EBA Workshop – Data Management and Reporting
Advisense had the pleasure to attend the EBAs “Workshop with industry and members of the Subgroup on Analytical Tools: Leveraging EUCLID - taking reporting practices and data quality to the next level of excellence” on the 20-21st of June in Paris. The overarching theme of the workshop was setting up the supervisory tools needed to ensure correct, efficient, and transparent regulatory reporting for the future.
Reporting requirements have increased exponentially over the last decade, and with it increased the focus on data quality and the technical tools to handle the substantially larger data quantity. The workshop discussed EBAs initiatives and ongoing projects to prepare for coming regulatory requirements.
Some of the main topics during the workshop included DPM 2.0, EUCLID and common validation rules, XBRL-csv as well as Pillar 3 disclosures. These changes will affect the regulatory reporting and disclosures of institutions, forcing all reporting into EUCLID to use XBRL-csv by 2025 and aiming to create the entire quantitative Pillar 3 report for SNCI’s automatically from EUCLID. We will expand upon these topics in further detail.
EBA data Point Model 2.0
The EBA Data Point Model was first developed in 2012, to support the EBA reporting framework 2.0. And was released as part of the ITS 2.0 technical package by end of 2013. Since then, the DPM has been an integral part of EBA’s solution to regulatory reporting.
Since 2013 the DPM has accumulated all versioning from reporting framework 2.0 to 3.3 and contains information regarding template structure, data points categorization, validation rules and taxonomies. All this without having any significant changes to the structure of the data point model. This is about to change.
In June 2023 EBA and EIOPA published the DPM 2.0 standard and this was further discussed at the EBA workshop.
One could ask itself why the data point model is being reworked. The goals of the DPM 2.0 project are many. But foremost it is:
- To have a total convergence of EBA and EIOPA methods, models, processes, and tools used for the development of data dictionaries and related regulatory products.
- To create a unified and versatile metamodel that is applicable to all regulatory data exchanges, from highly aggregated data points to very granular data sets.
- To have content that is both extensible and interoperable. This is important for redefining and reusing data for new regulatory data requirements.
- To enable subsequent semantic integration and therefore simplifying reporting across different regulatory domains.
To achieve this there have been extensive improvements made to the old DPM. In addition to all these new features there will also be updates to the validation rules and how the DPM is published. As of writing this article most of the main expected building blocks for the DPM 2.0 are already complete. The two outstanding building blocks are interoperability and governance. In addition to this other EU-level authorities outside of EBA and EIOPA are also keen on adopting DPM 2.0 in the metamodel implementation which will require additional development.
We’re expecting to see continuous development of the DPM 2.0 during the fall of 2023 and finalization of the DPM studio, the calculation and validation engine and migration of content from the old DPM model to the new one. From the beginning of 2024 the new DPM releases will be published using both the old and the new DPM format, and after the end of 2025 only the DPM 2.0 releases will be available.
Furthermore, after the end of 2025 there will also be a different version of XBRL-files required for reporting to EUCLID. Today most of the XBRL-files delivered to EUCLID from the national authorities are XBRL-XML. However, EUCLID also accepts files in the format XBRL-csv and after end of 2025 XBRL-csv will be the only file format that is possible to report into EUCLID.
How this affects the individual banks is still unclear since it is for the respective national authorities to decide how they in turn want to receive input from the banks. But we should expect more information regarding this from the national authorities in the coming years.
Regarding DPM 2.0 this does impact institutions that are using the DPM when creating regulatory reports, it also brings on changes to the structure of validation rules and changes to how the DPM files are published which will require adjustments to the reporting systems. However, most institutions currently use reporting tools to create the actual XBRL files and as such this will mainly impact regulatory reporting service providers. EBA also announced that they will be hosting a workshop specifically regarding the DPM 2.0 this fall.
EUCLID and validation rules
The increase in reporting requirements during the last decade have brought the need for more efficient data collection systems for EBA. EUCLID currently manages and collects data from around 8000 entities within the union. Where each new mandate for EBA to collect data reporting requirements must be defined into the DPM model for EUCLID. This to establish who is required to submit what and when. To determine the submission requirements two different types of information are required. The first is entity information, which EBA refers to as master data and contains information such as unique identifier, country, name, and reporting currency, and gives the EBA a profile for each entity. The second is system configurations, mainly reporting rules and obligations as well as information on reference date and deadline. These two pieces of information then make up the reporting calendar.
