult on the new prudential requirements in Article 67(3) of
MiFID (which will take effect through the recast CAD article 7 & 8
provisions) in the July MiFID CP. As such, the formal consultation on the
Capital Adequacy data items relating to these new prudential requirements
will also be included in the proposed July MiFID CP. However, we include a
‘taster’ of what we expect to be the final Capital Adequacy data items in
Annex 11 so firms are able to see a complete picture of new reporting
requirements in one place.
112
Investment Services Directive
113
Chapter 10 and Annex 5 of CP06/9 refer
Financial Services Authority 85
Application of new reporting
10.11
As a general premise, the new reporting requirements will apply to any firm
undertaking the activities listed in Table 10.1. However, there are variations
in approach due to the nature of some firms business.
Commodities firms
10.12
Commodities firms will be exempt from the capital provisions of the CRD
where they meet the conditions in article 45(d) of the re-cast CAD, although
they will be subject to systems and controls requirements. They will be
exempt from the CRD altogether if they are exempt pursuant to the
exemptions in MiFID. Where they are not within the scope of the directives
and subject to IPRU (INV) Chapter 3, commodities firms will be required to
submit the relevant financial and non-financial data items dictated by the
business they undertake.
Locals
10.13
Locals are firms that are members of a futures and options exchange, that
only conduct designated investment business on their own account or on the
account of other members of that exchange, or that make a price to other
members of that exchange. Additionally, the performance of the firm’s
contracts must be guaranteed by and must be the responsibility of one or
more of the clearing members of the same futures and options exchange.
10.14
There are exemptions for locals in MiFID (please see Q51 and 52 of the draft
perimeter guidance in CP06/9114), and there is also a special exemption under
the re-cast CAD for locals that do not fall within this exemption. However,
we do not think that UK regulated firms that are subject to the regulatory
regime for locals prior to MiFID implementation are likely to fall within the
exemption under the recast CAD.
10.15
We consider it to be appropriate to maintain the current reporting regime for
locals. To this end, we propose not to require standard regulatory reporting
from locals.
Oil market participants and energy market participants
10.16
These are specialist firms that are only allowed to conduct designated
investment business aligned to oil or energy market activities.
10.17
Again, we intend to continue the regime currently in force in respect of these
firms. We do not intend to impose formal reporting requirements on oil
market participants, where these fall outside the scope of MiFID, as they only
114
Annex 5 of CP06/9
86 CP06/11: Integrated regulatory Reporting (May 2006)
have to fulfil Principle 4 (adequate resources). We will continue the ‘minded
to’ waiver in respect of energy market participants, where these fall outside
the scope of MiFID. Those with this waiver will only have to report an EBR
type calculation. The full proposed reporting for non-BIPRU investment
firms will apply, as appropriate, to energy market participants operating
without the waiver (and to whom MiFID does not apply).
Q37: Do you agree that our approach towards commodities
firms, locals, oil market participants and energy market
participants is appropriate? If no, please explain.
New regulated activity: establishing, operating or winding up a
personal pension scheme
10.18
We discussed the introduction of the new regulated activity in CP06/5 The
regulation of personal pension schemes including SIPPs (April 2006). Chapter 9
of CP06/5 discussed the application of regulatory reporting for this new activity.
10.19
Where firms are already authorised by the FSA, they will be required to vary
their permissions to include this activity where they undertake the relevant
business (‘existing firms’). Firms who undertake this business but are not
authorised by us will have to become authorised when the activity is formally
included in our regime through the Regulated Activity Order in April 2007
(the new operators of personal pension schemes or OPPS).
10.20
In terms of reporting, an existing firm will be required to supply the relevant
data items according to the activities it undertakes. An existing investment firm
that becomes a BIPRU investment firm will have to send in the relevant
financial data items as discussed in previous chapters of this CP. An existing
investment firm which does not become a BIPRU investment firm will have to
supply the relevant data items during 2007 (its historic reporting) and then the
new data items from the date they come into force (expected 1 February 2008).
10.21
In CP06/5, we discussed the position of new OPPS. These firms will not be
subject to either the CRD or recast Article 67(3) MiFID. We do not consider it
appropriate for these firms to provide the old style investment management
reports (in SUP 16 Annex 5R) from April 2007 to the date the new data
requirements considered in the following sections come into force (expected 1
February 2008). It does not seem proportionate to require firms to build systems
and controls to supply us with information for a period of at most 10 months,
and then expect them to change those systems and controls to supply a different
set of data items. We do, however, reserve the right to ask for management
information from these firms in the intervening period. Transitional
arrangements will be written into the Handbook text to accommodate this,
please see the Appendix: Annex A Part 4.
Financial Services Authority 87
10.22
The new OPPS will however have to comply with any other reporting
requirements that apply to them such as complaint reporting, Product Sales
Data etc. It remains the responsibility of each firm to familiarise itself with its
obligations in our Handbook, as indicated in Chapter 9 of CP06/5.
Q38: Do you think our treatment of OPPS reporting
requirements is reasonable and proportionate?
Recognised Bodies
10.23
UK Recognised Investment Exchanges and UK Recognised Clearing Houses
(which are collectively known as ‘UK Recognised Bodies’) (RB’s) are exempted
from the need to be authorised by section 285 of FSMA but are recognised by
the FSA. We currently recognise nine RBs. RBs are subject to the Recognition
Requirement Regulations which are encapsulated within the Recognised
Investment Exchanges and UK Recognised Clearing Houses Sourcebook.
10.24
The range and scale of the activities undertaken by the RBs differ greatly and
consequently the periodic data we require is less standardised. Similarly,
aggregation of data across all RBs for analysis as a class in many cases is also
less meaningful. The small number of entities and the close and continuous
relationship maintained allow for data to be extracted and analysed on an
efficient basis.
10.25
Consequently at this time, we believe the proportionate approach would be to
maintain the existing reporting lines for RBs and we propose that the current
approach of individual manual reporting by RBs to us should not be changed.
Q39: Do you agree with our approach to recognised
bodies?
Multilateral Trading Facilities
10.26
Operating a multilateral trading facility is included in the list of investment
services and activities under MiFID. Firms operating a multilateral trading
facility will be subject to the CRD from 1 November 2007 unless they are
carrying on other activities already subject to the CRD as of 1 January 2007.
UCITS management companies
10.27
115
Previously in this CP, we note that we expect UCITS115 investment firms to
be regarded as a limited licence BIPRU investment firm. UCITS investment
firms (UCITS management companies that are authorised to perform one or
more of the additional MiFID scope services of portfolio management,
investment advice and safeguarding and administration) will therefore be
subject to the re-cast CAD in parallel with the capital requirements in the
Undertakings for the Collective Investment of Transferable Securities
88 CP06/11: Integrated regulatory Reporting (May 2006)
UCITS Directive. As such these firms will be required to submit the standard
financial regulatory reporting for a BIPRU investment firm, as indicated in
table 2 in Annex 7.
10.28
116
UCITS management companies who do not carry out any of the additional
services listed above, are UCITS firms who will fall outside the remit of the
recast CAD and will be subject to the new UPRU116 as from 1 January 2007.
As such the reporting requirements for UCITS firms will be as outlined in
Annex 8, table 3.
The Prudential Sourcebook for UCITS Firms (UPRU), which we are consulting on in the Strengthening Capital
Standards – Restructuring the Handbook CP issued in May 2006
Financial Services Authority 89
11
11.1
Changes to existing
reporting and new data
items
This chapter looks at:
•
the financial data items developed for the non-BIPRU investment firms
and the non-financial data items for all firms undertaking investment
activities (excluding retail investment activities);
•
the frequency of submission of data items;
•
the routine use of auditors’ reports;
•
data required for calculation of fees and levies;
•
other data required from operators of personal pension schemes; and
•
amendment to Product Sales Data (PSD).
Data items developed
11.2
As noted in Chapter 10, we have developed financial data items for nonBIPRU investment firms and non-financial data items that will apply equally
to firms undertaking investment business, whether subject to the CRD or not.
11.3
When we refer to financial data items, we specifically refer to the Balance Sheet,
Income Statement and Capital Adequacy data items. The other data items
discussed, including volumes and types of business, are termed non-financial.
11.4
Table 1.1 shows a representation of the implementation timetable for all firms
affected by this CP, in terms of financial reporting and non-financial reporting.
Financial data items
11.5
One of the aims of IRR is to remove the historic differences that exist in
reporting owing to the variety of regimes and formats applied by our
predecessor bodies. Our first step was to reconcile the disparities between the
financial reporting that existed for firms that carry out the activities listed in
90 CP06/11: Integrated regulatory Reporting (May 2006)
Table 11.1, namely from the Investment Management Regulatory Organisation
(IMRO) and Securities and Futures Authority (SFA) reporting forms.
11.6
This has led to an amalgamated Balance Sheet and Income Statement.
However, the Capital Adequacy data items have not changed and have been
replicated into the IRR format. This is because the underlying prudential
requirements for the non-BIPRU investment firms are remaining the same
except for firms subject to Article 67(3) MiFID. At this time, there is no
change to the structure of the prudential chapters applicable to these firms,
or the tests that will be applied to them. It would not be appropriate to
create a consolidated Capital Adequacy data item at this time. However, this
may change going forward.
11.7
There is a decrease in the financial reporting for securities and futures firms’,
to correct what we think was over reporting in the old SFA return which
brings it in line with the former IMRO return.
11.8
To present amalgamated versions of the Balance Sheet and Income Statement,
we felt it appropriate to add in increased levels of granularity on the former
IMRO return. This granularity is largely in line with the former SFA return.
11.9
In paragraph 11.6 we noted that we would not be creating an amalgamated
version of the Capital Adequacy data item as the underlying prudential rules
were not changing. As Article 67(3) introduces a new prudential regime, we
have developed new Capital Adequacy data items for these provisions. The
proposed data items for these prudential requirements will appear in draft in
this CP, with full consultation in the July 2006 MiFID CP when we consult
on the proposed prudential rules.
11.10
The new prudential requirements in Article 67(3) MiFID are proposed to be
implemented on 1 November 2007. This means that the prudential reporting
requirements are also tied into the MiFID timetable. For those firms subject
to Article 67(3) MiFID, the financial reporting will be in effect from 1
November 2007, with final rules made in time for the transposition date for
MiFID of 31 January 2007. This will mean nine months notice instead of
twelve in respect of the new Balance Sheet, Income Statement and Capital
Adequacy data items.
Q40: Do you think that our approach to the reporting for
the non-BIPRU investment firms carrying on
investment activities (excluding retail investment
activities) is sensible? Do you think the data items
(full copies to be found in the draft Handbook Text)
are reasonable and proportionate?
Financial Services Authority 91
Non-financial data items
11.11
These data items are applicable to firms who carry out investment activities
(excluding retail investment activities), whether subject to the CRD or not.
11.12
We do not think there will be an excessive burden to the new data items
proposed below. The main content of each of the data items is noted below,
and the uses of each are highlighted in Annex 9, and the copies of each are
found in Annex A Part 7 of the Appendix:
•
Volumes and type of business (FSA038): this data item contains
information relating to value of funds under management, and sources of
clients.
•
Client Money and Client Assets (FSA039): this data item contains
information regarding the holding of client money / assets, number of
breaches in the period, amount of unreconciled items and value of
assets held.
•
CFTC (FSA040): the Commodity Futures Trading Commission (CFTC)
Part 30 report is currently included within the monthly report submitted
by securities and futures firms, but will be lost when they stop reporting
on the existing forms. We are therefore introducing this replacement data
item. This data is required only from firms who have been granted CFTC
part 30 relief and who operate a bond arrangement to cover forward
profits on the LME. The FSA undertakes to monitor compliance with
these arrangements in order to facilitate the granting of such relief.
•
Asset Managers that use Hedge Fund Techniques (FSA041): this data item
contains questions designed to identify managers that use hedge fund
techniques and to provide further details on the auditor, prime broker,
custodian and third party administrator.
•
UCITS (FSA042): this data item contains information regarding the
operation of UCITS schemes by a firm and the use of derivatives within
that scheme.
•
Threshold Conditions (FSA043): this data item contains information
relating to the adequacy of the firm’s resources, and the firm’s controllers
and close links, which is a questionnaire styled data item.
•
Data required for calculation of fees and levies (FSA044): this information
provides the data required for the calculation of fees and levies in respect
of firms undertaking the activities noted above for the FSA, Financial
Ombudsman Service (FOS) and the Financial Services Compensation
Scheme (FSCS) (for further details on this data item please see below).
Please note, the proposed data item is a new format – the information
92 CP06/11: Integrated regulatory Reporting (May 2006)
required has been subject to consultation and agreement with the industry.
We are not consulting on the contents of this data item.
Q41: Are the non-financial data items (except the contents
of FSA044) reasonable? Do you have any comments on
the non-financial data items? If so, please comment
on each data item individually.
Q42: In reference to the UCITS data item (FSA042), we
would like to be able to assess the significance of the
size of any derivatives’ positions within the UCITS
operated by the manager. Although VAR (Value at
Risk) may seem like a solution its method of
calculation is variable and it would therefore be
difficult to make comparisons across funds uniformly.
We would be grateful for the views of respondents on
the issue of capturing the exposure of UCITS to
derivatives risk.
Frequency and submission times for each data item
11.13
Each data item has its own reporting frequency and submission time, aligned
to each firm’s accounting reference date.
11.14
We consider the reporting frequencies and content of the data items are
suitable for smaller firms. We have therefore assumed that they can also be
absorbed by larger firms, and where necessary be supplemented through the
standard supervisory relationship with us.
11.15
However, we note in Chapter 12 that we are reviewing all the data items in
terms of consistency of approach. We may be inclined to operate a distinction
in the frequencies with which the data items need to be submitted to us,
either on the basis of a suitable size threshold (for instance with the RMAR
scope firms with an annual turnover of over £5 million must supply the
financial data items quarterly rather than six monthly), or on the basis of
holding client money.
11.16
If a suitable differential is identified we may decrease financial reporting to
six monthly, for smaller firms or those who do not hold client money.
11.17
Table 11.1 also indicates the necessity for annual audited Balance Sheet,
Income Statement and Capital Adequacy data items and annual
reconciliation. This will not be applicable to BIPRU firms. Firms subject to
Article 67(3) MiFID will not be required to submit the annual audited data
items or annual reconciliation. Non-BIPRU and non-MiFID investment firms
will be required to submit these. This will be subject to a review as described
in Chapter 12. We have also extended to investment management firms the
Financial Services Authority 93
requirement to provide an annual reconciliation of the annual audited
financial statements to the quarterly data items for balance sheet, P&L and
capital submitted at the firm’s accounting reference date.
11.18
We have set the reporting frequencies and submission deadlines (shown in
Table 11.1) according to the purpose of each data item and the risks they will
help address in light of the our objectives and risk-based approach:
Table 11.1: Frequency and submission times
Data item
Frequency
Submission time
Annual reconciliation
Annual (with no set
format)
Annual (with no set
format)
80 business days
Quarterly
Annually (audited)
20 business days
80 business days
FSA030: Income Statement Quarterly
Annually (audited)
20 business days
80 business days
FSA031 – FSA 037: Capital Quarterly
Adequacy
Annually (audited)
20 business days
80 business days
FSA038: Volumes and Types 6 monthly
of Business
30 business days
FSA039: Client Money and
Client Assets
6 monthly
30 business days
FSA040: CFTC
Quarterly
15 business days
FSA041: Asset Managers
that use Hedge Fund
Techniques Report
Annually
30 business days
FSA042: UCITS
Quarterly
20 business days
FSA043: Threshold
Conditions
6 monthly
30 business days
FSA044: Data required for
calculation of fees and
levies
Annually
30 business days
Auditor’s reports (SUP
3.9R)
FSA029: Balance Sheet
80 business days
Q43: Do you think the reporting frequencies and deadlines
are reasonable and proportionate?
94 CP06/11: Integrated regulatory Reporting (May 2006)
Auditors’ reports
11.19
This section refers to the report required from the auditors of certain
investment firms on the firm’s financial statements and regulatory reporting
in the format in SUP 3.9.5 R as a means of obtaining information about the
firm’s financial position, and the quality of its regulatory reporting. This
proposal does not refer to any requirement on a firm for an audit to be
carried out under a UK statutory or EU Directive provision. For instance,
Article 67(3) MiFID firms will be required to be subject to an audit as the
CAD requires audited reserves for the own funds requirement to be
calculated.
11.20
We propose to continue the requirement for the routine submission of
auditor’s reports for firms whose prudential rules have not changed due to
the CRD or MiFID. We elaborate on this in Chapter 12.
11.21
The requirements in SUP 3.10 relating to the audit of client money will not
be affected.
Data required for calculation of fees and levies (FSA045)
11.22
Fee tariff data is supplied to us by authorised firms. We use the data to calculate
firms’ annual regulatory fees and levies for the FSA, Financial Ombudsman
Service (FOS) and the Financial Services Compensation Scheme (FSCS).
11.23
Currently, only firms required to submit the RMAR117 and/or MLAR118
provide fee tariff data online for the activities covered by these returns119; all
other firms supply this data in fee tariff returns that we send to them to
complete. When the data items considered in this CP are live, we will receive
the fee tariff data for all investment firms electronically via the IRR system.
11.24
The structure of the data item reflects our existing fee-block and tariff base
structure set out in the Fees Manual (FEES). Firms should already be familiar
with the fee-block concept, as they complete their paper fee tariff returns on
this basis, and are charged regulatory fees in the fee-block(s) they belong to.
We propose to keep the format of the fees section consistent with the current
returns, so firms can easily identify the tariff data fields they need to complete.
11.25
The fees section will need to be completed annually, irrespective of the
reporting frequency of the non-fees sections. As well as completing the
relevant fields in numbers, we propose that firms will also need to confirm
the amounts in words. This is consistent with the format of the fee tariff
117
Retail Mediation Activities Return
118
Mortgage Lending & Administration Return
119
The RMAR and MLAR cover the activities captured by the following FSA fee-blocks (and corresponding FSCS
contribution groups and FOS industry blocks): A.2 (mortgage lenders and administrators); A.12/A.13 (advisory
arrangers, dealers or brokers – holding/not holding or controlling client money or assets, or both); A.18 (mortgage
lenders, advisers and arrangers) and A.19 (general insurance mediation).
Financial Services Authority 95
returns we send out to firms and helps firms ensure the data item is
completed accurately, so reducing the number of fee invoicing errors.
11.26
Firms who have valid exemptions from the FOS and/or the FSCS will not be
required to report any relevant levy data for the relevant organisation on the
IRR data item.
11.27
The format of the fees section is arranged by fee-blocks for FSA fees,
contribution groups for FSCS levies and industry blocks for FOS levies. Feeblocks are designed to group together fee payers conducting similar regulated
activities; contribution groups and industry blocks generally mirror the FSA
fee-blocks. For example, firms carrying on investment management activity
would usually be allocated to fee-block A.7, FSCS contribution group A.7
and FOS industry group I005.
