On 10 December 2020, the Better Legislation for Smoother Implementation (BSLI) community hosted the last virtual breakfast of the year to discuss what the Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) of the European Commission is doing to make regulatory reporting more effective.

We were pleased to welcome participants from the public and private sectors and colleagues from DG FISMA, Pavel DIKO and Bartosz DWORAK, to discuss their strategy for streamlining supervisory reporting in EU financial services. The discussion was very engaging as participants were eager to learn more about DG FISMA's ideas on areas for improvement in  financial reporting.

During this virtual breakfast, we had the chance to explore the following topics:

• Learn about the BLSI community’s new topic on streamlining regulatory reporting – what do we mean by regulatory reporting, why does it matter and what are we doing.
• Learn about how DG FISMA is re-defining supervisory reporting – more specifically, their strategy for supervisory data in EU financial services.
• Regulatory reporting principles - understand the challenges when setting regulatory reporting requirements and establish principles towards a streamlined regulatory reporting process that are aligned with the data strategy and based on best practices and lessons learnt.

The presentation of the virtual breakfast webinar is available below as well and you can find the webinar recordings here.

Key takeaways

Our main takeaways from the presentation delivered by Pavel DIKO and Bartosz DWORAK from DG FISMA on their strategy for supervisory data in EU financial services are:

• Based on the Fitness Check of supervisory reporting requirements, several areas were identified for improvement:
  • Legislative process and instruments;
  • Governance;
  • Data needs and uses;
  • Consistency and harmonisation;
  • Technology.
• Synergies with the Digital Finance Strategy and European Data Strategy should be exploited.
• DG FISMA’s long-term objectives to streamline supervisory reporting in the financial domain are to deliver accurate, unambiguous, and timely data to supervisory authorities in order to enable effective and efficient monitoring and supervision of the financial system. At the same time, the focus should be on reducing the costs and reporting burden for supervised entities and supervisors.
• Based on the findings of the Fitness Check and in line with the long-term vision and guiding principles, the following initial ideas for action were presented:
  • Supervisory reporting manual – there are many inconsistencies that lead to overlaps and problems of coherence in requirements across the financial sector. When developing supervisory reporting requirements, basic guidelines should be followed before moving to the technical aspects of the requirements. While the initial manuel would focus on the financial sector, it could be formalized in such a way that it could be helpful for other sectors too.
  • Standards and identifiers: The Fitness Check showed that the different financial legal acts and existing requirements refer to a large number of standards and identifiers that sometimes overlap and increase the burden and costs for the reporting entities. It is therefore important to make an effort to harmonize these standards and indentifiers.
  • Regulatory concept dictionary: terminology currently used in the financial sector is quite inconsistent and incoherent and therefore confusing. In practice, stakeholders take a long time to understand the terminologies and the formalisation of reporting requirements.  DG FISMA has two ongoing projects that are looking into this aspect. One of them focuses on a thorough review of all individual regulatory requirements in the financial sector, how they are formulated and the terminologies used. And another project has recently begun to analyze the extent to which it is possible to make regulatory requirements machine-readable and use language processes. This dictionary would support and guide policy makers in drafting clearer reporting requirements in legislation with a common language defined in the dictionary.
  • Data sharing: reporting entities complain that they have to report the same data to different supervisors. The objective here is to allow data to be reported once and then shared among different entities at EU level. This practice should be fostered as much as possible.
  • Governance: the focus is on collaborating and working with stakeholders. DG FISMA is establishing a community to provide technical advice.
• Prerequisites for success: colleagues from DG FISMA stressed the fact that there is a need for additional technical advice and assessments such as cost-benefit analysis. Their strategy will also build on existing initiatives and take into account sectoral initiatives to ensure coherence and avoid duplication. DG FISMA will also reach out to national authorities to gather input on how to minimize the fragmentation of resources dedicated to reporting at the national level.

Main takeaways from the Q&A session with the participants:

• Regulatory reporting versus supervisory reporting: There are indeed different ways to refer to ‘reporting’. Supervisory reporting is considered a subset of regulatory reporting. The regulatory reporting process in the financial sector is different from that of other Commission DGs. At DG FISMA, this is not the Commission that receives the data from the reporting entities, but the supervisory authorities. The data flow and the way data transits from one entity to another is different. In the financial sector, this is mainly about the reporting of reporting entities to supervisory authorities for the purposes of financial supervision and monitoring.
• When setting up new financial reporting requirements, DG FISMA first considers the policy objectives to be able to well scope the data needs (What do we want to learn from the data?). Most importantly, the supervisory authorities and stakeholders from the industry should, to the extent possible, participate in the development and implementation of the DG FISMA strategy. Collaboration with stakeholders is key. They are looking for feedback and input from stakeholders and supervisors at all levels. This is an area where input and feedback from stakeholders are much needed.
• Regarding the regulatory concept dictionary, DG FISMA has two ongoing projects that address this aspect. One of them is analysing the extent to which it is possible to make reporting requirements machine-readable and to use national language processes. The goal of DG FISMA is to have this Regulatory concept dictionary available in 2021. For the moment, they have the preliminary version of the dictionary. An external contractor is working on it to improve its quality by incorporating human feedback. They are currently investigating how stakeholders could use this dictionary in a simplified way. It is a web application with an interface, where users can find terms and pieces of legislation where the terms are defined.
• DG FISMA would like and aims to use standards and formats for submission of reports. Ideally, they would prefer to use international and not only European standards. However, at the moment no decision has been taken. Nowadays, the supervisory authorities use different models and standards. This is a topic that will have to be discussed extensively with the concerned stakeholders, as they will have to evaluate to what extent they can harmonize these standard and formats across the different financial sectors. 
• DG FISMA tried to estimate the costs and burden of supervisory reporting on reporting entities and supervisors in the Fitness Check. They have an external study that examines the costs of supervisory reporting. However, this is rather difficult to calculate, as companies do not necessarily extract these data for regulatory compliance. Nevertheless, they conducted a qualitative assessment of the burden and know what the challenges are.
• The ‘unnecessary’ part of the cost hindered by financial regulatory reporting has not been calculated so far since it was challenging enough to find the overall costs. Nevertheless, they stressed that if they manage to reduce the costs by 20%, this is already significant as the costs can be counted in billions.
• DG FISMA defines BIRD (Banks’ Integrated Reporting Dictionary) as a good template and plans to extend it within the banking sector but also to other sectors. The BIRD is an agreement between the European Central Bank (ECB) and banks- which are the reporting entities- on the common vocabulary. And the IRF (Integrated reporting framework) is a system that specifies the reporting requirements using this vocabulary that banks have agreed upon. There is a part of a joint effort in the industry to standardize things on their side, which then allows supervisors to define reporting requirements in a clearer, and more automated way.

We would like to thank you again for participating in the webinar.

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