To properly validate the information for each specific entity type, both master data and system configurations is needed. Needless to say, the information needs to be correct. If faulty information is provided by the institutions or the FSAs to EBA, either the master data or system configurations will be incorrect. This would result in EBA estimating a different type of configuration for the report and subsequently conducting validations that don’t apply to the specific institution. If the master data is not updated to reflect the use of, for instance, the simplified NSFR-modules EBA will assume the use of the more advanced NSFR-modules. This is one of the reasons for faulty filing indicators which is something EBA listed as a common error.
EBA also mentioned the top failing validation rules. The rule that fails the most is the cross-validation between Own Funds and Large Exposures template C29, namely that the total exposure value, both before and after application of exemptions and CRM expressed in percent must be correctly calculated as percent of the Tier 1 capital that is found in Own funds.
For the most common warnings, template C34.07 for Counterparty Credit Risk Exposure and cross validations between FINREP and AE top the list. Another issue that the EBA discussed is the handling of zeros vs missing values. According to the ITS, information that is not required or not applicable shall not be included in the data submission. To avoid a database filled with zeros, if a value is not reported it is either assumed to be a non-interesting zero or not applicable. EBA further detailed that there is still room for improvement in this regard when it comes to the COREP and FINREP modules.
Pillar 3 disclosures and Pillar 3 data hub
To ensure transparent and unified Pillar 3 reporting throughout the union, EBA is currently working on a large update initiative in order to align the disclosures towards the coming CRR 3 regulation. The update to the Pillar 3 disclosures is done in parallel to the CRR 3 reporting work, which is divided into two steps.
Step one includes the consultation paper for credit, operational, market and CVA risk as well as the output floor. The tentative timeline for the first step is the coming disclosure templates during September/October in 2023, and the publication of the consultation paper in November/December. In summary, what changes are we expecting to see in the disclosure templates? On the overall key metrics there will be some adjustments to the EU OV1 template. EBA is also developing new templates for comparison of modelled and standardised RWA at both risk level and for credit risk at asset class level. With the changes to article 433b and 433c of CRR 3 the SNCI and the other non-listed institutions will be required to disclose the applicable templates for non-performing and forborne exposures mentioned under article 442, which currently only large institutions and other listed institutions must report. New templates for CVA risk will also be developed to follow the updated calculation the CRR 3 will impose.
The topics of the second step still needs to be finalised by the European parliament, however proposed subjects include ESG, crypto assets and shadow banking. As such, it is not yet known how this will impact the disclosure templates. The timeline for the second step is yet to be defined.
Parallel with the updates to the CRR 3 disclosure templates, an effort is made to centralise the prudential disclosures and make the information readily available through a single website, preferably gathered on the EBA webpage. The effort is dubbed the Pillar 3 Data Hub (P3DH) and will serve as a single platform for users with the purpose to increase accessibility, comparability and increase the use of reporting data. The P3DH also aims to reduce the cost of compliance related to disclosure obligations, particularly for SNCI.
For SNCIs it is proposed that the Pillar 3 is to be compiled by EBA through the supervisory reporting data in EUCLID. This effectively means that EBA aims to collect, create, and publish the quantitative parts of the prudential disclosures for smaller firms. For other, and large institutions it is proposed that the institutions publish their reports directly into the P3DH. The pilot for the P3DH is already underway after a call for participant of 6-8 large institutions. Proposed first test reporting for these participants in the pilot is expected to take place in Q1 2024, though estimated implementation for EU-wide implementation is expected towards the end of 2020s as it will feed into the ESAP (European single access point).
For further information on pillar 3 disclosures EBA plans to host a workshop when the consultation paper is finalised.
Conclusion
To conclude, the workshop hosted by the EBA circulated around correctness in reporting and proportionality in disclosures. These are topics that we at FCG has been working on these past few years, and we think it’s great that EBA highlights these topics with this workshop and communicates where they intend to put their focus going forward. If you have any further questions or need for expertise in these areas, please don’t hesitate to contact us as FCG.
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