11.28
When completing the fees section, firms will need to complete the relevant
fields depending on the fee-block(s) they fall into. Details of the fee-blocks,
contribution groups, industry blocks and their corresponding fee tariff bases
(data required) are in FEES Chapters 4 (FSA), 5 (FOS) and 6 (FSCS).
11.29
However, the ongoing FSCS funding review120 may lead to changes in the
existing FSCS contribution groups. If so, it is likely that we will be required
to collect different sets of data for the FSCS levy. This may also lead to
changes in the FSA fee-blocks and FOS industry blocks, which we would
consult on. Similarly, the FOS review being carried out may also impact on
the FOS fee-blocks and levies. If and when these change, we would also
consult on updating the fees data items within IRR.
Q44: Do you have any comments on the proposed format of
the fees and levies data item (FSA044)?
Other data requirements from operators of personal pension
schemes
11.30
The proposed reporting in this CP covers the new activity of establishing,
operating or winding up a personal pension scheme. In CP06/5 we discuss the
supervisory tools available in the ongoing supervision of firms new to regulation
by virtue of this new activity – one of which includes regular reporting.
11.31
Such firms will be subject to the non-BIPRU and non-MiFID related
financial data items and non-financial data items discussed in this
chapter, as would any other investment management firm subject to IPRU
(INV) Chapter 5.
120
Discussion Paper (DP06/1) on FSCS funding review is available on our website at:
http://www.fsa.gov.uk/pubs/discussion/dp06_01.pdf
96 CP06/11: Integrated regulatory Reporting (May 2006)
11.32
They will also be required to submit the complaints return required under the
Dispute Resolution: a Complaints Sourcebook. We are not proposing any
amendment to this data item at this time.
11.33
Additionally, we are proposing that these firms submit PSD, to be amended
as detailed below.
Amendment to Product Sales Data
11.34
Under rules in SUP 16.11 product providers are required to report Product
Sales Data (PSD) for sales of regulated mortgage contracts, investment
products and some pure protection products. Providers are required to report
sales made by their direct sales forces and by intermediary firms. PSD must be
submitted within 20 working days of the end of each calendar quarter.
11.35
PSD is used by the FSA as a supervisory tool to monitor firms’ adherence to
rule requirements and to enable us to identify trends in individual firms and
the market as a whole.
11.36
We propose to add self invested personal pensions (SIPP) to the retail
investments product list. The data we propose to collect on sales of SIPPs
reflects the mandatory data and optional items currently collected via PSD
(see SUP 16.11), in the Appendix: Annex A Part 4.
11.37
We have previously made a commitment not to make any changes to the PSD
before Oct 2007 (ie two years after implementation of PSD). We therefore
propose to include sales of SIPPs in the PSD returns from October 2007. The
first PSD return to include this information would be due at the end of
January 2008, for the calendar quarter of 1 October 2007 to 31 December
2007. We will not require firms already reporting sales of other retail
investment products in PSD to report sales of SIPPs until October 2007.
Q45: Do you think the proposed amendment to the list of
products reported on PSD proportionate? Are the
planned implementation dates reasonable?
Financial Services Authority 97
Part III: general
Financial Services Authority 99
12
12.1
Auditors’ reports for
certain investment firms
and consistency review
We have mentioned in this CP (for instance in paragraphs 11.17 to 11.20)
that certain provisions and proposals are subject to further review. This
review will focus on:
•
the continued routine requirement for the auditor’s of certain investment
firms to submit a report (SUP 3.9 refers);
•
the annual audited reporting statement and annual reconciliation;
•
frequency of submission of data items; and
•
cross regulated activity data items for professional indemnity insurance
(PII), client money, threshold conditions and fees and levies information.
Auditors’ reports
12.2
This report refers to the requirement under SUP 3.9.4 that auditors of certain
investment firms submit a report regarding the firm’s annual financial
statements, annual reporting statement and the quality of its regulatory
reporting. Currently, these auditor’s reports are not required from banks or
building societies on a routine basis.
12.3
In our review of reporting requirements, we considered whether some of the
existing reporting requirements should continue in their existing format. In
many cases, the data is no longer required for our new risk-based approach.
In other cases, we address differences in the approach to supervision which
had been inherited by the FSA at the time it was formed. One example of the
latter is the use made of auditors to give us comfort that the firm is reporting
accurate data.
12.4
For those investment firms affected, the auditor’s report allows us to assess if
additional supervisory attention is required for a particular firm. On the
other hand, no such reports are required from banks or building societies.
Financial Services Authority 101
Nor did we extend the use of such reports to mortgage and general insurance
firms, where there is a far larger population of firms, when we started
regulating them. This approach was inconsistent at N2 and its temporary
nature is acknowledged in SUP 3.2.3G.
12.5
The application of CRD to both credit institutions and investment firms has
further highlighted this anomaly. We are therefore planning to undertake a
separate review of the routine submission of auditor's reports during 2007. We
do not wish to prejudge the outcome but in the interim do not think it
appropriate to put forward draft Handbook rules in this CP extending the
application of SUP 3.9 to BIPRU firms after 1 January 2007 until the review is
complete. Similarly, we will not amend SUP 3.9 to require auditor's reports
from firms that will be subject to Article 67(3) MiFID from 1 November 2007.
12.6
In the absence of a separate auditors report requirement under SUP 3.9, we
expect CRD and MiFID investment firms will take steps to ensure that they
have calculated their capital correctly (ensuring compliance with FSA
Principle 4) and to satisfy themselves that the data they submit to FSA in
their regulatory reports is true, fair and not misleading (SUP 15.6 and
Principle 11). One way firm's senior management can satisfy themselves that
this is being done correctly could be to obtain confirmation via the annual
Management Letter from the firm's external auditor.
12.7
BIPRU investment firms should also note that we will no longer require an
annual confirmation that the fixed overheads requirement has been correctly
calculated. However, we expect management to have calculated that in line
with GENPRU 2.1.42R and be ready to provide evidence of that if required,
in the same way as with any of the data reported.
12.8
We will retain the SUP 3.9 requirement for submitting auditors' reports for
all remaining investment firms. We are aware that this will mean a difference
in approach based on whether or not a firm comes witin the scope of CRD
or MiFID. Table 12.1 sets out the effect on types of investment firm of the
proposals above in respect of the submission of the auditor’s report.
12.9
This proposal does not refer to any requirement on a firm for an audit to
be carried out under a UK statutory or EU Directive provision. For
instance, Article 67(3) MiFID firms will be required to be subject to an
audit of their reserves as the CAD requires audited reserves for the own
funds requirement to be calculated. Nor does it impact on the SUP 3.10
Client Money audit requirement.
Q46: Do you agree with the approach to require an auditors
report from non-BIPRU and non-MiFID firms the
outcome of the review to be undertaken in 2007?
102 CP06/11: Integrated regulatory Reporting (May 2006)
Table 12.1: submission of auditor’s reports during 2007
Annual audited reporting statement and annual reconciliation
Existing firm
category (before 1
Jan 2007)
Directive status
Reporting basis (choice
during 2007 for the CRD
firms)
Auditor’s
report
(SUP 3.9)
Investment
management firm
BIPRU investment
firm (1 January
2007)
Existing reporting plus key
data item
No
New FSA data items
No
Article 67(3) MiFID New FSA data items
(1 November 2007)
No
Other
Existing reporting
requirements only
Yes
BIPRU investment
firm (1 January
2007)
Existing reporting plus key
data item
No
New FSA data items
No
Article 67(3) MiFID New FSA data items
(1 November 2007)
No
Other
Existing reporting
requirements only
Existing reporting plus key
data item
Yes
New FSA data items
No
Article 67(3) MiFID New FSA data items
(1 November 2007)
No
Other
Yes
Securities and
futures firm
Personal
investment firm
BIPRU investment
firm (1 January
2007)
Existing reporting
requirements only
No
12.10
The approaches taken with respect to annual audited reporting statements
and the annual reconciliation for BIPRU investment firms, Article 67(3)
MiFID firms and non-BIPRU/non-MIFID investment firms follow that we
are taking in respect of auditors reports.
12.11
As with auditors' reports, we will not be taking forward the requirement to
submit an annual reconciliation between figures reported at a firm’s ARD
and a firm’s audited annual reporting statement and annual accounts for
BIPRU investment firms and Article 67(3) MiFID firms pending the outcome
of the 2007 review.
Financial Services Authority 103
Q47: Do you agree with the approach to require an annual
financial data item and reconciliation from non-BIPRU
and non-MiFID firms, but not from BIPRU and MiFID
firms pending the review of the need for auditor’s
reports, audited reporting statements and annual
reconciliation?
Frequency of submission of data items
12.12
The frequency of reporting of individual financial data items varies according
to which regulated activity group (RAG) an investment firm’s activities fall,
and which Directive they are subject to. Table 12.2 indicates the main
differences that will appear in our draft rules.
Table 12.2: Financial data item frequency of reporting
Data item
Firm
Balance Sheet /
Income
Statement and
Capital
Adequacy
Directive
Threshold
Frequency
Investment
CRD
management
firm (IMF) /
Securities and
futures firm
(SFF) /
Personal
investment
firm (PIF)
BIPRU 730k
Monthly
BIPRU 125k
Quarterly
BIPRU 50k
Six monthly
IMF / SFF
Non-CRD
N/A
Quarterly
PIF
Non-CRD
Over £5million Quarterly
in annual
income
Over £5million Six monthly
in annual
income
12.13
We are undertaking an overall review of the thresholds we use to determine
the frequency of reporting, in order to ensure that they are appropriate and
risk-based. Where possible we want to be consistent in the approach we
take, although due to the nature of business undertaken by different firms,
and the risks they present, it is likely differences in thresholds and
frequency may remain.
104 CP06/11: Integrated regulatory Reporting (May 2006)
12.14
One possible outcome of this review is that we may, if appropriate, introduce
new thresholds for determining how often firms should submit data to the
FSA. For example, there may be a reduction in the frequency of financial
data item reporting from quarterly to six monthly for smaller non-CRD
investment firms with an income under a certain amount and/or those that
do not hold client money. We expect to confirm our approach to reporting
frequency in a Policy Statement to follow this CP.
Q48: Do you agree we should use thresholds to determine
the frequency of reporting?
Q49: What thresholds for which types of firms do you think
are most appropriate and why?
Cross regulated activity data items for professional
indemnity insurance (PII), client money, threshold
conditions and fees and levies information
12.15
In the development of the reporting requirements in this CP, as well as for the
RMAR and MLAR, we have noted there are certain data items that have
cross Regulated Activity Group (RAG) applicability.
12.16
Due to the phased approach we have taken to the review of reporting
requirements across sectors and activities, we have to date developed data
items which are specific to each RAG.
12.17
However, we will now begin to take these next steps to adopt consistent
formats and application. The first step in this approach will be seen with the
general applicability of the threshold condition questionnaire (FSA043) to all
activities. This will mean that credit institutions will be required to submit a
Threshold Conditions data item.
12.18
Ultimately, we will also move to a standard data item in respect of PII, client
money and fees and levies information. This would be similar in application
to the existing Complaints Return. Although the format of each data item
would change, we do not see this would require significant changes to the
data that a firm would already be required to submit on the basis of the
activities it undertakes. We also believe this reconciliation would make things
simpler for firms, and make us easier to do business with.
Financial Services Authority 105
13
Next steps
13.1
We will be continue to be active in the period between us issuing this CP and
providing feedback to the industry. We will continue to refine the data
elements in the light of any further information that comes to hand to ensure
they are fit for purpose.
13.2
We will continue to discuss with the industry and the trade associations to
understand any particular difficulties their members face in providing the
data. We also need to do further work to ensure we are setting any reporting
thresholds at an appropriate level and to make sure that we are correctly
targeting firms. For instance, we will proceed with further work on FSA041
to ensure we correctly identify those firms who use hedge fund techniques.
We would also hope that further discussions and testing during the
consultation period will allow us to develop the best possible guidance,
particularly for the new non-financial data items noted in Chapter 11.
13.3
We are also aware that our proposals will be affected by future consultation
papers before the text is finalised. One that we know will affect the draft text
is the paper on the future shape of the Handbook, where we will have to
change some of the references we give at present in the notes for completing
the data items. We will also need to take account of any changes in the detail
of the consultation on MiFID.
13.4
Likewise, there may be changes to the GENPRU and BIPRU text resulting
from CP06/3 Strengthening Capital Standards (February 2006). Much as we
hope the draft text is near final, there are likely to be some changes at the
last minute. Firms may therefore have to judge when is the best time to start
developing systems to meet these new reporting requirements, and that will
to some extent depend on when the firm will adopt the new approaches.
106
13.5
For building societies, we will also be working with the BoE and the
Building Societies Association to ease the transition to the BoE’s statistical
reporting forms.
13.6
Additionally, mirroring the external review implemented in respect of the
CRD related data items, we are considering undertaking an external review,
independent of the consultation process, on the non-CRD financial data
items and non-financial data items which will apply to any firm undertaking
investment activities (excluding retail investment activities).
13.7
The consultation and implementation timetable is noted in Table 1.1. This
table indicates that we aim to provide feedback to the industry in late
Autumn 2006 in respect of the CRD financial reporting. This is so the
Handbook rules can be made as soon as possible after GENPRU and BIPRU
are finalised, presently aimed for October 2006.
13.8
In respect of the financial data items for non-CRD firms and non-financial
information, we aim to provide feedback and final rules in line with the
MiFID consultation timetable. This would provide nine months notice for
financial data items related to the implementation of Article 67(3) MiFID (for
1 November 2007 implementation date), and we would provide 12 months
notice for the non-directive tied non-financial data items (so implementation
would be from February 2008).
Financial Services Authority 107
108 CP06/11: Integrated regulatory Reporting (May 2006)
Annex 1
Integrated Regulatory
Reporting – The overall
picture
1.1
This annex summarises;
•
what is Integrated Regulatory Reporting (IRR);
•
IRR policy developed to date; and
•
implementation.
What is IRR?
1.2
Improving our business capability and effectiveness is a principal FSA strategic
aim, and covers: devising policies which are risk-based and proportionate;
using resources efficiently; and making us an easier organisation to do
business with. IRR is one of the ways we will meet that strategic aim.
1.3
IRR was originally described in CP198 Regulatory reporting – a new
integrated approach121 (September 2003) and in PS04/8 Feedback on CP198
and made text (March 2004). IRR has been developed to meet the
commitment we made in the 2003/04 Plan & Budget to review the type and
quality of regular standardised information we need from firms to be an
effective risk based regulator and to harmonise the multiplicity of
inconsistent reporting formats inherited from pre-N2122 regulators.
1.4
Since 2003 we have reviewed the reporting requirements for all regulated
activities. In doing so we have developed policy for ensuring that reporting is
structured in a way that makes it as effective a supervisory tool as possible.
This policy is summarised under the ‘IRR Policy developed to date’ section
below. In addition to the regulated activities covered by this CP we developed
the reporting requirements for mortgage and general insurance business
which was first regulated by us in October 2004 and January 2005
121
CP198 included feedback on Discussion Paper 12 The new regulatory reporting environment published in May
2002, which informed our thinking on integrated reporting and the design of future reporting systems.
122
1 December 2001, when the FSA was given its statutory powers
Annex 1
1
respectively. At the same time we revised the reporting for financial advisers
and complaints reporting for all firms with eligible complainants. We have
also revised the published annual financial return for insurers and certain
friendly societies. Details of these reviews are given under the
‘Implementation’ below.
1.5
In determining our reporting requirements we have followed our own
Principles of Good Data and Good Data Collection which we have
previously made public in DP05/1123 and which we reproduce at the end of
this Annex. These challenge us to ensure we are clear why we need to collect
each data item, and how we will use it. The use of data is classified under
three general headings:
•
Compliance – data used for monitoring compliance with specified FSA
rules;
•
Risk – data used to monitor, manage and mitigate risk; and
•
Market – data used for sector and theme analysis.
1.6
The revised information will enable us to use regulatory reporting more
effectively as one of the supervisory tools for monitoring and mitigating risks
relative to the mix of regulated business a firm undertakes. This is essential
to our risk-based approach to regulation. In Chapter 2 paragraphs 2.4 to 2.8
we discuss further how we use regulatory reporting as a supervisory tool and
how it fits within ARROW124 which guides the way in which we risk assess
and supervise firms, and target thematic work relating to consumers, sectors
or multiple firms. We also believe that the revised information will better
enable firms to use the information we require for regulatory purposes for
their own internal monitoring purposes as well. Finally, we have used this
staged review of regulatory reporting to identify redundant data which we
will no longer collect.
1.7
During this time we have also been phasing in mandatory electronic
reporting (MER) for firms, as and when particular reporting requirements are
reviewed for different sectors. MER was consulted on in CP198. We will
introduce appropriate rules as the revised reporting requirements are rolled
out (only credit unions are exempt from MER). We believe that investing in
technology to collect data from firms and analyse it brings benefits for both
parties: it can be more efficient for firms, and enables us to use the data more
effectively in monitoring firms’ business. Full details of our plans for applying
MER and the electronic submission methods that will be available is
contained in Annex 2 – Electronic submission methods.
123
DP05/1 Integrated Regulatory Reporting (IRR) for: Deposit takers, principal position takers and other investment
firms subject to the Capital Requirements Directive published in February 2005.
124
Advanced Risk Responsive Operating frameWork: the FSA’s risk assessment model
2
Annex 1
IRR policy developed to date
1.8
The key elements of current IRR policy are:
•
Activity-based reporting – Under activity-based reporting, firms carrying
on similar activities will submit similar information. The actual data
requirement will depend on the risk arising from an activity and its impact
on our statutory objectives;
•
Using reporting to monitor a wider range of risks – We have developed
reporting as a supervisory tool for monitoring and mitigating risks to our
objectives arising from the way firms conduct their business as well as
those arising from our prudential requirements, where historically it has
been used almost exclusively;
•
IRR Profile – this is information about a firm that affects its reporting
requirements e.g. its regulated activities, legal status and whether it is
subject to one or more EU Directives. The individual firm’s IRR Profile
will be used to tailor its reports;
•
De-duplication – firms carrying on multiple activities will only make one
submission of a common data set, the specific content of which will be
determined by the activity that poses the greatest risk to our objectives;
•
Common and specialist data sets – our data requirements are split
between common data sets (e.g. core financial statements) and specialist
data sets (e.g. activity or sector specific data);
•
Alignment to firms’ accounting reference date – all reporting will be
aligned to a firm’s accounting reference date;
•
Reporting frequencies and submission deadlines – these will be linked to
the relative significance and time sensitivity of the data;
•
Management Information (MI) – while there is sometimes a need to
collect and use MI, depending on the complexity of the firm and the
nature of the risk-based supervisory relationship with the firm, this will
normally supplement rather than replace standardised reports;
•
Derived Data – for derived data, such as key financial ratios, we will
continue to ask firms for the input data;
•
Publishing aggregate data – in the long term, we aim to give firms
electronic access to more information to enable them to benchmark
themselves against their peer group; and
•
Mandatory Electronic Reporting (MER) – MER will apply to all firms
other than credit unions. A MER rule will be attached to the revised
reporting requirements as they are rolled out or later if appropriate.
Annex 1
3
Implementation of IRR and what next
Phase 1
1.9
The first phase in IRR implementation (IRR Phase 1) saw the Retail
Mediation Activities Return (RMAR), Mortgage Lending and Administration
Return (MLAR) and revised Complaints Return successfully go live on 1 July
2005, when firms began to submit these returns electronically via the FSA’s
Firms Online system. This followed a full review of and consultation on the
reporting requirements in these mainly new returns during 2003/04125. Firms
in general are becoming more familiar with reporting electronically and to
date we have received over 25,000 regulatory returns.
1.10
IRR Phase 1 applied the RMAR and MLAR and electronic reporting of this
data to certain mortgage lenders and administrators and mortgage and
general insurance brokers and personal investment firms (PIFs). In November
2005126 we announced the next set of firms – mainly banks, building
societies, insurers and investments firms (other than PIFs) – that will need to
submit the relevant sections of the MLAR and RMAR returns. The relevant
sections are primarily the ‘non-financial’ reporting not covered by the
financial returns they currently submit and will continue to submit until they
are replaced. These firms will be required to submit this data under MER
from 1 April 2007 using the web-based Firms Online system. Firms will need
to start collecting the data from 1 January 2007.
Insurers: Revised Annual Published Return
1.11
During the first quarter of 2006, insurance companies and certain friendly
societies began submitting a revised publicly available annual financial
return. Consultation was carried out in two stages during 2003/2004 and a
policy statement issued in February 2005127. The changes were designed to
make the FSA easier to do business with, and to help users of the returns, as
well as the FSA itself, gain a quick and clear understanding of the financial
position and risk exposure of insurance firms and the insurance sector. The
main changes:
•
simplified the long-term business annual return forms to make the annual
return easier to compile and understand;
•
turned the Valuation Report into a mainly narrative document with a
clear structure;
125
PS04/09 Reporting Requirements for mortgage, insurance and investment firms, and audit requirements for
insurance intermediaries. Feedback on CP197 and made text, published March 2004.
126
FSA 2005/63 Integrated Regulatory Reporting (Amendment) Instrument 2005
127
PS05/2 Insurance regulatory reporting: changes to the publicly available annual return for insurers – Feedback on
CP202 and CP04/1 [Chapter 2] and made text.
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Annex 1
•
amended materiality criteria for reporting business to reduce the burden,
in particular for smaller firms; and
•
introduced standard classification of product categories to improve sector
analysis for long-term insurers.
1.12
We did not propose more far-reaching changes at that time because of
possible changes to International Financial Reporting Standards (IFRS),
which may well affect the balance sheet information to be reported on the
annual return. The full impact and implementation date of Solvency 2 were
also unknown at that stage and have yet to be finalised. We are keeping
under review the information which we collect using these returns to ensure
it remains appropriate and proportionate in supporting our risk-based
approach to regulation.
1.13
Firms reporting the revised return are using using existing submission
methods. In November 2005 we announced that MER will not be applied to
these firms before 1 July 2008 at the earliest. Discussions with the industry
continue and we will confirm this date no later than July 2007, giving firms
no less than 12 months’ notice of a fixed start date.
Credit Institutions and certain investment firms
1.14
This consultation will conclude the commitment we made in the 2003/04
Plan & Budget referred to in paragraph 1.3 above. However, we will
continue to assess changes in the regulatory environment and our operating
framework to ensure that the regulatory data we collect from firms is the
right information, that we use it effectively and it is not too onerous for firms
to collate. Where gaps in our data needs emerge, we will seek to fill them and
where data is no longer needed, we will stop collecting. In doing so we will
take account of our Principles of Good Data and Good Data Collection
which are set out below.
Principles of Good Data and Good Data Collection
1.15
The following principles seek to answer the question ‘What are good data?’
They are data:
•
For which the source (e.g. firm or non-firm) and form of the data have
been identified as the most cost efficient. Where firms are the most cost
efficient source then the need to report to us, rather than simply maintain
the information at the firm, the frequency and the form (e.g. standardised
or not) of the reporting must also be justified.
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5
•
That may be cost justified by reference to the FSA’s statutory objectives
and are consistent with our risk-based approach to regulation and the
principles of good regulation.
•
For which we have a clear answer to the questions of why do we need
them, who will make use of them and how?
•
Which have been tailored, where appropriate, to allow us to adequately
assess and monitor the risk posed by the regulated entity (including
sectors/markets) at minimum cost to both the entity and the FSA.
•
That have been, as far as possible, selected from the data that the
regulated entity produces for its own purposes.
•
Which are made available to those that need them, when they need them.
•
That are accurate, focused, sufficiently detailed and adequately validated.
•
For which the total cost of production by the source, transmission to,
storage and manipulation by, the FSA, has been minimised.
•
Which have been carefully specified to provide the answers to smart
questions i.e. to convey the maximum amount of information from the
smallest number of items.
•
That will allow us to pro-actively interpret, analyse (and publish
aggregated information on) market and industry wide trends.
•
That will allow us to meet our obligations to third parties e.g. to the Bank
of England, the International Monetary Fund, the Financial Ombudsman
Service and the Financial Services Compensation Scheme.
•
That will enable us to meet our non-FSMA requirements e.g. those under
applicable European Directives, and other UK legislation e.g. the Building
Societies Act 1986.
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Annex 1
Annex 2
Electronic submission
methods
Our proposed approach to future development of the
technology
2.1
This Annex explains our proposed approach, both during 2007 to deliver the
transitional arrangements described in Chapter 8, as well as the full Mandatory
Electronic Reporting (MER) platform to be implemented during 2008.
2.2
This follows Phase 1 of IRR MER implementation, which saw the mandatory
submission of the RMAR, MLAR and Complaints return via the FSA Firms
Online system from 1 July 2005.
Early Reporting System – January 2007
2.3
We have discussed the transitional reporting arrangements for BIPRU firms
during 2007, and the implementation of new reporting for non-CRD firms
starting November 2007. We elaborate on the implications for submitting
data items from 1 January in Chapter 2 (see paras 2.14 to 2.21).
2.4
The sections below explain our vision for the full MER platform. However,
as explained this will not be available until mid 2008. We are therefore
planning an Early Reporting system to cater for the mandatory electronic
submission of any new data elements from 1 January 2007.
2.5
This mandatory electronic submission of data items, will apply to any new
data item in this CP referenced FSA*** (*** representing a three digit
number), with the exception of data items within the RMAR or MLAR as
they will still be submitted via Firms Online.
2.6
The Early Reporting System will be a simple to use, web-based submission
system. We want to keep this as simple as possible so it will be in place for 1
January 2007. If for any reason the system will not be available on that date,
we will implement alternative arrangements.
Annex 2
1
Mandatory Electronic Reporting platform – 2008
2.7
During 2008 we will be implementing Phase 2 of MER. This will include the
rollout of the new MER platform and associated submission methods.
2.8
We have involved the trade associations and firms in our discussions of the
options being considered, which are outlined below.
The following submission methods are being considered:
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Annex 2
Submission Method
Description
Online
The firm will log onto the our IRR website, enter the MER
System and manually key their regulatory data. They will also
be able to via their future reporting schedule.
Offline (FSA form)
The firm will access a desktop application or a ‘downloadable’
form from the MER System. They will be able to complete their
data offline for upload to the MER System at a later date.
Offline (Vendor package)
Similar to the above option, the firm will access a desktop
application or downloaded form provided by external
software providers.
Web upload
The firm will be able to produce an XML file compliant
with schema definitions published by us. A firm choosing
this solution will be able to set up routines and software
to automatically extract the necessary data from its
business and operational systems into an XML instance
document. This file will then be transferred to us using
an upload facility provided within MER System. They
would then submit their data in the same way as if they
had manually keyed it into the web forms.
Direct communication (Direct The firm will produce an XML file compliant with schema
to FSA)
definitions published by us. This file will be transferred
to us using a secure file transfer mechanism. A firm
choosing this solution will be able to set up routines and
software to automatically extract the necessary data from
its business and operational systems and schedule it to
be sent to us automatically, thus removing the need for
manual input of the data. Validation results will be made
available to the firm in the form of an XML instance
document.
This solution has previously been referred to as ‘system
to system’ or ‘B2B’
Direct communication (Vendor The firm will purchase a package to produce an XML file
package)
compliant with schema definitions published by us. This
file will be transferred to us using a secure file transfer
mechanism. Third party software providers may set up
routines and software to automatically extract the
necessary data from its business and operational systems
and schedule it to be sent it to us automatically, thus
removing the need for manual input of the data.
Validation results will be made available to the vendor
package in the form of an XML instance document.
2.9
2.10
Firms undertaking more than one regulated activity will be able to use
different submission methods for different activities, should they so choose.
We will assess whether all or some of these methods are suitable for a specific
regulated activity (e.g. Deposit Takers might be offered all submission
methods whereas investment firms might only be offered two options). Please
also note that the above is our strategic vision for MER. It is possible that
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3
not all submission methods may be available initially. But it is proposed that
the online submission method will definitely be provided.
2.11
Firms will also be able to view their own reporting requirements (schedule)
via our secure portal.
2.12
For the foreseeable future, firms subject to MER for submitting the MLAR,
RMAR and Complaints return under Phase 1 will continue to use the FSA
Firms Online web-based forms.
Submission Format
2.13
In March 2004 (PS04/8) we communicated that we planned to build a system
to enable firms to report electronically using eXtensible Business Reporting
Language (XBRL).
2.14
We reviewed this approach during 2005 and discussed it with a number of
firms. The review concluded that this was not the most cost effective route at
this time for either firms or us. So we will not at this stage develop a
reporting systems using XBRL.
2.15
Our approach will be to implement electronic submission using XML128. We
concluded that XML is currently the most suitable technology for our
business needs because:
2.16
•
XML is an established technology in the UK’s financial services industry
and therefore firms could use XML for other reporting requirements;
•
XML expertise is readily available; and
•
XML is currently being used in other FSA systems, maintaining
consistency with our desire to adopt a single reporting format.
The review team noted that XBRL activity is on the increase and it is possible
that it may become a major data exchange format in the future. While XML
will be used in the development of regulatory reporting for the time being,
we intend to develop our XML to incorporate elements of XBRL. This will
enable, if future demand dictates, a migration path to an XBRL compatible
submission method.
IRR Advisory Group
2.17
128
We have set up an Advisory Group to seek input from the industry on the
development of the MER system. The objectives of the group are set out below:
Standard XML, which stands for eXtensible Markup Language is an open standard format for describing and
encoding data. The format and structure of data can be defined in an XML schema and data expressed as an XML
document that can then be exchanged and understood by systems using the correspondence schema.
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Annex 2
2.18
•
to provide a communication forum to obtain feedback from Trade
Associations, Practitioner Panels and Regulated Firms on preferred system
functionality, development practices and levels of usability for the MER
system. This feedback will be reviewed and incorporated, where possible,
into the system design process to produce an electronic reporting system
that meets the needs of the FSA and regulated firms alike.
•
to provide a communication forum to obtain feedback from Trade
Associations, Practitioner Panels and Regulated Firms on preferred
services and processes associated with MER. This feedback will be
reviewed and incorporated, where possible, into the design processes to
provide a level of system support that meets the needs of FSA and
regulated firm users alike.
•
to improve Industry understanding of Integrated Regulatory Reporting
and MER through regular, interactive external communications and to
seek guidance from the Advisory Group on how best to achieve this.
We will publish minutes on our website after each IRR Advisory Group meeting.
Annex 2
5
Annex 3
Feedback statement on
DP05/1
3.1
We outline below our feedback on the responses received, the decisions we
have made, and references to our current proposals.
Summary of questions, consultation responses and our
comments
3.2
Q1: CEBS expects firms will have the detailed elements (ie the building
blocks for their solvency ratio) already available within their systems. If
correct, would this reduce in any way the lead-in time for the current
proposals if we had to expand the reporting requirements in the future to
collect additional information, rather than define it at the outset?
Consultation responses: Although firms felt they would generally have much of
the information available in their systems, they were concerned at the level of
detail being proposed by CEBS. While not being specific, it was clear that not all
data items would be easily available. However, some of the firms felt they could
only assess this once the detailed proposals were set out.
Our comments: Reassuringly, CEBS final proposals involve significantly less detail,
and we propose only to use in total less than 5% of the data items now defined
by CEBS. For this reason, we do not believe this will be a major issue for firms.
We are however aware that, for some firms operating highly integrated reporting
systems and having activities in other European countries, the level of detail we
want reported in the UK is less important as that detail will be required within
their systems in any event.
3.3
Q2: What level of detail would you prefer to provide us with on a regular
basis? There are two options – more granular detail than we currently
propose, with few ad hoc requests (even if the data provided goes beyond our
principles for good data collection). Or would you prefer a lighter level of
data with more ad hoc requests? Where do you think the balance lies?
Annex 3
1
Consultation responses: Respondents were equally split on this, but the general
feeling was that our data collection needed to be proportionate, and not lead to
too many ad hoc requests.
Our comments: That would certainly not be our intention. In our internal challenge
process, we have sought to ensure that we do not collect detail which we will not
need, so we have remained overall on the lighter side of data collection.
3.4
Q3: Would firms subject to the Draft Directive prefer a full three months’
consultation on the formal rules and guidance, even if that means a shorter
notice period from finalising the data elements to their introduction? Or
would you prefer reporting requirements to be finalised as soon as reasonably
possible, even if that means we have a shorter consultation period?
Consultation responses: The majority of firms responding would be happy with a
shorter consultation period and a longer period to implementation.
Our comments: Due to the delays in finalising the Directives and in presenting the
reporting requirements to firms, we have decided to take advantage of a shorter
consultation period, thereby aiming to give firms as much time as possible from
finalisation of the rules (expected in October 2006) and the main elements of new
reporting being introduced from 1 January 2008.
All firms will have less than 12 months notice of the reporting requirements of the
key data in FSA009. However, as there are a limited number of data items, we do
not believe this is unduly burdensome. Also, firms’ management will have to be
monitoring their capital resources and capital requirements using at least some of
these changes from 1 January 2007. Firms are reminded that, apart from those
firms which are adopting the advanced approaches to credit risk at 1 January
2008, all others have the freedom to switch to the new approaches at any date
between 1 January 2007 and 1 January 2008.
The one new reporting requirement that also has to come in from 1 January 2007
is for non-EEA sub-groups. This is set out in more detail in paragraphs 4.12 to
4.14 of this CP. But we have sought to keep the reporting requirement for that to
a minimum.
3.5
Q4: Does your firm envisage any difficulty in providing the large exposures
data on this revised basis? If so, please explain the nature of the problems?
Consultation responses: At the time of the Discussion Paper, it was not clear
what the full implications of the CRD would be on the large exposures policy, and
we had assumed there would be relatively little change. On that basis, firms
generally envisaged no problems with the proposals as presented.
Our comments: We now propose that large exposures reporting is standardised
across all firms, and have removed the need for a minimum number of exposures
which currently applies for UK banks. However, we now more accurately reflect
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Annex 3
current Directive requirements and this means that for some aspects of large
exposures reporting, the level of detail required from some firms may be greater
than at present.
3.6
Q5: Would banks prefer switching to new liquidity reporting at the same
time as the rest of your reporting requirements change (in other words, as
soon as possible)? Or would you prefer the liquidity changes to take place at
a later date during 2007?
3.7
Q6: Alternatively, would banks prefer to report on all the new data items to
the FSA but continue to report liquidity on the existing Form LR or Form
SLR1 to the BoE (ie the current frequency, level of detail, timetable and method
of submission) until the new liquidity proposals are agreed and implemented?
Consultation responses: The views on both these questions were mixed, with some
preferring no changes at all until the liquidity policy in general had been reviewed.
Our comments: Two factors led us to believe the change should be proposed early
in 2008. First, as explained in Chapter 7, paragraphs 7.4 and 7.5, a decision has
been taken that in future, the FSA will not use the BoE as its agent for data
collection. Moving the submission of these reports to the FSA will ultimately allow
us to offer firms a greater choice on the submission method than if we had
continued to use the BoE.
In proposing the change in reporting from 1 January 2008 however, we are also
reducing the quantity of data collected (for the majority of banks, which are
subject to the mismatch regime) and frequency (for those that are subject to the
stock regime).
The second reason is that there is no more certainty now when the current liquidity
regime review will be completed. Discussions are taking place within Europe, but we
do not have any indication of when new proposals will be forthcoming.
Taken together, these led us to conclude it was preferable to change the liquidity
reports at this time.
3.8
Q7: Of the two options discussed above (in paragraph 4.17 – whether reports
should be tailored for individual activities or ‘universal’), which would you
prefer? It would be helpful if you could give your reasons for your preference.
Consultation responses: There was a marginal preference from firms for returns
to be specifically tailored for the type of firm.
Our comments: However, from our point of view, and we believe that of firms, we
want to reduce the complexity and size of the Handbook. This would not be
achieved if there were several versions of very similar returns for different types
of firms, with their own definitions, validations, and technical specification to be
maintained. Where the differences are small, we feel that a single version of the
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3
form is preferable. Equally important in deciding that is the fact that the
difference between the types of firms filling in different returns is complex.
Instead, we will endeavour on the web based version (over time) to design the
interface in such a way to allow detail that is not required by a particular firm to be
suppressed. The guidance notes for the returns will however indicate those fields
which are not applicable to firms that meet specific criteria. Firms will also need to
ensure that the information held about them on the FSA’s systems is kept up to date.
3.9
Q8: Does converting your balances and reporting in sterling cause you any
particular difficulties? Is there any other way we can ease the requirement to
compare non-sterling data with sterling data?
Consultation responses: Although the firms that responded did not have any
objection these proposals, both PricewaterhouseCoopers and the British Bankers’
Association / London Investment Banking Association argued that this would be a
burden on those investment firms which currently report in the currency of their
audited annual report and accounts.
Our comments: We have therefore reconsidered this as a matter of general
reporting policy and have decided to allow firms to report in the currency of their
audited accounts, with the proviso that the range of currencies available on our
systems will initially be limited to the G10 currencies. Proposals are set out in
paragraph 2.27.
3.10
Q9: Would firms be able to provide data on derivatives on a quarterly basis?
If you feel that the cost of doing so would be too great, can you please
explain why?
Consultation responses: Firms generally did not foresee any difficulty in
providing this data, but noted that the Trading Book Review that was then under
way and the introduction of IFRS would, if anything, make this easier.
Our comments: The new data was designed to give us information on a type of
asset which is not easily identifiable on the face of a balance sheet, and where
the volumes traded can be significant, but the credit and market risk low. Our
latest proposals, while not materially different, have some extra information to
aid interpretation both on a firm-specific basis and across the industry (although
we recognise it cannot give us the whole picture of the market or identify all the
players in it).
3.11
Q10: Would CAD1 firms be able to provide the daily profit and loss data at
a reasonable cost? If not, please explain why this is not possible?
Consultation responses: While firms suggested they could provide the data, they
felt a better explanation was needed on its use and its usefulness.
Our comments: Some firms may have misunderstood, thinking that the data
would be provided to us on a daily basis, but that was not the intention. Our
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Annex 3
revised proposals on quarterly reporting of daily CAD figures is limited to CAD2
firms, and is set out in paragraphs 6.21 and 6.22.
3.12
Q11: Do you envisage any difficulties in identifying the arrears elements in
your loan books on this basis?
Consultation responses: In general, firms were content with this proposal,
although some felt that there was a danger of us defining yet another way of
assessing arrears, and it was suggested that we use the Pillar 3 data.
Our comments: We realise that the data as presented would be difficult for firms on
the advanced approaches to provide. Our current proposals are somewhat different.
They are set out in paragraphs 6.7 to 6.15 and still aim to get a view on emerging
loan defaults for the wider macro-economic analysis as well as helping to identify
potential difficulties facing firms. Our latest proposal link that information with a
sectoral analysis for a more granular feel.
3.13
Q12: Assuming we collect information (on interest rate gap) on the basis set
out, would you be able to provide the data for the time bands proposed? If
you would face particular problems in providing this information, please let
us have details, and any suggestions on how they might be resolved.
Consultation responses: Once again, there were mixed comments, but it was
generally felt that monthly time buckets was overly complex.
Our comments: Our latest proposals that are set out in paragraphs 6.3 to 6.6,
and only apply to UK banks and building societies, address some of these
concerns. In addition, for those firms that do have monitoring in place that is
suitable, we will consider a waiver from these requirements.
3.14
Q13: Do you feel that your firm can provide the forecast data requested, to the
frequency requested ie two six-monthly rolling forecasts, half-yearly? Do you
feel there are any particular sensitivity issues about providing this limited data?
Consultation responses: Although the majority of respondents were content with
these proposals, there were two main concerns. First that the information was not
a Directive requirement – that is true, but not all the data which a regulator
needs to regulate a firm arises from a Directive requirement. Indeed, because it is
not, we have much greater control over the quantity and relevance of the data we
intend to collect.
The second concern was around the confidentiality of the data for the current
financial year. As we said in DP05/1, we do not accept that argument as all staff
in the FSA, whether dealing with Stock Exchange data or regulatory data, are
subject to the same confidentiality rules as part of their Contracts of Employment.
Our comments: Our latest proposals are set out in paragraphs 6.16 to 6.18 to
5.xx. We will consult further with trade bodies during the consultation period to
ensure that the data can indeed be provided by firms.
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5
3.15
Q14: Would building societies prefer to switch reporting certain statistical
data to the Bank of England at the end of December 2006 as currently
proposed, or would they prefer to switch at a later date? If the latter, do
firms have any specific preference for a calendar quarter date during 2007
(liquidity reporting would have to change at that time too as existing data on
Form MFS1 Table E would otherwise be lost)?
Consultation responses: There was a general preference for implementation at a
single date of 31 December 2006.
Our comments: External factors have forced us to revise these proposals, as we set
out in paragraphs 7.10 to 7.15. We have now decided that the change to reporting
will be made at end December 2007 at the same time as the other reporting
changes arising as a result of CRD and our review of reporting requirements.
3.16
Q15: Are you happy for the new data items to be introduced for the nonEEA banks in the third quarter of 2007? Do you envisage any particular
difficulties in this proposal?
Consultation responses: No firm objected to the proposals in principle although
there was a suggestion that the implementation date should be after the
Directive changes.
Our comments: That is effectively what is now proposed, although of course
the firms affected will not actually be subject to any CRD reporting requirements
in the UK. Implementation is now proposed from 1 January 2008.
3.17
Q16: Are you content for the new liquidity dataset to be introduced for EEA
banks (with a deposit-taking passport) after 30 June 2007?
Consultation responses: This was accepted by respondents.
Our comments: To coincide with the rest of the changes, the implementation
date is now from 1 January 2008.
3.18
Q17: Would EEA banks (without a deposit taking passport) prefer to be
charged a standard fee by the FSA (irrespective of balance sheet size, or do
you think balance sheet assets would be as good a proxy as any to allocate
the fees charged to these firms?
Consultation responses: No firms affected by this proposal responded.
Our comments: The general issue of how fees will be charged in future will be
dealt with as part of the annual consultation process for setting fee rates for firms.
3.19
Q18: Are ELMIs, lead regulated ELMIs, and small e-money issuers content
to move to the revised reporting requirements after 30 June 2007?
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Annex 3
Consultation responses: None of the firms affected by this proposal responded.
Our comments: There are no further changes proposed other than to the
implementation date which has now changed in line with the other proposals.
3.20
Q19: Do you envisage any particular difficulties in providing the proposed
data (in general)? If so, please give us some indication of the reason (eg lack
of data, inability to compile data in the timeframe proposed).
Consultation responses: There was a general feeling that it was too early to give
a conclusive answer to this question as much of it depends on the detail required.
At least one firm felt the proposed time for submission for quarterly reports was
too tight, even though it is longer than that allowed for banks at present, but
tighter than that currently allowed for building societies.
Firms were also concerned about the costs if reporting had to be changed
earlier than the date on which they intended to adopt the new approaches to
credit risk.
Our response: Given the submission times were consulted on in CP198 (paragraph
3.45) and no adverse comments were received, we are restricted to allowing 10,
15, 20, or 30 business days for submitting quarterly reports. Our choice within that
is then based on the importance of monitoring the data. For the data items we
propose in this CP, we do not think 15 days is unreasonable for all firms reporting
quarterly (or even monthly on some returns) on a solo or unconsolidated basis.
In relation to the concern about the costs if reporting had to be changed earlier
than the date on which they intended to adopt the new approaches to credit risk,
while that may have been ameliorated by introducing the majority of the new
reporting from January 2008, it is inevitable that some firms will experience extra
costs during 2007. We hope that, by maintaining the existing reporting as far as
possible during 2007, we can limit the additional costs faced by firms.
3.21
Q20: We would welcome views of respondents of the one off costs they
expect to arise as a result of the changes to the items which have to be
reported. We would also welcome any estimate of the actual costs you would
face to meet the reporting requirements set out in this paper. We would also
welcome the views of software companies that intend to provide the interface
to submit (or prepare for submission) reports direct to the FSA on what the
impact will be on their charges to firms as a direct result of these proposals.
Consultation responses: Firms found it impossible to give an accurate estimate of
their likely costs without seeing the precise detail of what is required. But some
firms clearly felt that the costs would be significant as there would need to be
hardware as well as software changes, and mapping old data feeds into new outputs.
Our response: This CP includes a cost benefit analysis of the proposed data items
foreshadowed in DP05/1.
Annex 3
7
3.22
Q21: Do you expect the high level reporting proposals contained in this
paper to have any impact on competition (eg firms exiting the market ,
barriers to entry, differential impacts on large and small firms etc) or on the
quantity, quality and variety of available products? If so, please set out your
reasons for this.
Consultation responses: In general, firms did not envisage much, if any, impact
on competition although proportionally greater costs for smaller firms could have
potentially have some impact. Also, if the reporting requirements were to be
particularly onerous particularly for investment firms, it was suggested that they
might decide to leave the market. It is not clear though whether reporting alone
would be the deciding factor.
List of non-confidential respondents to DP05/1
Barclays
Britannia Building Society
Chelsea Building Society
Cooperative Financial Services
Credit Suisse First Boston
Dunbar Bank
Hinkley & Rugby Building Society
NAB Group
Nationwide
Northern Rock
Norwich & Peterborough Building Society
Association of Private Client Investment Managers and Stockbrokers
British Bankers’ Association / London Investment Banking Association
Building Societies Association
Investment Management Assocation
PricewaterhouseCoopers
8
Annex 3
Annex 4
List of questions on
which we are consulting
Questions requiring responses by 31 July 2006:
Question requiring response
Relevant paragraphs in
this paper
Chapter
Q3. Do firms feel that our proposals for reporting 4.7 – 4.11
at a UK consolidation group level are
proportionate, given the level of detail and the
frequency? In particular, it would be helpful to
know which data items will be most demanding to
produce at that level, and why. Will this be
temporary until systems and processes have
bedded in?
Chapter 4
Q4. Are there any particular issues firms believe
4.12 – 4.14
they will face in providing non-EEA sub-group data
to the frequency and timescales that are proposed?
Are these likely to be temporary until systems and
processes have bedded in?
Q5. Are firms happy that the rules will contain a
5.6 – 5.9
single version of the capital adequacy data item
(FSA003), the guidance notes and the validations
that will apply to it? If not, in what ways do you
think it could be improved?
Chapter 4
Q6. What are firms’ views on the reporting
frequencies for FSA003, having regard to the EU
directive requirements? Do firms envisage any
particular issues with the submission times
proposed?
5.10 – 5.13
Chapter 5
Q7. Given the wide range of firms that will complete 5.14 – 5.17
this balance sheet (FSA001), are firms happy they
can identify where their data would be reported? Are
there any data elements for which you feel the
guidance could be improved to aid completion?
Which data element details would give rise the
greatest cost to produce?
Chapter 5
Q8. What are firms’ views on the proposed
frequency of reporting and submission times for
FSA001?
Chapter 5
Annex 4
5.14 – 5.17
Chapter 5
1
Question requiring response
Relevant paragraphs in
this paper
Chapter
Q9. Will the split of the income statement (at a
5.18
high level) into trading and non-trading on FSA002
be possible by firms? Can you provide the level of
detail required on the main income and expense
categories, and if not, which ones in particular will
require the most effort and expense to produce?
Q10. Do firms have any issue with the either the
5.19
proposed frequency or submission times proposed
for FSA002?
Chapter 5
Q11. How easy will it be for firms to calculate the 5.21 – 5.24
capital requirements in column V of FSA008 for
each counterparty (or groups of related
counterparties), especially if the exposures are
subject to different model treatments? Do you think
there is there any alternative measure that might
be easier for firms to provide that would give a
better indication of the risk attached to each
individual large exposure? Also, for those firms on
the advanced approaches, will the information for
columns S-U be readily available?
Chapter 5
Q12. Do firms feel they will be able to meet the
5.25
timetable for the submission of the data on FSA008
and, if not, for what specific reasons?
Q13. What difficulties would firms have in providing 5.28 – 5.30
the data in FSA004 on the basis of the frequency
and submission times proposed?
Q14. Are there any particular difficulties you will
5.28 – 5.30
face in providing the figure of exposure value in
column B of FSA004 from your systems? Is the
operation of a reporting threshold for this item
helpful to firms?
Chapter 5
Q15. What difficulties would firms, who are above 5.31 – 5.33
the reporting threshold, have in providing the data
in FSA005 on the basis of the frequency and
submission times proposed?
Chapter 5
Q16. Do firms envisage any difficulties in providing 5.35 – 5.36
the information in FSA007 within the time scales
and the frequencies proposed?
Chapter 5
Q17. Do firms envisage any particular difficulty in
providing the information in FSA016 half-yearly, in
the time frame proposed? Do you agree this is a
proportionate approach to monitoring soloconsolidated firms?
5.37 – 5.43
Chapter 5
Q18. Do firms envisage any particular difficulty in
providing the information in FSA019 annually, and
in the time frame proposed?
5.44 – 5.51
Chapter 5
Q19. Do firms envisage any difficulties with the
revised time bandings in FSA017? Is the time
allowed for submission sufficient and, if not, what
would be the shortest time in which it could be
prepared? Would firms be able to provide the data,
as proposed, on both an individual firm basis and
also on a UK consolidation group basis?
6.3 – 6.6
Chapter 6
2
Chapter 5
Chapter 5
Chapter 5
Annex 4
Question requiring response
Relevant paragraphs in
this paper
Chapter
Q20. Will there be any issues in collating and
6.7 – 6.10
providing these sectoral, arrears and impairment
data on FSA015 on the frequencies and to the time
scales proposed?
Chapter 6
Q21. Does the proposed guidance on completion of 6.11 – 6.15
FSA015 (in the Appendix: Annex A Part 8) give you
sufficient flexibility to source the data in the
easiest and least expensive way? If not, what are
the particular difficulties and what changes we
could make it simpler for firms?
Q22. How easily do firms feels feel they could provide 6.16 – 6.18
us with the data in FSA017, with the frequency and
submission times proposed? Is there any particular
data element that would be more difficult than the
others to provide in terms of cost or effort?
Chapter 6
Q23. Is the data for FSA018 already available within 6.19 – 6.20
your systems? If not, how much effort would it
require to provide it along with frequency and
submission times proposed?
Chapter 6
Q24. Do firms envisage any problems in providing us 6.21 – 6.22
with the daily information quarterly in arrears (on
FSA006) and within the time envisaged? Do you
think that the report could be improved in any way?
Chapter 6
Q25. Do firms envisage any particular issues in
making these changes to liquidity reporting on
FSA010 and FSA013, including the submission and
timing proposals? If you comment, please ensure
you identify which data item it relates to.
7.6 – 7.9
Chapter 7
Q26. Do these proposals for reporting on FSA011
cause any particular issues for firms?
7.17
Chapter 7
Q27. Do these proposals for reporting on FSA010
cause any particular issues for EEA banks?
7.18 – 7.19
Chapter 7
Q28. Do firms envisage any issues in providing the
summary data in FSA012 on the frequency and
within the timescale proposed?
7.20 – 7.23
Chapter 7
Q29. Do non-EEA banks envisage any issues in
7.24 – 7.25
providing the data in FSA010 on the frequency and
within the timescale proposed?
Chapter 7
Q30. Do non-EEA banks envisage any issues in
7.26
providing the data in FSA002 on the frequency and
within the timescale proposed?
Chapter 7
Q31. Do firms envisage any issues in providing the
data in FSA020 to FSA026 on the frequency and
within the timescale proposed?
7.27 – 7.28
Chapter 7
Q32. Do firms envisage any issues in providing the
data in FSA027 on the frequency and within the
timescale proposed?
7.29
Chapter 7
Q33. Do firms feel that the proposals set out in
paragraphs 8.2 to 8.6 (and in more detail in
paragraphs 8.13 to 8.36) for transitional reporting
in 2007 are proportionate, given the changes
arising from the CRD which will apply to all firms
from the beginning of 2007?
8.2 – 8.6
Chapter 8
Annex 4
Chapter 6
3
Question requiring response
Relevant paragraphs in
this paper
Q34. Following on from Question 11 above, what
9.2 – 9.4
particular difficulties would you see in monitoring
exposures by the amount of capital required? Do you
monitor in this way in your firm or group and, if so,
can you tell us what the largest credit risk capital
requirement is as a percentage of the current large
exposures capital base (LECB) or own funds? If not,
how do you monitor such risks in your firm?
Q35. What difficulties would firms envisage in
9.5 – 9.10
providing the data in Table 1 of Annex 11 within
the time proposed? Do you think the proposed
granularity of the PD bands will cause any
difficulties, either for you in collating the data or
for us in interpreting it?
Q36. How much difficulty do you think you would 9.11 – 9.14
have in producing the analysis based on the PDs
in force at the beginning of the reporting period,
in relation to exposures at the reporting date, for
Table 2 in Annex 11? Are there any other
particular issues you would face in collating the
data for us in the timescale proposed?
Chapter
Chapter 9
Chapter 9
Chapter 9
Questions requiring responses by 31 August 2006:
Question requiring response
Relevant paragraphs in
this paper
Chapter
Q1. Is there any currency that a firm currently uses or 2.27
intends to use in the near future that is not listed
above, which if you were not able to use, would
impose a burden? If so, please specify the currency
involved, and an indication of the costs that would
be involved.
Chapter 2
Q2. What data covered by this CP if any, would you
2.28 - 2.29
find beneficial to be aggregated and published by us?
Chapter 2
Q37. Do you agree that our approach towards
commodities firms, locals, oil market participants
and energy market participants is appropriate? If
no, please explain.
10.12 – 10.17
Chapter 10
Q38. Do you think our treatment of OPPS reporting 10.18 – 10.22
requirements is reasonable and proportionate?
Chapter 10
Q39. Do you agree with our approach to recognised 10.23 – 10.25
bodies?
Q40. Do you think that our approach to the
11.5 – 11.10
reporting for the non-BIPRU investment firms
carrying on investment activities (excluding retail
investment activities) is sensible? Do you think the
data items (full copies to be found in the draft
Handbook Text) are reasonable and proportionate?
Chapter 10
Q41. Are the non-financial data items (except the
contents of FSA044) reasonable? Do you have any
comments on the non-financial data items? If so,
please comment on each data item individually.
Chapter 11
4
11.11 – 11.12
Chapter 11
Annex 4
Question requiring response
Relevant paragraphs in
this paper
Chapter
Q42. In reference to the UCITS data item (FSA042),
we would like to be able to assess the significance
of the size of any derivatives’ positions within the
UCITS operated by the manager. Although VAR may
seem like a solution its method of calculation is
variable and it would therefore be difficult to make
comparisons across funds uniformly. We would be
grateful for the views of respondents on the issue of
capturing the exposure of UCITS to derivatives risk.
Q43. Do you think the reporting frequencies and
deadlines are reasonable and proportionate?
Q44. Do you have any comments on the proposed
format of the fees and levies data item (FSA044)?
Q45. Do you think the proposed amendment to the
list of products reported on PSD proportionate? Are
the planned implementation dates reasonable?
Q46. Do you agree with the approach to require an
auditors report from non-BIPRU and non-MiFID
firms pending the outcome of the review to be
undertaken in 2007?
Q47. Do you agree with the approach to require an
annual financial data item and reconciliation from
non-BIPRU and non-MiFID firms, but not from
BIPRU and MiFID firms pending the review of the
need for auditor’s reports, audited financial
statements and annual reconciliation?
11.11 – 11.12
Q48. Do you agree we should use thresholds to
determine the frequency of reporting?
12.12 – 12.14 and Table 12.2 Chapter 12
Q49. What thresholds for which types of firms do
you think are most appropriate and why?
12.12 – 12.14 and Table 12.2 Chapter 12
Annex 4
Chapter 11
11-13 – 11.18 and Table 11.1 Chapter 11
11.22 – 11.29
Chapter 11
11.34 – 11.37
Chapter 11
12.2 – 12.9 and Table 12.1
Chapter 12
12.10 – 12.11
Chapter 12
5
Annex 5
Cost benefit analysis
5.1
Sections 155 and 157 of FSMA require us to perform a cost benefit analysis
(CBA) of our proposed rules and proposed guidance relating to rules, and to
publish the results. The purpose of a CBA is to assess, in quantitative terms
where possible and in qualitative terms where not, the economic costs and
benefits of a proposed policy. Specifically, we are required to publish with the
draft rules and guidance ‘an estimate of the costs together with an analysis of
the benefits’.
5.2
We are not, however, required to publish a CBA if the costs arising from the
proposed rules would be no more than the costs under existing requirements,
or if any cost increase would be of minimal significance.
5.3
This CBA is split into two sections. The first section considers proposals
concerning integrated regulatory reporting. This it self is split into two parts,
the first concerning changes to financial reporting for CRD firms, and the
second covering changes to financial reporting for non-BIPRU investment
firms, and to non-financial data items for all firms undertaking investment
activities (excluding retail investment activities). The second section of the CBA
covers product sales data proposals concerning personal pension schemes.
INTEGRATED REGULATORY REPORTING
Scope
5.4
This section of the CBA covers the costs and benefits of the proposals
covered in Chapters 4, 5, 6, 7, 10 and 11. It includes:
•
benefits of the proposals combined (both parts I and II);
•
compliance costs which occur as a result of the reporting changes
attributable to the implementation of the CRD (Part I proposals);
Annex 5
1
5.5
•
compliance costs arising from other reporting changes not related to the
CRD (Part I proposals);
•
compliance costs resulting from changes to financial reporting for nonBIPRU investment firms (including firms subject to Article 67(3) MiFID)
(Part II proposals);
•
compliance costs of implementing the non-financial data items for all
firms undertaking investment activities (excluding retail investment
activities) (Part II proposals); and,
•
direct costs to the FSA.
It is important to note the CBA does not cover:
•
the underlying costs of implementing the CRD or MiFID. The former is
covered by the CBA in CP06/3, and we aim to analyse the latter in CPs
planned for July and October;
•
the proposed changes to statistical reporting by building societies, which
will lead to information being collected by the Bank of England instead of
the FSA (although the FSA will still continue to collect data for building
societies in relation to regulatory reporting requirements, which is in line
with FSA data collection activities for banks and investment firms); and
•
the introduction of mandatory electronic reporting (which was considered
in CP198).
Benefits
5.6
The key purpose of our phased review of the multiplicity of inconsistent
reporting formats inherited from pre-N2 regulators is to enable us to use
regulatory reporting more effectively as one of our supervisory tools for
monitoring and mitigating risks to our statutory objectives relative to the mix
of regulated business a firm undertakes. Reporting provides the FSA with a
mechanism for verifying that firms are complying with our rules and
guidance. The data proposed to be collected under IRR will provide us with
more relevant and better data to fulfil this function. Further, it will enhance
our capability to identify risks within firms and across sectors and product
types. In Chapter 2 paragraphs 2.4 to 2.8 we discuss further how we use
regulatory reporting as a supervisory tool and how it fits within ARROW
which guides the way in which we risk assess and supervise firms, and target
thematic work relating to consumers, sectors or multiple firms. Annex 9
elaborates on the uses and benefit of each of the data items proposed.
5.7
The pre-N2 legacy systems for the collection and analysis of data have
become outdated and it would not be cost-effective to adjust these systems to
2
Annex 5
take account of the significant changes resulting from the introduction of the
CRD. In addition IRR has been through an internal challenge process to
ensure that there is a clear and specific use for all data collected. Also an
integrated electronic reporting system and business intelligence tools enabling
timely and efficient collection, validation and analysis of data, and enhanced
use of automated risk alerts is intended. All these factors combined will mean
IRR will facilitate the FSA in more risk-based regulatory actions arising from
the data, on a firm specific and market sector basis, enhancing consumer
protection and market confidence.
Compliance Costs
5.8
The overall one-off compliance costs for firms of the IRR proposals in Parts I
and II of the CP are estimated at £74 million. Incremental on-going costs are
estimated to be around £7 million per annum. These costs are broken down
and analysed in the sections that follow.
Part I proposals
5.9
5.10
To estimate the compliance costs of reporting changes arising from
implementing IRR in respect of the data items listed in tables 1 and 2 of
Annex 7, we asked a range of firms for their estimates of the likely costs
based on recent drafts of IRR data items. We then used these responses to
extrapolate by type of firm (UK bank, building society, and BIPRU
investment firm) to the relevant industry.
We have broken our assessment of incremental costs into:
•
one off costs which occur as a result of reporting changes attributable to
the implementation of the CRD;
•
one off costs which arise from other reporting changes; and
•
on-going reporting overheads.
5.11
A high-level breakdown of these costs is shown in Table 5.1. Feedback from
firms highlights that the estimates are subject to uncertainty. Responding
firms reported that actual costs would be dependent on detailed proposals,
which had not been finalised when firms were surveyed.129
5.12
The greater part of costs reported by firms is one-off costs. Aggregated for the
population of firms affected this totals approximately £63 million. These costs:
•
129
are largely driven by the changes required in internal infrastructure of
these firms for them to report data;
The discrepancy in the number of financial services firms reported here compared to CP06/03 are due to different:
levels of aggregation, reporting dates and overall coverage
Annex 5
3
5.13
•
mostly relate to the CRD, reflecting the large change this represents to the
current system of collecting data; and
•
fall greatest upon UK banks and building societies, which reflects their
relative size in the population of firms as well as the changes having a
large impact upon them in particular.
The breakdown of cost estimates by one-off and on-going, and CRDattributable and other changes, is analysed in the sections below.
Table 5.1: The population of firms affected and their likely costs
Firm type
Banks and
building
societies
Non-EEA banks
Number of
One-off CRD
firms affected reporting costs
(£ millions)
223 40
Other one-off Increase in onreporting costs going costs
(£ millions)
(£ millions)
12
5
81 N/A
1.5
0
EEA banks
115 N/A
0.5
0
Securities and
futures firms
Investment
management
firms
Personal
investment firms
723
Total
788
8
<1
~0
48
15
5
95
2,125
One-off costs arising as a result of the CRD
5.14
The reporting requirements that are directly attributable to the CRD are
described in Chapter 4 and 5. Reporting costs arise from enabling the FSA to
monitor compliance of firms with the CRD and assess their general financial
health, based on the balance sheet and income statement as well as capital
adequacy and related tables. There are a wide range of different firms that
will be affected, including UK banks, building societies and investment firms.
5.15
As reported in table 5.1 we estimate the one off costs arising as a direct result
of reporting requirements attributable to the CRD to be approximately £48
million for the approximately 1,800 firms that are expected to be within the
scope of CRD. Estimates from responding firms ranged from over £9 million
for a large bank to £5,000 for a small BIPRU investment firm. This is not
surprising, as the costs will differ markedly between types of firms and the
130
For securities and futures firms and personal investment firms, we did not have respondent data and therefore used
information provided by investment management firms to derive aggregate cost estimates.
4
Annex 5
complexity of their business. In addition, it is likely that the costs will be
proportionally greater for firms adopting the advanced approaches to credit
risk because of the larger data requirements associated with supervising these
approaches. The costs of completing the Pillar 2 questionnaire (which has
been designed to require minimal system changes) will fall on BIPRU
investment firms only.
5.16
Several firms reported costs arising from creating internal infrastructure in the
form of designing IT and reporting systems. Cost estimates might be capturing
updates to systems and improvements to data collection, management and
reporting techniques initiated by IRR but not entirely attributable to it. It is
likely therefore that these cost estimates represent upper limits.
One-off costs of new data and other reporting requirements
5.17
The new data and other reporting requirements are those we set out in
Chapters 6 and 7. These reporting requirements do not arise directly as a
result of the CRD, but from decisions about the data we think is also
important to collect to monitor, manage and mitigate risks firms pose to our
statutory objectives. These reporting requirements will not fall equally on
those firms supervised and one-off costs arising from these are estimated to
total an additional £15 million.
5.18
UK banks and building societies are the types of firms most affected by the
wide range of reporting requirements and of new data and reporting changes
proposed. Also taking into account the larger sizes of firms within these
types, the average cost per firm compared to other types of firms will be
much higher. Aggregated for the population of 223 UK banks and building
societies, one-off costs from non-CRD attributable reporting requirement
changes are estimated to be around £12 million.
5.19
Most of the around 80 non-EEA banks will face changes to liquidity
reporting, and will additionally have to report on the revised income
statement. They are not, however, affected by the CRD changes as far as FSA
reporting is concerned. Firms’ estimates of one-off costs indicate that these
are unlikely to exceed £30,000 per firm. Costs will be lower for the half that
currently have a ‘global concession’131.
5.20
EEA banks that accept deposits in the UK only face changes to liquidity
reporting to the FSA, and then again only if they do not benefit from the
‘global concession’. We expect approximately half of these to face one-off
costs of around £10,000 per firm.
5.21
There are currently 21 EEA banks that do not accept deposits in the UK and
they will have to report on liquidity as a direct result of Directive
131
See IPRU(BANK) Chapter LM, Section 4.2.
Annex 5
5
requirements. One-off cost for these firms bearing in mind that some
currently do not provide this data (or provide it in a different format), is
estimated at £1,000 per firm.
5.22
For electronic money institutions, the changes that are proposed do not
represent any change in policy but rather presentation. We estimate the cost
to firms of making the necessary changes to be under £1,000 per firm.
5.23
For small e-money issuers, there are no fundamental changes to the existing
report, so there should be minimal one-off costs.
5.24
For BIPRU investment firms (which covers certain securities and futures
firms, investment management firms and personal investment firms), it is
more difficult to estimate costs. Generally the non-CRD costs will be lower
than for banks, because we require a more limited range of other data from
these firms, but there are a greater number of such firms, and all of them will
be affected by changes in large exposures reporting. For some, their costs will
almost wholly relate to CRD items. Aggregated for the population of almost
1600 such firms, we estimate one-off costs from non-CRD attributable
reporting requirement changes to be not more than £1 million.
On-going reporting overheads
5.25
There has been some reduction in data, for example in liquidity reporting by
banks, but based on respondent firms’ calculations, we estimate on-going
costs for the total population of firms affected to rise by about £5 million.
5.26
It is difficult to reconcile the increase in on-going costs reported by firms with
the general reduction in data requirements we propose. One possibility could
be that CRD reporting requirements necessitate an additional set of skills
(perhaps for comprehending the numbers and their calculation to be able to
report properly, and for using the newer systems firms are typically putting
into place) which requires firms to recruit additional employees leading to
increased incremental on-going costs despite the overall reduction in amount
of information to be requested by the FSA. Certainly firms reporting
incremental costs list the main cost driver to be additional recruitment.
5.27
It is also possible that reported estimates may be capturing incremental ongoing costs partly arising from the need to operate and maintain updated
systems initiated but not entirely attributable to IRR.
5.28
Feedback from banks and building societies suggest that, despite the
reduction in data to be provided, their on-going reporting overheads are
unlikely to decline. While some firms expect no cost change, some forecast
them to rise, in one case by as much as 60%. Based on respondent firms’
calculations, we estimate on-going costs for all UK banks and building
societies to rise by about £5 million.
6
Annex 5
5.29
EEA banks, non-EEA banks and electronic money institutions are unlikely to
have increased costs as a result of our requirements as the reporting is in
essence largely unchanged, the reduction in the number of elements reported
having little impact on their costs of producing the reports.
5.30
For BIPRU 730K firms, we think there may be impacts similar to UK banks,
thus an increase in reporting costs may be expected. For BIPRU 125K firms
and BIPRU 50K firms, there is likely to be an increase in the apparent quantity
of data provided, although many items may have a nil value. It is possible, the
cost of extracting and checking the data may be higher than at present. As a
whole, we do not expect large changes for BIPRU investment firms.
Responding firms suggest there is likely to be no increase in on-going costs.
Part II proposals
5.31
As stated in para 5.4 the IRR proposals in Part 2 of the CP relate to the
financial data items for non-BIPRU investment firms, and non-financial data
items that will apply to all firms undertaking investment activities (excluding
retail investment activities). This part of the CBA covers compliance costs
arising from these proposals.
5.32
The financial data items consist of: Balance Sheet (FSA029), Income
Statement (FSA030) and Capital Adequacy (one of FSA031 to FSA037).
5.33
The non-financial data items of Volumes and Types of Business (FSA038),
Client Money and Client Assets (FSA039), CFTC (FSA040), Asset Managers
that Use Hedge Fund Techniques (FSA041), UCITS (FSA042), Threshold
Conditions (FSA043) and Fees (FSA044) must be submitted by any firm who
undertakes the relevant activities noted. This will include banks, building
societies and insurers, as well as non-retail investment firms. The non-financial
data items are unlikely to affect personal investment firms (please see
paragraph 10.6 for further details) or mortgage and general insurance brokers.
MiFID costs
5.34
We have already noted that the cost of implementing MiFID is not included in
this CBA, but Article 67(3) MiFID firms will have the same financial reporting
as other non-CRD investment firms undertaking the relevant activities.
5.35
This part of the CBA is therefore about non-MiFID and MiFID data items.
The MiFID data items will be consulted on in the proposed July MiFID CP
but there is no CBA on them in that CP. Instead they are included in this
CBA of data requirements.
5.36
It is not possible to specifically identify the costs of MiFID related data
requirements as they are part of an overall change. However, since they only
Annex 5
7
concern 2 out of 16 data items, (i.e. 12.5%) we expect these requirements to
contribute only a small fraction of the total costs estimated below. These two
data items are different versions of the Capital Adequacy data item, and each
firm will only need to complete one of these.
5.37
Out of the 16 potential data items, 7 are non-financial. None of these are a
direct consequence of MiFID, and will be completed by all firms (if the firm
undertakes the relevant activities).
Costs to firms
5.38
We asked a range of firms to estimate likely compliance costs based on recent
drafts of the data items. On the basis of these responses, we have estimated
costs to the population of firms affected as shown in table 5.2.
5.39
Responses from firms combined the overall cost of the proposed data
generally – i.e. not differentiating between the financial and non-financial
data items. Responses supported our position that the changes to the
financial data items are relatively minor, and that proposed reporting
requirements are closely aligned to data presently required.
5.40
In relation to the non-financial data, firms commented that on the whole it
was information that would be easy to access, or is already provided to us in a
different format. As such, although there would be costs (noted below) from
the submission of the data, this cost was not seen as overly burdensome.
One-off costs
5.41
Based on responses by firms one-off costs arising as a direct result of the IRR
proposals in Part II of this CP are estimated to be approximately £11 million.
On-going costs
5.42
When looking at incremental on-going costs, firms considered such things as
on-going compliance with reporting requirements, systems maintenance,
software costs. Estimated figures saw an on-going cost increase of
approximately £2 million per annum. This was predominantly in respect of
the new non-financial data items, not previously been required by us.
8
Annex 5
Table 5.2: The population of firms affected by the reporting
changes and their likely costs
Data type
Financial
Nonfinancial
Firm type
Non-retail
investment firm –
not subject to the
CRD
Non-retail
investment firm –
not subject to the
CRD
Non-retail
investment firm –
subject to the CRD
Other firms
Total
Number of
firms
One-off cost Additional onof new
going costs
proposals (£ compared to
million)
existing
requirements
(£ million)
1000 (inc
1
0.2
MiFID)
1000 (inc
MiFID)
3
0.6
1600
5
1
600
2
0.4
3200
11
2
Note: Firms provided combined costs associated with both the financial and
non-financial data items. We estimate that the financial data items will
represent 25% of the overall figures provided by firms. The figures in the
table have been presented on this basis.
Direct costs to the FSA
5.43
There will be increased costs for us arising from these changes. Some of them
are difficult to separate from other costs generally, or identify as arising from
the reporting requirement changes proposed in this CP. For instance, we are
currently introducing enhanced business intelligence tools into the
organisation, and these will need to be programmed to produce management
alerts we intend to derive automatically from reports received.
5.44
Additionally, as part of the whole IRR programme, we are developing our own
complete data collection and validation system, which will ensure timely and
correct reports are submitted by each firm. There will also be costs to ensure
that correct reports are identified for each firm to complete, at the right time.
5.45
We estimate that the costs associated with formulating our policies, the
development and implementation of systems and tools, and additional costs,
Annex 5
9
specifically for the proposals considered in this CP will be around £5 million
over the next three years.
5.46
Costs will also arise as our staff will require training to understand what data
will be collected, as well as what data will not, thereby enabling them to
make the optimal use of it. Costs will be attributable both in terms of
training materials and resources to provide that training, as well as staff time
taken from normal supervisory duties to take part in that training. We
estimate that this will be around £1 million, again over the next 3 years.
5.47
Additionally, there will be costs associated with the upkeep of the data items
within our rules, but these are expected to be minimal and in line with the
general upkeep of our Handbook rules.
PRODUCT SALES DATA PROPOSALS
Scope
5.48
Product providers have a requirement in SUP 16.11 to provide Product Sales
Data (PSD). PSD covers details on the sales of regulated mortgage contracts,
investment products and some pure protection products both by direct sales
force and intermediaries.
5.49
This CBA covers the proposal to extend PSD reporting to the operators of
personal pension schemes and add self-invested personal pensions schemes to
the list of reportable retail investment products once operating or advising on
personal pensions becomes a regulated activity from April 2007 (see CP06/5:
The regulation of personal pension schemes including SIPPs (April 2006).
Benefits
5.50
Collecting PSD from product providers is the most proportionate and costeffective method of collecting data in this market, as outlined in CP197132.
In relation to the proposals in this CP, the benefits will be seen in respect of
the additional data we propose to collect on SIPPs. This will be relevant
both to those firms new to regulation and so reporting PSD for the first
time, as well as those firms who already report PSD, but will in the future
need to include details on SIPPs.
5.51
The SIPP data will enable us to monitor how firms comply with our rules
(e.g. by comparing permissions to sales). The data informs us of firm’s
compliance with conduct of business and other policy requirements. It will
allow us to see trends in the market, to identify changes or unusual activity
and provides information of total volumes of sales to UK retail/private
132
CP197 Reporting requirements for mortgage, insurance and investment firms, and supplementary consultation on
audit requirements (September 2003)
10
Annex 5
clients. It also identifies all providers and intermediaries active in the SIPP
market. Analysis of PSD may identify particular issues in the selling of SIPPs
and we may decide to undertake further research in the market via thematic
work. Collecting this information will help us to target our resources on
firms that pose the most significant risks.
Cost to firms
Incremental one off costs
5.52
The proposals relating to PSD have two elements: firms new to regulation
setting up systems for the first time; and, the change to the retail investment
product list to include self-invested personal pension schemes.
5.53
Firms new to regulation, (80 new operators of personal pensions) will incur
set up costs of approximately £0.9 million133 aggregated between them to
comply with the requirements of PSD reporting.
5.54
In respect of the change to the product list, all the firms already reporting retail
investment PSD (around 250 firms) would incur costs to change and test their
XML schema. The firms which would start reporting self-invested personal
pensions (estimated to be 30 firms) would incur an additional cost linked to
changing their systems so this data can be collected in addition to the data
which they are already reporting. We expect this to be a small proportion of
the costs associated with set up costs for firms new to regulation.
On-going costs
5.55
Based on information provided by firms in CP197 and desk-based analysis
we estimate that incremental ongoing PSD reporting costs due to the addition
to the product list of SIPPs would be no larger than £300,000 per year. The
80 new operators of personal pensions would incur the largest portion of this
total cost. Firms that already report PSD should incur minimal costs as they
would only need to add one product.
Costs to FSA
5.56
133
In implementing this change, we will need to amend the PSD reporting
system, and the schema that firms use to build their systems. We estimate the
costs involved to be of minimal significance. As this is a small change, we
believe that the ongoing costs will be absorbed into the general running costs
of the PSD reporting system with no large increase in these costs.
This cost estimate comes from the KPMG study into the feasibility, compliance costs and impact of PSD reporting
carried out in February 2003 (CP197 Annex 1)
Annex 5
11
Annex 6
Compatibility statement
Introduction
6.1
This chapter explains our reasons for concluding that the proposals in
Chapters 4, 5, 6, 7, 10 and of this CP are compatible with our general duties
under section 2 of FSMA and with the regulatory objectives set out in
sections 3 to 6. Sections 155 and 157 of FSMA require us to make this
statement.
Compatibility with our statutory objectives
6.2
These proposals are designed to help us meet our consumer protection and
market confidence objectives. We do not expect our proposals to have any
significant impact on our public awareness or financial crime objectives.
Consumer protection
6.3
This objective is concerned with securing the appropriate degree of protection
for consumers. We consider that our proposals will allow us to receive
information which leads to improved assessment of the risks faced by firms
and their capital adequacy, helping us to better identify issues that may lead
to consumer detriment. It is also possible this better monitoring will
encourage firms to be compliant, leading to enhanced consumer protection.
Market confidence
6.4
We consider the information we propose to gather will help us to monitor
firm’s adherence to regulatory requirements established by the FSA, and
ensure that they are adequately capitalised, hence enabling us to respond
effectively to potential risks that could undermine market confidence. It is
Annex 6
1
also possible that more effective monitoring from our end will increase the
likelihood that requirements will be complied with, which will help enhance
confidence in the financial security of firms within the industry.
Matters the FSA must bear in mind when carrying on its
general functions
6.5
Section 2(3) of FSMA requires us to have regard to certain principles when
carrying on our general functions.
(i) The need to use the FSA’s resources in the most efficient and
economic way
6.6
Our principles of good data and good data collection, on which these
proposals are based, are designed to ensure that we use our resources in the
most efficient and economic way. Specifically, IRR has been through an
internal data challenge process to ensure that there is a clear and specific use
for all data collected. This has led to only those data being collected that are
essential to us. In addition we are passing on activities that were not core to
us, such as collecting statistical information from building societies, to the
Bank of England.
(ii) The responsibility of those who manage the affairs of
authorised persons
6.7
By restricting the regulatory data we collect to those items we believe our
essential for us to carry out our duties, we believe we are proposing the right
balance between supervisory overview and senior management responsibility.
(iii) The principle that the burden or the restriction which is
imposed on a person or on the carrying on of an activity, should
be proportionate to the benefits, considered in general terms,
which are expected to result from the burden or restriction
6.8
In defining these reporting requirements, we do believe that the reporting
burden is proportionate. The changes arising from the introduction of the
CRD are directive driven and necessary to ensure firms are adequately
capitalised and we can suitably identify risks. The other changes in reporting
requirements also align with our risk based approach, and has generally
resulted in reductions in reporting requirements.
2
Annex 6
(iv) The desirability of facilitating innovation connected with
regulated activities
6.9
We do not consider our proposals will restrict product innovation.
(v) The international character of financial services and markets
and the desirability of maintaining the competitive position of
the United Kingdom
6.10
We believe the focus on risk-based supervision is correct and we therefore
propose reporting requirements to reflect that. We do not consider these
proposals will adversely affect the competitive position of the United
Kingdom. For example, we propose to collect about 5% of data elements
from the CEBS templates.
(vi) The need to minimise the adverse effects on competition that
may arise from anything done in the discharge of those functions
6.11
The changes we are consulting on should not have a material adverse effect
on competition.
(vii) The desirability of facilitating competition between those
subject to any form of regulation by the FSA
6.12
We do not believe our proposals will have a material impact on competition
between firms.
Acting in a way most appropriate to meet the statutory objectives
6.13
Regulatory reporting is an important supervisory tool for the identification of
risk as part of our ‘baseline monitoring’ which includes the analysis of firmspecific and industry data to identify trends and anomalies. This helps us to
determine the thematic (sector wide) and firm specific work we should
undertake, and help focus our resources more effectively, efficiently and
economically. For this reason, we feel that our proposals are the most
appropriate and proportionate way of meeting our statutory objectives.
Annex 6
3
Annex 7
Overview of reporting
requirements
Annex 7
1
2
Annex 7
FSA001
FSA002
FSA003
FSA004
FSA005
N/A
FSA007
FSA008
FSA009
FSA011
N/A
FSA014
FSA015
FSA016
FSA017
FSA018
FSA001
FSA002
FSA003
FSA004
FSA005
FSA006
FSA007
FSA008
FSA009
FSA010
FSA013
FSA014
FSA015
FSA016
FSA017
FSA018
Income statement
Capital adequacy
Credit risk1
Market risks3
Market risks - supplementary7
Operational risk1
Large exposures4
Key data (only during 2007)
Liquidity (other than stock)6
Liquidity - stock6
Forecast data5
Sectoral information
Solo consolidation data2
Interest rate gap report
Asset and deposit maturity
New
New
Building
society
Audited annual accounts
Annual solvency statement
Audited annual report and accounts of
multi-activity holding company
Balance sheet
UK bank
FSA002
FSA003
FSA004
FSA005
FSA006
FSA007
FSA008
FSA009
N/A
N/A
FSA014
FSA015
N/A
N/A
N/A
FSA001
•
UK
consolidation
group
Table 1: Reporting requirements for credit institutions
Bank of
England
data
FSA002
N/A
N/A
N/A
N/A
N/A
N/A
N/A
FSA010
N/A
N/A
N/A
N/A
N/A
N/A
Non-EEA
bank
Bank of
England
data
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
FSA010
N/A
N/A
N/A
N/A
N/A
N/A
EEA bank
Data items FSA*** are set out in the proposed Handbook text for SUP 16 Annex 24R
in the Appendix: Annex A Part 7.
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
FSA012
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Nondeposit
taking EEA
bank
FSA021
FSA022
N/A
FSA023
N/A
N/A
FSA024
N/A
FSA025
N/A
N/A
N/A
N/A
N/A
N/A
FSA020
ELMIs
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Small emoney
issuers
Annex 7
3
N/A
N/A
N/A
FSA028
Annex 11,
Table 1
Annex 11,
Table 2
N/A
N/A
N/A
N/A
Annex 11,
Table 1
Annex 11,
Table 2
FSA019
N/A
N/A
N/A
Annex 11, Table
1
Annex 11, Table
2
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
FSA026
N/A
N/A
N/A
required by Building Societies Act 1986
• - audited accounts may not necessarily be prepared at the UK consolidation group level
1
Above threshold of 10% of capital requirements
2
Only for firms that report on a solo consolidated basis
3
Only where market risk is greater than £50mn
4
Will also pick up obligations to report significant transactions with a mixed activity holding company and its subsidiaries
5
Only at the UK consolidation group level if it is subject to the capital requirements in Stage 1 of BIPRU 8 Annex 2R, otherwise at entity level
6
UK banks complete either FSA010 or FSA013, not both
7
Only completed by firms which have a CAD2 waiver, and reported at the UK consolidation group level if there is one, otherwise at entity level
8
See paragraph 4.8 of this CP for details of the UK consolidation groups that will report this data item
IRB portfolio outturn
Pillar 2 questionnaire8
ELMI questions
Small e-money report
Non-EEA sub-group
IRB portfolio risk
N/A
N/A
N/A
FSA027
N/A
N/A
Table 2: Reporting requirements for BIPRU investment firms
Audited annual report and
accounts
Annual solvency statement
Audited accounts of any subsidiary
not authorised
Audited annual report and
accounts of multi-activity holding
company
Balance sheet
Income statement
Capital adequacy
Credit risk1
Market risks3
Market risks - supplementary7
Operational risk1
Large exposures4
Key data (only during 2007)
Solo consolidation data2
Pillar 2 questionnaire8
Non-EEA sub-group
IRB portfolio risk
IRB portfolio outturn
BIPRU 730K firm
BIPRU 125K firm;
UCITS investment
firm
FSA001
FSA001
FSA002
FSA003
FSA004
FSA005
FSA006
FSA007
FSA008
FSA009
FSA016
FSA019
FSA028
Annex 11, Table 1
Annex 11, Table 2
FSA002
FSA003
FSA004
FSA005
FSA006
FSA007
FSA008
FSA009
FSA016
FSA019
FSA028
Annex 11, Table 1
Annex 11, Table 2
BIPRU 50K firm
FSA001
FSA002
FSA003
FSA004
FSA005
FSA006
FSA007
FSA008
FSA009
FSA016
FSA019
FSA028
Annex 11, Table 1
Annex 11, Table 2
- securities and futures firms only at present (old terminology)
Above threshold of 10% of capital requirements
2
Only for firms that report on a solo consolidated basis
3
Only where market risk is greater than £50mn
4
Will also pick up obligations to report significant transactions with a mixed activity holding company and its
subsidiaries
7
Only completed by firms which have a CAD2 waiver, and reported at the UK consolidation group level if there
is one, otherwise at entity level
8
See paragraphs 5.39 to 5.46 of this CP for details of the firms that will report this data item.
1
4
Annex 7
Annex 7
5
Exempt CAD
firm - IPRU
Inv Ch 9
FSA029
FSA030
July MiFID CP
and Annex 11
FSA038
FSA039
FSA040
FSA041
FSA042
FSA043
FSA044
BIPRU
Investment
Firm
See Table 2
See Table 2
See Table 2
FSA038
FSA039
FSA040
FSA041
FSA042
FSA043
FSA044
Data item
Balance Sheet
Income Statement
Capital Adequacy
Volumes and Types of Business
Client Money and Client Assets
CFTC
Asset Managers that use Hedge Fund
Techniques Report
UCITS
Threshold Conditions
Data required for calculation of fees
and levies
FSA044
FSA043
FSA042
FSA041
FSA040
FSA039
July MiFID CP
and Annex 11
FSA038
FSA030
FSA029
Exempt CAD
firm that is
also a PIF IPRU Inv Ch
13
FSA044
FSA043
FSA042
FSA041
FSA040
FSA039
FSA038
FSA033
FSA030
FSA029
IPRU Inv
Ch 3
FSA044
FSA043
FSA042
FSA041
FSA040
FSA039
FSA038
FSA034
FSA030
FSA029
IPRU Inv Ch
5 not
subject to
exemption
in IPRU Inv
5.2.3(2)R
FSA044
FSA043
FSA042
FSA041
FSA040
FSA039
FSA038
FSA035
FSA030
FSA029
IPRU Inv Ch
5 subject to
exemption
in IPRU Inv
5.2.3(2)R
FSA044
FSA043
FSA042
FSA041
FSA040
FSA039
FSA038
FSA036
FSA030
FSA029
IPRU (Inv)
Ch 7 (UPRU
from
1/1/07)
Table 3: Financial reporting requirements for other investment firms and non-financial
reporting for all firms undertaking investment activities (excluding retail investment activities)
FSA044
FSA043
FSA042
FSA041
FSA040
FSA039
FSA038
FSA037
FSA030
FSA029
IPRU Inv Ch
13
(wholesale
PIFs only)
Annex 8
What this means for firms
in practice
Annex 8
1
Table 1: credit institutions
UK banks
EEA banks (that can
accept deposits
EEA banks (that
cannot accept
deposits)
Non-EEA banks
Building societies
Electronic money
institutions
Small e-money
institutions
Credit unions (for
completeness only)
2
Up to 31/12/06
As currently set out in SUP 16.7.8R (SUP 16 Annex
1R)
From 1/1/07 to No change, except all firms report in addition
31/12/07
FSA009. Some also report FSA028.
Alternatively, firms that have adopted the new
approaches to credit risk may stop reporting on Forms
BSD3, M1, LE3 and FSA009 and instead report on
FSA001, FSA002, FSA003 and FSA008
From 1/1/08
All firms stop reporting the BSD3, M1, LR (or SLR1)
and LE3 and report the new data items.
Up to 31/12/07 As currently set out in SUP 16.7.10R (SUP 16 Annex
1R)
From 1/1/08
All firms stop reporting on Form LR and report on
FSA010
Up to 31/12/07 As currently set out in SUP 16.7.10R (SUP 16 Annex
1R)
From 1/1/08
All firms stop reporting on Form LR and report on
FSA012
Up to 31/12/07 As currently set out in SUP 16.7.12R (SUP 16 Annex
1R)
From 1/1/08
All firms stop reporting on Form B7 and LR and report
on FSA002 and FSA010
Up to 31/12/06 As currently set out in SUP 16.7.17R (SUP 16 Annex
3R)
From 1/1/07 to No change, except all firms report in addition
30/12/07
FSA009. Some also report FSA028.
Alternatively, firms that have adopted the new
approaches to credit risk may stop reporting on Forms
QFS1 and AFS1 and instead report on FSA001,
FSA002, FSA003 and FSA008
On 31/12/07
As above, but additionally firms report to the Bank of
(and continuing England on their forms at this date.
after this time)
From 1/1/08
Firms stop reporting on MFS1, MFS2, QFS1, QFS2,
AFS1 and interest rate gap reports, and report the
new data items.
Up to 31/12/07 As currently set out in SUP 16.7.66R (SUP 16 Annex
1R)
From 1/1/08
Firms stop reporting on ELM-CA/LE and BSD3, and
report the new data items
Up to 31/12/07 As currently set out in ELM 8.7.1R (ELM 8 Annex 2R)
Up to 31/12/07 As currently set out in ELM 8.7.1R (ELM 8 Annex 2R)
From 1/1/08
Firms stop reporting on ELM-SI, and report FSA028
No changes
Annex 8
Table 2: BIPRU investment firms
Investment
management firms
Up to 31/12/06
From 1/1/07 to
31/12/07
From 1/1/08
Securities and
futures firms
Up to 31/12/06
From 1/1/07 to
31/12/07
From 1/1/08
UCITS investment
firm (not UCITS firm)
Up to 31/12/06
From 1/1/07 to
31/12/07
From 1/1/08
Annex 8
As currently set out in SUP 16.7.36R (SUP 16 Annex
5R)
As currently set out in SUP 16.7.36R except
a)
firms report in addition FSA009;
b)
some firms will also submit FSA028; and
c)
firms will no longer report on the consolidated
supervision return but will instead complete FSA009
Alternatively, firms that have adopted the new
approaches to credit risk may stop reporting the
annual financial return and quarterly (or monthly)
financial return, and instead report on FSA001,
FSA002, FSA003 and FSA008.
Firms stop reporting the annual financial return and
quarterly (or monthly) financial return, and will
instead report the new data items.
Consolidated reporters will also have to complete a
wider range of data items than at present.
As currently set out in SUP 16.7.25R or SUP 16.7.27R
(SUP 16 Annex 10R)
As currently set out in SUP 16.7.25R or 27R except
a)
firms report in addition FSA009;
b)
some firms will also submit FSA028; and
c)
firms will no longer report on the consolidated
supervision return but will instead complete FSA009.
Alternatively, firms that have adopted the new
approaches to credit risk may stop reporting the
annual financial return, monthly (or quarterly)
reporting statement, and LEM1 or LEM2, and instead
report on FSA001, FSA002, FSA003 and FSA008.
Firms stop reporting the annual reconciliation, annual
financial return, monthly (or quarterly) reporting
statements, and LEM1 or LEM2, and will instead
report the new data items. Consolidated reporters will
complete a wider range of data items than at present.
As currently set out in SUP 16.7.68R (SUP 16 Annex
16R)
As currently set out in SUP 16.7.68R except
a)
firms report in addition FSA009;
b)
some firms will also submit FSA028; and
c)
firms will no longer report on the consolidated
supervision return but will instead complete FSA009.
Alternatively, firms that have adopted the new
approaches to credit risk may stop reporting the
quarterly financial return and instead report on
FSA001, FSA002, FSA003 and FSA008
Firms stop reporting the quarterly financial return and
instead report the new data items
3
Personal investment
firm
Up to 31/12/06
From 1/1/07 to
31/12/07
From 1/1/08
4
As currently set out in SUP 16.7.77R (SUP 16 Annex
18AR)
As currently set out in SUP 16.7.77R except
a)
firms report in addition FSA009;
b)
some firms will also submit FSA028; and
c)
firms will no longer report on the consolidated
supervision return but will instead complete FSA009.
Alternatively, firms that have adopted the new
approaches to credit risk may stop report sections A,
B, C, D and E of the RMAR (the remainder of the
RMAR will still apply) and instead report on FSA001,
FSA002, FSA003 and FSA008.
Firms stop to report sections A, B, C, D and E of the
RMAR (the remainder of the RMAR will still apply) and
instead report the new data items
Annex 8
Table 3: Non-BIPRU investment firms
Investment
management firm
(subject to Article 67(3)
MiFID)
Up to 31/10/2007
From 1/11/2007
Q1 2008
Investment
management firm (not
subject to Article 67(3)
MiFID)
Up to 31/12/2007
Securities and futures
firms (subject to Article
67(3) MiFID)
Up to 31/10/2007
Q1 2008
From 1/11/2007
Q1 2008
Securities and futures
firms (not subject to
Article 67(3) MiFID)
Annex 8
Up to 31/12/2007
Q1 2008
As currently set out in SUP 16.7.36R (SUP 16
Annex 5R)
New FSA data item FSA029 (Balance Sheet),
FSA030 (Income Statement) and FSA031
(Capital Adequacy) instead of the reports in
SUP 16.7.36R (annual financial return and
quarterly reporting statement)
Additionally, new FSA data items FSA038 to
FSA 044.
As currently set out in SUP 16.7.36R (SUP 16
Annex 5R)
The new data items FSA029, FSA030, FSA034
or FSA035 and FSA038 to FSA044 (financial
and non-financial information), annual reporting
statement and annual reconciliation as required
due to the business the firm undertakes
instead of the reports in SUP 16.7.36R (annual
financial return, and quarterly reporting statement)
As currently set out in SUP 16.7.27R (SUP 16
Annex 10R)
New FSA data item FSA029 (Balance Sheet),
FSA030 (Income Statement) and FSA031
(Capital Adequacy) instead of the reports in
SUP 16.7.27R (annual reporting statement,
annual reconciliation, and quarterly
reporting statement).
Additionally, new FSA data items FSA038 to
FSA 044.
As currently set out in SUP 16.7.27R (SUP 16
Annex 10R)
The new data items FSA029, FSA030, FSA037
and FSA038 to FSA044 (financial and nonfinancial information), annual reporting
statement and annual reconciliation as required
due to the business the firm undertakes instead
of the reports in SUP 16.7.27R
5
Personal investment
firm (wholesale PIFs
only) (subject to Article
67(3) MiFID)
Up to 31/10/2007
From 1/11/2007
Q1 2008
Personal investment
firm (wholesale PIFs
only) (not subject to
Article 67(3) MiFID)
Up to 31/12/2007
UCITS firm
Up to 31/12/2007
From Q1 2008
1/1/07 to Q1 2008
From Q1 2008
As currently set out in SUP 16.7.77R (SUP 16
Annex 18AR)
New FSA data item FSA029 (Balance Sheet),
FSA030 (Income Statement) and FSA032
(Capital Adequacy) instead of the relevant
sections of the RMAR SUP 16 Annex 18AR.
The new data items FSA029, FSA030,
FSA032 and FSA038 to FSA044 (financial
and non-financial information) as required
due to the business the firm undertakes
instead of the relevant sections of the RMAR
As currently set out in SUP 16.7.77R (SUP 16
Annex 18AR)
The new data items FSA029, FSA030, FSA037
and FSA038 to FSA044 (financial and nonfinancial information) as required due to the
business the firm undertakes instead of the
relevant sections of the RMAR
As currently set out in SUP 16.7.68R (SUP 16
Annex 16R)
As currently set out in SUP 16.7.68R – but
note new references to UPRU not IPRU INV Ch
7.
New FSA data items FSA029, FSA030, FSA036
and FSA038 to FSA044) instead of reports in
SUP 16.7.68R.
Table 4: Conglomerates
Financial conglomerate
Up to 31/12/2006
From 1/1/2007 to
31/12/2007
From 1/1/2008
6
As currently set out in SUP 16.7.82R
Firms that report the BSD3, MFS1 or the form
in SUP 16 Annex 20R continue to do so, but in
addition complete FSA009 to the same
reporting deadlines.
Firms that report the BSD3, MFS1 or the form
in SUP 16 Annex 20R stop reporting them and
report FSA003 instead.
Annex 8
Annex 9
Outline of why we need the
data and how we will use it
9.1
The table below summarises how we will use each of the new data returns
within the organisation.
9.2
We have identified three broad types of justifications for collecting the data:
•
Compliance: The data would be used for monitoring compliance with our
rules. The data would also enable us to meet its reporting commitments
towards major international bodies like the International Monetary Fund
(IMF) or the European Central Bank (ECB) for instance.
•
Risk: The data would be used to monitor, manage and mitigate risk.
•
Markets: The data would be used to conduct sectoral and thematic analysis.
Data item
Why do we need it and how we will use it
Compliance
Balance sheet
(FSA001, FSA020,
FSA029)
Income statement
(FSA002, FSA021,
FSA030)
Annex 9
Risk
Input for calculating
regulatory capital and
threshold conditions.
Markets
Provision of an
overview of the firms’
activities. It enables
Provision of aggregate supervisors to spot and
act upon emerging
data to international
bodies such as the ECB risks.
and the IMF.
Peer group analysis
providing high level
comparison of trends.
Analysis of the sources
of profitability of the
business and
assessment of potential
capital outflows.
Peer group analysis and
comparisons on
profitability and
overheads.
Assessment of the
riskiness of the sources
of income e.g.
dependencies on noncore income, unsecured
Key supervisory tool for loans or whether high
incentives to key staff
non-EEA branches.
lead to an increase in
Provision of aggregate the risk profile.
data to international
bodies.
Assessment of the
impact of the economic
cycle on the industry.
Ability to identify
outliers.
1
Data item
Capital adequacy
(FSA003, FSA022,
FSA028, FSA032 to
FSA037)
Why do we need it and how we will use it
Compliance
Risk
Markets
Compliance with
Directive and rule
based requirements on
capital.
Monitoring changing
trends in capital and
capital requirements.
Monitoring in
aggregate the impact
of the new capital
requirements on the
industry.
Provision of a detailed
methodology for
capital calculations
ensuring consistency
among firms.
Assessment of the
quality of capital and
the underlying risks
taken by firms.
Provision of aggregate
data to international
bodies.
Credit risk (FSA004)
Identification of
capital requirements to
cover the different risk
categories.
Analysis and
monitoring of the
evolution of a firm’s
risk profile.
Identification of
outliers through peer
group analysis on
average riskiness.
Identification of
emerging sectoral
credit risk issues.
Market risks (FSA005, Compliance with
FSA023)
Directive requirements
on market risk.
Monitoring and
assessment of market
risk by asset class.
Market risks –
supplementary
(FSA006)
Testing firms’ model
performances.
Identification of issues Peer group analysis of
in models.
model performance.
Operational risk
(FSA007)
Compliance with
Directive requirements
on operational risk.
Identification of large
operational risk losses
over the reporting
period.
Perform cross firm
comparison and
analyse trends.
Analysis and
monitoring of a new
risk category.
Monitoring risks arising Identification of
from firms’ Large
sectoral exposure
Exposures.
trends among firms.
Large exposures
(FSA008, FSA024,
FSA028)
Compliance with
Directive requirements
on Large Exposure
rules.
Key data (FSA009)
Compliance with
Directive requirements
on capital.
Identification of
potential solvency
issues, in particular
during the Basel
transitional period.
Liquidity (other than
stock) (FSA010,
FSA011, FSA012,
FSA025)
Monitoring mismatch
limits.
Impending large
mismatches.
2
Identification of firms
at risk from adverse
market or instrument
movements affecting
value and liquidity.
Compliance with BCD
Management of cash
rules on EEA firms with flow.
a passport into the UK. Assessment of liquidity
risk.
Identification of
potential contagion
effects in case of
liquidity stress
situation.
Annex 9
Data item
Why do we need it and how we will use it
Compliance
Risk
Liquidity – stock
(FSA013)
Monitoring stock
limits.
Identification of
changing trends in
liquidity management.
Forecast data
(FSA014)
Provide comfort on a
firm’s capital strength
and its ability to grow
its capital going
forward.
Forward looking and
pro-active assessment
of firms’ profit and
capital expectations.
Extension of
requirements currently
placed on building
societies.
Sectoral information
including arrears
(FSA015)
Provision of data on
bad debts and nonperforming loans in
particular to
international bodies.
Solo consolidation
data (FSA016)
Compliance with CRD
for solo consolidated
requirements.
Interest rate gap
report (FSA017)
Provision of input into
Pillar 2 assessment.
Meeting international
requests for the UK to
monitor interest rate
risk more closely.
Asset and deposit
maturity (FSA018)
Markets
Peer group analysis of
firms’ planned future
performance.
Assessment of
Management
Information (MI)
accuracy.
Identification of
emerging trends in loan
book performance, and
impairment.
Peer group analysis on
loan performance by
key sectors.
Assessment of the
Assessment of potential impact of the economic
sectoral threats to
cycle on the industry.
firms’ performance.
Identify outliers.
Focus placed on the
banking book where
firms have in the past
experienced problems
but the form has also
been extended to the
trading book.
Monitoring trends in
Peer group analysis.
funding maturities at a
level not possible from
the liquidity reports.
Identify funding risks.
Pillar 2 questionnaire Monitoring compliance Identification of firms
(FSA019)
with Pillar 2 rules
that pose greater risk
under Directive.
to our statutory
Aid prioritising reviews. objectives.
Comparison across
equivalent firms to
achieve consistent
ICAAPs.
Foreign exchange risk Compliance with ELMIs
(FSA023)
Directive.
E-money questions
(FSA026)
Compliance with ELMIs
Directive.
Small e-money report Compliance with rules
(FSA027)
for minimal reporting.
IRB Portfolio risk
(Annex 11, table 1)
Annex 9
Forward-looking
assessment of credit
risk undertaken by
firms on IRB.
Credit risk trend
analysis and to some
extent some peer group
analysis.
3
Data item
Why do we need it and how we will use it
Compliance
IRB Portfolio Outturn
(Annex 11, table 2)
Analysis of high-level
information in addition
to ad hoc MI.
Assess firms size and
impact; determine the
population of firms
that currently deals
with private clients.
Client Money and
Client Assets
(FSA039)
Monitor compliance
with client money
sourcebook
CFTC (FSA040)
Monitor compliance
with CFTC Part 30 relief
arrangements in order
to facilitate the
granting of such relief.
4
Markets
Provision of
Identification of
retrospective analysis potential outliers at
of firms’ model
sectoral level.
performance over time.
Volumes and Types of
Business (FSA038)
Asset Managers that
use Hedge Fund
Techniques Report
(FSA041)
Risk
Capture data about
degree of leverage in
portfolios of firms
across sector; establish
an idea of the private
client investment
management and
stockbroker activity
which is not available
from another source on
an aggregated basis.
Identify risk of firms
potentially not properly
segregating client
money/ assets; track (on
a size-adjusted basis)
the relative seriousness
& significance of
breaches of client money
protections; identifies
recurring instances of
poor client money
controls in individual
firms.
Market confidence on
London Metal Exchange
(LME).
Identification of
Trend analysis
managers that use hedge effectively targeted
fund techniques which
and carried out.
will allow us to direct
resource appropriately
and more accurately
reflect the various types
of firm within its
regulatory regime.
Annex 9
Data item
Why do we need it and how we will use it
Compliance
UCITS (FSA042)
Risk
Markets
Identifies firms using
derivatives for
investment purposes
which provides an
indication of additional
risk schemes are
prepared to expose
participants funds to.
Trend and market
analysis effectively
targeted and carried
out; indicate number of
schemes using
derivative techniques
compared to traditional
products; highlights an
area of additional risk
to client/market.
Threshold Conditions
(FSA043)
Monitor compliance
with threshold
conditions and FSA
principles.
Data required for
calculation of fees
and levies (FSA044)
Information required for timely calculation of a firm’s obligations in
respect of the fees and levies due to the FSA, FOS and FSCS.
Annex 9
Identify firms that are
at risk of failure and
enable us to allocate
resource appropriately.
5
Annex 10
Consolidation Groups
Annex 10
1
BIPRU 8 Ann 1R – Decision tree identifying a UK consolidation
group
No
Test 1: Is the firm a member of a
consolidation group?
This
chapter
does not
apply
Yes
Test 2A: Is the firm a parent
institution in a Member state in the
consolidation group?
No
Yes
Test 2 B: Is the firm a subsidiary
undertaking of a parent institution in
a Member State?
No
Yes
Yes
Test 2C: Is the firm a subsidiary
undertaking of a parent financial
holding company in a Member State?
No
Yes
Test 3: Is the FSA required to
supervise the consolidation group
under Article 125 and 126(1) or (2)
of the BCD or Article 37 of the
CAD?
Test 2D: Is the firm a parent
financial holding company in a
Member State?
No
No
Yes
Yes
UK CONSOLIDATION GROUP
2
Test 4: Has it been agreed
pursuant to Article 126(3) of
the BCD that the FSA shall
supervise the consolidation
group?
No
NOT A UK CONSOLIDATION
GROUP
Annex 10
BIPRU 8 Ann 2R – Decision tree for identifying the consolidated
capital resources requirement of a UK consolidation group or a
non-EEA sub-group
Stage 1: Is there a credit institution in the UK
consolidation group or non-EEA sub-group?
Yes
The consolidated capital resources requirement
is the sum of the following consolidated
requirement components:
1. consolidated operational risk requirement;
2. consolidated credit risk requirement; and
3. consolidated market risk requirement.
No
Stage 2: Is there a CAD investment firm in the
UK consolidation group or non-EEA sub-group
that is NOT a limited licence firm or a limited
activity firm?
Yes
The consolidated capital resources requirement
is the sum of the following consolidated
requirement components:
1. consolidated operational risk requirement;
2. consolidated credit risk requirement; and
3. consolidated market risk requirement.
No
Stage 3: Is there a limited activity firm in the UK
consolidation group or non-EEA sub-group?
Yes
The consolidated capital resources requirement
is the sum of the following consolidated
requirement components:
1. consolidated credit risk requirement;
2. consolidated market risk requirement; and
3. consolidated fixed overheads requirement.
No
Stage 4: The consolidated capital resources
requirement is the higher of the following
consolidated requirements components:
1. the sum of the consolidated credit risk
requirement and the consolidated market
risk requirement; and
2. the consolidated fixed overheads
requirement.
Annex 10
3
Annex 11
Taster data items not
subject to formal
consultation
Annex 11
1
Table 1
IRB portfolio risk
Sovereigns, Banks and Corporates
Tick here if you have no exposures in these asset classes
PD range at reporting
date
Lower PD Upper PD
bound
bound
1
2
3
4
5
6
7
8
From
0.000%
0.035%
0.10%
0.30%
1.00%
3.00%
10.00%
Up to
0.035%
0.100%
0.30%
1.00%
3.00%
10.00%
100.00%
Gross
exposure
value
1
000s
Number
of
obligors
Exposure
at default
estimate
Probability
of default
2
3
000s
4
%
Number
of
obligors
Exposure
at default
estimate
Probability
of default
2
3
000s
4
%
Exposure
at default
estimate
Probability
of default
Loss
Given
Default
5
%
Expected
Loss
6
%
Capital
requirement
7
000s
In
default
Mortgage
Tick here if you have no exposures in this asset class
PD range at reporting
date
Lower PD Upper PD
bound
bound
1
2
3
4
5
6
7
8
From
0.000%
0.035%
0.10%
0.30%
1.00%
3.00%
10.00%
Up to
0.035%
0.100%
0.30%
1.00%
3.00%
10.00%
100.00%
Gross
exposure
value
1
000s
Loss
Given
Default
5
%
Expected
Loss
6
%
Capital
requirement
7
000s
In
default
QRRE
Tick here if you have no exposures in this asset class
PD range at reporting
date
Lower PD Upper PD
bound
bound
2
Gross
exposure
value
Number
of
obligors
Loss
Given
Default
Expected
Loss
Capital
requirement
Annex 11
1
2
3
4
5
6
7
8
From
0.000%
0.035%
0.10%
0.30%
1.00%
3.00%
10.00%
Up to
0.035%
0.100%
0.30%
1.00%
3.00%
10.00%
100.00%
1
000s
2
3
000s
4
%
Number
of
obligors
Exposure
at default
estimate
Probability
of default
2
3
000s
4
%
Number
of
obligors
Exposure
at default
estimate
Probability
of default
2
3
000s
4
%
5
%
6
%
7
000s
In
default
Other retail
Tick here if you have no exposures in this asset class
PD range at reporting
date
Lower PD Upper PD
bound
bound
1
2
3
4
5
6
7
8
From
0.000%
0.035%
0.10%
0.30%
1.00%
3.00%
10.00%
Up to
0.035%
0.100%
0.30%
1.00%
3.00%
10.00%
100.00%
Gross
exposure
value
1
000s
Loss
Given
Default
5
%
Expected
Loss
6
%
Capital
requirement
7
000s
In
default
Securitisation
Tick here if you have no exposures in this asset class
PD range at reporting
date
Lower PD Upper PD
bound
bound
1
2
3
4
5
6
7
8
From
0.000%
0.035%
0.10%
0.30%
1.00%
3.00%
10.00%
Up to
0.035%
0.100%
0.30%
1.00%
3.00%
10.00%
100.00%
Gross
exposure
value
1
000s
Loss
Given
Default
5
%
Expected
Loss
6
%
Capital
requirement
7
000s
In
default
Annex 11
3
Table 2
IRB portfolio outturn
Sovereigns, Banks and Corporates
Tick here if you have no exposures in these asset classes
PD range at start of
period
Lower PD
Upper PD
bound
bound
1
2
3
4
5
6
7
8
From
0.000%
0.035%
0.10%
0.30%
1.00%
3.00%
10.00%
In default
Up to
0.035%
0.100%
0.30%
1.00%
3.00%
10.00%
100.00%
Average
PD on
reporting
date
EL on
reporting
date
Number
of
defaults
Exposure
on
defaulted
items
1
%
2
%
3
4
000s
Estimated
economic
loss on
default
5
%
Change in
individual
impairment
6
000s
Write offs
7
000s
Mortgage
Tick here if you have no exposures in this asset class
PD range at start of
period
Lower PD
Upper PD
bound
bound
1
2
3
4
5
6
7
8
From
0.000%
0.035%
0.10%
0.30%
1.00%
3.00%
10.00%
In default
Up to
0.035%
0.100%
0.30%
1.00%
3.00%
10.00%
100.00%
Average
PD on
reporting
date
EL on
reporting
date
Number
of
defaults
Exposure
on
defaulted
items
1
%
2
%
3
4
000s
Estimated
economic
loss on
default
5
%
Change in
individual
impairment
6
000s
Write offs
7
000s
QRRE
Tick here if you have no exposures in this asset class
PD range at start of
period
Lower PD
Upper PD
bound
bound
1
2
3
4
From
0.000%
0.035%
0.10%
0.30%
4
Up to
0.035%
0.100%
0.30%
1.00%
Average
PD on
reporting
date
EL on
reporting
date
Number
of
defaults
Exposure
on
defaulted
items
1
%
2
%
3
4
000s
Estimated
economic
loss on
default
5
%
Change in
individual
impairment
6
000s
Write offs
7
000s
Annex 11
5
6
7
8
1.00%
3.00%
10.00%
In default
3.00%
10.00%
100.00%
Other retail
Tick here if you have no exposures in this asset class
PD range at start of
period
Lower PD
Upper PD
bound
bound
1
2
3
4
5
6
7
8
From
0.000%
0.035%
0.10%
0.30%
1.00%
3.00%
10.00%
In default
Up to
0.035%
0.100%
0.30%
1.00%
3.00%
10.00%
100.00%
Average
PD on
reporting
date
EL on
reporting
date
Number
of
defaults
Exposure
on
defaulted
items
1
%
2
%
3
4
000s
Estimated
economic
loss on
default
5
%
Change in
individual
impairment
6
000s
Write offs
7
000s
Securitisation
Tick here if you have no exposures in this asset class
PD range at start of
period
Lower PD
Upper PD
bound
bound
1
2
3
4
5
6
7
8
From
0.000%
0.035%
0.10%
0.30%
1.00%
3.00%
10.00%
In default
Up to
0.035%
0.100%
0.30%
1.00%
3.00%
10.00%
100.00%
Annex 11
Average
PD on
reporting
date
EL on
reporting
date
Number
of
defaults
Exposure
on
defaulted
items
1
%
2
%
3
4
000s
Estimated
economic
loss on
default
5
%
Change in
individual
impairment
6
000s
Write offs
7
000s
5
Table 3: Taster of FSA031: Capital Adequacy data item for Article
67(3) MiFID firms subject to IPRU (Inv) Ch 9. The rules for this
section have not yet been consulted on and will appear formally
in the proposed July MiFID CP
Regulatory capital
1 Initial capital
2 Investments in own shares
3 Intangible assets
4 Material unaudited losses
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
A
B
Original own funds
Non-fixed term cumulative preference shares
Fixed term cumulative preference shares
(50% of tier one original own funds)
Non-fixed term long term subordinated loan
Fixed term long term subordinated loan
Revaluation reserve
Liquidity adjustment on illiquid assets
Liquidity adjustment on other non-trading book assets
(Credit risk charge under the current Chapter 10 of IPRU(Inv))
Charged assets
Contingent liabilities
Deficiencies in subsidiaries
Short term subordinated loans
Net interim trading book profit / (loss)
Net interim trading book partners' current account
Material holdings in credit institutions and investment firms
: Group
: Non group
Financial resources
Regulatory capital test
22 How do you meet your regulatory capital requirement:
(Drop down box choice of Capital / PII / Combination)
Capital resources requirement
(Will always be a minimum of £5 / £10k even if PII /
23 Capital requirement
Combo indicated)
24 Own Funds
25 Surplus / (deficit)
Professional Indemnity Insurance
26
27
28
29
30
31
32
33
34
35
36
37
Does your firm hold a Comparable Guarantee in lieu of PII or is it otherwise exempt from PII?
Does your firm conduct insurance mediation activities?
Limit of indemnity required
: Single
: Aggregate
Limited of indemnity obtained
: Single
: Aggregate
Annual premium
Policy excess
Start date
Renewal date
Insurer name
Length of PII contract
6
Yes / No
Yes / No
Annex 11
Table 4: Taster of FSA032: Capital Adequacy data item for Article
67(3) MiFID firms (PIFs subject to Ch 13 IPRU (Inv) and choose
to carry out European -wide activities). The rules for this section
have not yet been consulted on and will appear formally in the
July MiFID CP
Regulatory Capital
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Own Funds
Paid up share capital (excluding preference shares redeemable by shareholders within
2 years)
Share premium account
Audited retained profits
Verified interim net profits
Revaluation reserves
Short term subordinated loans
Debt capital
Balances on proprietors' or partners' capital accounts
Balances on proprietors' or partners' current accounts
Less
Intangible assets
Material current year losses
Excess of current year drawings over current year profits
PASS Loan adjustments
Own Funds
Personal assets
Total
17
18
19
20
21
Adjusted net current assets
Net current assets (from balance sheet)
Less:
Long term assets adjustment
Connected persons adjustment
Investments adjustments
Adjusted Net Current assets
1
A
B
Regulatory capital test
22 Category of PIF under IPRU (Inv)
23
24
25
26
27
Capital requirement
Own funds requirement (Test 1)
Additional own funds requirement for PII (if applicable)
Other FSA capital / own funds requirements (if applicable)
Own Funds
[14]
Surplus / (deficit)
28
29
30
Adjusted net current assets
Adjusted net current assets requirement (if applicable)
Adjusted net current assets (if applicable)
Surplus / (deficit) (if applicable)
[21]
Professional Indemnity Insurance
31
32
Does your firm hold a Comparable Guarantee or equivalent cover in lieu of PII or is it
otherwise exempt from holding PII?
If your firm does not hold a comparable guarantee or equivalent cover
Annex 11
Yes/No
7
33
34
35
36
37
38
and is not exempt does the firm currently hold PII?
Does your firm conduct insurance mediation activities?
Those firms subject to the Insurance Mediation Directive
should state their limit in Euros those not subject to the IMD
should select Sterling
Limit of indemnity required
: Single
: Aggregate
Limit of indemnity obtained
39
40
Yes/No
Euros /
Sterling
(If also conducting IMD scope
activities, 1.5m for IMD
activities plus 750k for
MiFID scope or 25 k capital
(or mix))
: Single
: Aggregate
Has your firm renewed its PII cover since the last reporting date?
If your policy excludes all business activities carried on prior to a
particular date (i,e, a retroactive start date), then insert the date
here. If not insert N/A
Is the cover compliant?
Annual premium
Policy excess
Increased excess(es) for specific business types (Only
: Business
in respect of business you have undertaken in the past or will
types
41
42
43
44
Yes/No
undertake during the period covered by this policy)
45
46
: Amount
Policy exclusion(s) for specific business types
(Only in respect of business you have undertaken in the past
or will undertake during the period covered by this policy)
47
48
49
50
51
Start date
End date
Insurer name
Annual income as stated on the most recent proposal form
Amount of additional capital required for increased excess(es)
52
53
54
55
Total amount of additional own funds required for policy exclusion(s)
Total of additional own funds required
Total of readily realisable own funds
Excess / (deficit) of readily realisable own funds
(Where applicable, total amount for all PII policies)
8
Annex 11
Annex 12
Glossary
Annex 12
1
The following glossary includes Handbook Text, proposed
Handbook Text and non-FSA defined terms. The existing and
proposed Handbook Text is in italics
Term
Definition
AMA
the advanced measurement approach.
ARD
Accounting reference date
ARROW
Advanced Risk Responsive Operating frameWork
BCD
Banking Coordination Directive
BIPRU
the Prudential sourcebook for banks, building societies and investment
firms.
BIPRU 50K firm
has the meaning in BIPRU 1.1.20R (Types of investment firm: BIPRU 50K
firm) which in summary is a BIPRU investment firm that satisfies the
following conditions:
BIPRU 125K firm
(a)
it satisfies the conditions in BIPRU 1.1.19R(1) (does not deal in
any financial instruments for its own account or underwrite issues
of financial instruments on a firm commitment basis) and BIPRU
1.1.19R(3) (offers one or more of certain specified services);
(b)
it does not hold clients' money and/or securities and it is not
authorised to do so; and
(c)
it is not a UCITS investment firm.
has the meaning in BIPRU 1.1.19R (Types of investment firm: BIPRU
125K firm) and BIPRU 1.1.21R (Types of investment firm: limited own
account business) which in summary is:
(1)
(2)
2
a BIPRU investment firm that satisfies the following conditions:
(a)
it does not deal in any financial instruments for its own
account or underwrite issues of financial instruments on a
firm commitment basis;
(b)
it holds clients' money and/or securities or is authorised
to do so;
(c)
it offers one or more of certain specified services; and
(d)
it is not a UCITS investment firm; or
a BIPRU investment firm that falls into BIPRU 1.1.21R.
Annex 12
Term
Definition
BIPRU 730K firm
has the meaning in BIPRU 1.1.22R (Types of investment firm: BIPRU
730K firm) which in summary is a BIPRU investment firm that is not a
UCITS investment firm, a BIPRU 50K firm or a BIPRU 125K firm.
BIPRU firm
has the meaning set out BIPRU 1.1.4 (Application and purpose), which is
in summary a firm that is:
BIPRU investment firm
BIPRU limited activity firm
BIPRU limited licence firm
(a)
a building society; or
(b)
a bank; or
(c)
a full scope BIPRU investment firm; or
(d)
a BIPRU limited licence firm; or
(e)
a BIPRU limited activity firm.
has the meaning set out BIPRU 1.1 (Application and purpose), which is
in summary one of the following types of BIPRU firm:
(a)
a full scope BIPRU investment firm; or
(b)
a BIPRU limited licence firm; or
(c)
a BIPRU limited activity firm.
has the meaning in BIPRU 1.1.17R (Types of BIPRU investment firm),
which is in summary a limited activity firm that:
(a)
is a firm; and
(b)
is not excluded from the definition of BIPRU firm under BIPRU
1.1.5R. (Various exclusions form the definition of a BIPRU firm).
has the meaning in BIPRU 1.1.17R (Types of BIPRU investment firm),
which is in summary a limited licence firm that:
(a)
is a firm; and
(b)
is not excluded from the definition of BIPRU firm under BIPRU
1.1.5R. (Various exclusions form the definition of a BIPRU firm).
BoE
Bank of England
CAD
Capital Adequacy Directive
CEBS
Committee of European Banking Supervisors
CNCOM
the concentration risk capital component.
COREP
Common Reporting
Annex 12
3
Term
Definition
CP197
CP197 Reporting requirements for mortgage, insurance and investment
firms, and supplementary consultation on audit requirements (September
2003)
CP198
CP198 Regulatory reporting – a new integrated approach (September
2003)
CP05/3
Strengthening capital standards (January 2005)
CP06/3
Strengthening Capital Standards 2 (February 2006)
CP06/8
Regulation of Home Reversion and Home Purchase Plans (April 2006)
CP06/9
Organisational systems and controls - Common platform for firms (May
2006)
CRD
Capital Requirements Directive
Data element
Data item
Data set
A discrete fact or individual piece of information relating to a particular
field within a data item required to be submitted to the FSA by a firm or
other regulated entity.
One or more related data elements that are grouped together into a
prescribed format and required to be submitted by a firm or other regulated
entity under SUP 16 or provisions referred to in SUP 16.
One or more data items relating to the same regulated activity
DP05/1
Integrated Regulatory Reporting (IRR) for: Deposit takers, principal
position takers, and other investment firms subject to the Capital
Requirements Directive (February 2005)
ECB
European Central Bank
FEES
Fees Manual
fixed overheads requirement
the part of the capital resources requirement calculated in accordance
with GENPRU 2.1.41R (Calculation of the fixed overheads requirement).
FOS
Financial Ombudsman Service
FSCS
Financial Services Compensation Scheme
full scope BIPRU investment
firm
has the meaning in BIPRU 1.1.17R (Types of BIPRU investment firm)
which is in summary a CAD investment firm that satisfies the following
conditions:
GENPRU
4
(a)
it is a firm; and
(b)
it is not excluded from the definition of BIPRU firm under BIPRU
1.1.5R (exclusions from the definition of a BIPRU firm).
the General prudential sourcebook.
Annex 12
Term
Definition
ICAAP
the individual capital adequacy assessment process.
IFRS
International Financial Reporting Standards
IMF
International Monetary Fund
IMRO
Investment Management Regulatory Organisation
IPRU (Bank)
Interim Prudential sourcebook for Banks
IPRU (INV)
Interim Prudential sourcebook for Investment Businesses
IRB
Internal rating based [approach]
IRR
Integrated Regulatory Reporting
MER
Mandatory electronic reporting
MiFID
Markets in Financial Instruments Directive
MLAR
Mortgage Lending & Administration Return
non-EAA sub-group
(in accordance with BIPRU 8.2.XR (Scope – Non-EEA sub-groups) a group
of undertakings identified as a non-EEA sub-group in BIPRU 8.2.4R to
BIPRU 8.2.8R (Scope – Non-EEA sub-groups).
OPPS
Operator of a personal pension scheme
Pillar 1
a quantification of the risks arising from financial firms' trading and
credit businesses
Pillar 2
a stronger constructive dialogue between regulators and firms on the
risks run by the latter and the level of capital which they should hold
PS04/8
PS04/8 Regulatory reporting – a new integrated approach: Feedback on
CP198 and made text (March 2004)
PSD
Product Sales Data
RAG
Regulated Activity Group
Regulated Activity
As defined in the FSA Handbook.
[The activities for which the firm has permission to carry on]
Regulated Activity Group
A set of one or more regulated activities (with associated investment types
and customer types) referred to in SUP 16 to determine a firm's or other
regulated person's data item submission requirements.
[A firm may fall within more than one regulated activity group.]
RMAR
Annex 12
Retail Mediation Activities Return
5
Annex 13
Streamlining the
Handbook
13.1
This chapter applies to all firms: those that are directly affected by reporting
in this CP and the remaining population of firms noted in table 2 of the road
map at the beginning of this CP.
13.2
The changes in the reporting requirements for firms are complex. We need to
make it as easy as possible for firms to understand what reports they are
required to complete, when, and within what timeframe. They also need to
be easy for us to maintain, and they also ought to lead, wherever possible, to
a reduction in the size of the Handbook.
13.3
To do this, we will restructure the layout of SUP 16.7 which will reflect the
concept of IRR. The new reporting requirements shown as SUP 16.12 in the
Appendix will be based on this new structure. This will be the picture of the
Handbook from 2008. Existing reporting requirements, such as for the RMAR
and MLAR will also be incorporated into this structure, but we do not intend
any changes to the content, frequency, coverage or timing of submission.
13.4
During 2007, we will use SUP 16.7 with changes to accommodate the
transitional reporting requirements during 2007. After that, we will change
to the new structure described below.
13.5
Please note that a firm will have satisfied its reporting obligations to us when
we have received all data items by its due date: its ‘Integrated Regulatory
Return for a particular date’. An administrative fee of £250 for late
submission will apply when one or more data items required on a particular
due date is late.
13.6
The new structure and its benefits are explored in more detail below, and a
table of new terms under IRR follows in table 13.1:
Annex 13
1
Table 13.1: table of terms in IRR
Term
Definition
Data Element
A discrete fact or individual piece of information relating to a
particular field within a data item required to be submitted
to the FSA by a firm or other regulated entity.
One or more related data elements that are grouped together
into a prescribed format and required to be submitted by a
firm or other regulated entity under SUP 16 or provisions
referred to in SUP 16.
One or more Data Items relating to the same regulated activity.
Data Item
Data Set
Integrated
All data items due for submission by the same submission
Regulatory Return due date regardless of regulated activity group.
(IRR) (for a
particular date)
IRR Subset
All data items due for submission by the same submission
due date and for the same reporting period within the same
regulated activity group.
Structure of SUP 16.12 – ‘the new world’
13.7
Currently SUP 16.7 shows the reporting of returns by firms according to
their firm type. This is contrary to the structure of IRR based on regulated
activities.
13.8
The redrafted SUP 16.12 will reflect regulated activity based reporting. In the
new structure, the concept of the firm submitting a return, for instance the
BSD3, will disappear and firms will be required to submit the data items
relevant to the regulated activities they undertake.
13.9
Regulated activities will be grouped together in Regulated Activity Groups
(RAGS), which tie together activities of similar nature and risk. The RAGS
are then placed into a hierarchy so we can de-duplicate data items where a
firm undertakes regulated activities in more than one RAG.
13.10
We are committed to ensuring that we do not ask for similar data items from
multiple RAGS so we minimise the burden of reporting on firms in this move
to regulated activity based reporting under IRR. We accept that where a
firm’s activities appear in multiple RAGS, when it supplies a data item in a
higher RAG it fulfils its requirements in terms of that data item for all the
RAGS it appears in below that. The exception to this rule is in terms of
reporting for fees levies information.
13.11
We will write a simple overarching rule into SUP 16.12 to achieve this, rather
than the complicated de-duplication rules that exist in relation to the RMAR
and MLAR at present.
2
Annex 13
13.12
The data requirements placed on firms will appear in a table, with a
universal referencing convention for the data items. The balance sheet would
be a data item going forward, as would the income statement or capital
adequacy tables. So, in terms of the balance sheet for a deposit taker who
was a UK bank, the balance sheet would be identified as FSA001, and would
be located in SUP 16 Annex 24R.
13.13
The frequency of submission and reporting deadlines of each data item with
a RAG will also be presented in a table.
Benefits
13.14
We think this restructuring will bring about benefits for firms and us.
Clarity of structure
13.15
To introduce amended reporting based on the activities a firm undertakes as
well as any EU Directives that affect a particular firm would likely be
convoluted and excessively wordy if continuing with the present structure.
This would not provide clarity or ease of use, either internally or externally
by firms. It would be like trying to fit square pegs into round holes.
13.16
Moving now to a structure based on RAGS and activities would enable clearer
drafting of SUP 16.7 with less room for confusion and misunderstanding.
13.17
The standardisation of referencing and simple RAG based approach, allows
us to write a simple de-duplication rule, whereas SUP 16.7 presently contains
complicated rules to enable de-duplication to be carried out. For instance, a
firm who undertook deposit taking activities and investment management
activities (RAGS 1 and 3 respectively), would supply the data item balance
sheet from RAG 1 only, and not RAG 3 also.
Ease of use – making the FSA easier to do business with
13.18
The clarity of structure will make it easier for firms to use and understand
reporting obligations. The firm will be able to identify which RAG (or
RAGS) its reporting obligation falls into.
13.19
The table format will allow firms to easily plot their obligations within each
RAG, alongside the frequency and period of reporting. Visually, the use of
tables instead of lengthy sections of text will make this process easier and
quicker, and less daunting.
Reflects concept and structure of Integrated Regulatory Reporting
13.20
We have been committed, and have been moving to the concept of IRR since
early 2004. Amending the structure of SUP 16.7 (to SUP 16.12) reflects this
Annex 13
3
ongoing commitment. It will help eliminate potential confusion as when
discussing reporting based on regulated activities, whilst the Handbook still
refers to legacy firm type.
Simplification of the Handbook
13.21
We have an ongoing obligation to simplify the Handbook. The proposed
restructuring of SUP 16.7 (to SUP 16.12) would further that aim. Reporting
requirements would be more easily identifiable by firms, and the content of
the obligations would be simpler to understand and follow. As such, we
would be contributing to one of our major commitments to firms.
Transitional arrangements and timings
13.22
The Handbook text relating to the new requirements contained in this CP
will show the transitional arrangements for 2007 in amended existing text to
SUP 16.7 and the Transitional Provisions at the beginning of the Supervision
Manual, and then show the ‘new world’ of SUP 16.12 for rules post 1
January 2008.
13.23
We have committed to providing firms with 12 months’ notice of new
reporting requirements where possible. However, previously in this CP we
have highlighted where this is not possible. Specifically, in relation to new
data items developed in association of the CRD review, and also for financial
data items related to Article 67(3) MiFID firms.
13.24
The rules, as they appear in the Annex, will generally be in effect from 1
January 2007 (SUP 16.7). However, the draft rules indicate where this is not
the case, most specifically in relation to the proposed new SUP 16.12.
4
Annex 13
Appendix
Draft Handbook Text
Handbook Provision
Annex A Part 1: Amendments to SUP 3.9
Annex A Part 2 : Amendments to SUP 16 transitional provisions
Annex A Part 3: Amendments to SUP 16.1 - 7
Annex A Part 4: Amendments relating to personal pension schemes in SUP
16.11 and transitional provisions
Annex A Part 5: Draft Handbook Text for SUP 16.12
Annex A Part 6: Amendments to SUP 16 Annexes 2G, 4G, 5R, 16R, 11G
and 18BG
Annex A Part 7: Draft Handbook Text for SUP 16 Ann 24R
Annex A Part 8: Draft Handbook Text for SUP 16 Ann 25G
Annex A Part 9: Further amendments to SUP 16.7
Annex B: Draft Handbook Text for IPRU(BANK)
Annex C: Draft Handbook Text for ELM
Annex D: Draft Handbook Text for the Glossary
Appendix
1
Pub Ref: 2491
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