Although the European Banking Authority (EBA) is aware of the costs and difficulties banks encounter to comply with reporting and disclosure, an improved transparency is key for regulators as well as markets.
Concerning COREP and FINREP, do you consider banks will meet the deadline, which is very close now?
RB: COREP and FINREP won’t be issued at the same time. COREP is implemented from the 1st of January, and the first set of data has to be ready as of March, with a longer remittance date; then FINREP will be as of September, and the remittance date should be as of mid-November. Deadlines will be longer for new reportings we introduced later: for example for the reporting on Forbearance and Non-performing exposures, the remittance date will be postponed to December.
PH: We really appreciate the efforts on the costs the banks had to make to meet these reporting deadlines. We will make efforts in the future to make these deadlines easier. We will also take steps to try to address some of the concerns banks expressed.
But we can’t postpone delivery forever because we have to start monitoring risks. Without these tools we can’t know if banks are meeting their regulatory capital requirements for example. We are in a difficult position, wanting to create a base for them, and at the same time, appreciating costs and difficulties. Furthermore some banks complain in public but we hear in private that such projects, though hard to manage, help them to improve their systems.
Do you plan to publish some analysis and data and reporting quality following the first transmission of these reportings?
RB: There are no such plans; quality will be checked both by National Competent Authorities (NCAs) and us. For some brand new notions like forbearance, the reporting chain have to be created, so quality will improve with time. We are aware of that. What is important for us is to be able to monitor all the risks and also capital positions as soon as possible.
Could you give more information about the schedule of guidelines to be published this year?
RB: We’ll be publishing guidelines on four issues. The first one will be on unencumbered assets; it will be ready by the 30th of June. The second one will tackle the materiality concept in relation to disclosures; the third, how to apply the concepts of confidentiality, and proprietary information to disclosures – the definition and practices for these three notions currently differ from bank to bank. Finally we’ll publish a guideline about the frequency of disclosure, because for now all the disclosures have to be published once a year as a minimum and more frequently if banks are requested or assess there is a need to do so considering specific conditions laid down in the CRR; our guidelines will provide guidance to banks on how to apply these conditions.
We are currently drafting these three guidelines. They will be issued for consultation in the first half of the year, finalized in the second part of this year, and sent to the EU Commission for endorsement by the 31st of December this year. They should be published thereafter. These guidelines follow some technical standards we already published on disclosures: the first one deals with disclosures for own funds. It has been endorsed by the European Commission in December; another one is centered on the leverage ratio, and is still under development, as the consultation period has just ended. These technical standards rank higher in the hierarchy of norms compared to Guidelines. Technical standards are binding and directly applicable while Guidelines are based on a “comply or explain” principle and if banks do not intend to comply they must provide reasons for non-compliance.
Do you consider that banks are doing enough towards greater transparency?
RB: Transparency is currently a dynamic concept, which is evolving, because the aim of transparency is to shade lights on banks’ risks. You can distinguish two parts in transparency: the compliance with the specific disclosure requirements set out by regulations and standards, and that is monitored by regulatory authorities (for instance, the EBA has been monitoring for some years the compliance of banks’ disclosures with the “Pillar 3” requirements from the CRD), and the compliance by banks with the general requirement in regulations to go beyond what text require in terms of information, if it’s required to give a comprehensive insights on their risk profile.
Banks have to take care of providing this comprehensive insight, which implies they have to be reactive, to listen to what markets and analysts need. In this sense, the journey towards greater transparency never ends. At the EBA, we can acknowledge banks are doing efforts because we started monitoring disclosures in 2007-2008, with the outbreak of the financial crisis. Obviously we would have liked even more improvements but nonetheless there have been some.
Now the issue for us is consistency and comparability of the disclosures across banks in Europe. The current process of assessment in Europe is a good test. We observe that some banks give the same type of information, and may even present it in a similar way thanks to common accounting rules or listing requirements. But nevertheless, comparability at the national level is far from being the rule, and even if some degree of it can be observed within jurisdictions, it remains a major issue at the European level, when comparing disclosures from different EU banks.
PH: The US is particularly good as regards disclosures. In Europe we still have to make efforts to improve our disclosures, particularly in the field of assets’ quality. We could have relevant data on asset quality in a sort of public domain, without moving into proprietary information. It would remove all the concerns we have on sovereign exposures, for example. It would help resilience of the banking sector, while informing markets about what’s going on, and avoid market rumors or fears on concentration risks.
What do you expect from national supervisors?
PH: We have an excellent cooperation in terms of driving our transparency agenda. All of the relevant competent authorities – the national regulators and the regional ones in the future – come together to agree with us on the standards of the supervisory reporting; we worked together very hard on both assessing Pillar 3 disclosures and pushing to improve the banks’ own Pillar 3 disclosures. They also worked very much with us to promote the role of the EBA as a data hub, being the focal point of the EU transparency data. We get a strong support from the national supervisors to do that, because we can make possible that banks from across the EU can be compared in a consistent way by the markets.
RB: Let’s add to this that the above-mentioned guidelines and standards will in fact be written in close cooperation with experts from national supervisory authorities.
PH: One of the issues the supervisors have said to us is that it is really helpful to do it through the EBA because it prevents from the “first mover” advantage: if one country tells its banks to disclose their sovereign exposures, there’s the risk of a markets’ misunderstanding. It allows a sensitive and coherent approach in the analysis, and avoids creating unnecessary rumors in the markets.
You present harmonization as a key field of progress, did you identify some areas of work?
RB: We have already started providing some more harmonization on two stages: first, as we were discussing at the beginning of this interview we are drafting guidelines; in these guidelines we will provide for more harmonization, or at least more consistency, regarding how banks use the notions of materiality proprietary information, confidentiality in relation to disclosures, and regarding the frequency of disclosure. Second, guidelines but also technical standards allow common definitions and presentation: the asset encumbrance guidelines or the leverage ratio technical standard are a good example of harmonization regarding definition and presentation.
As you know we also work at an international stage on disclosures. We’re also collaborating with other bodies like the BCBS, ESMA, and take part to the works of these organizations, towards more consistent disclosures. In the end, such works on the international stage will also contribute the improvement of banks’ disclosures.
What will be the core of your mission in 2014?
PH: I think that the highlights in 2014 should be the stress tests we will be doing. There’s a lot of pressure on these, we have a big responsibility and a big job. We will be helping our colleagues and the relevant regulatory authorities in their job of finding weaknesses.
We’ve done well in the past in the field of transparency. This year we’ll continue to push hard to make sure that we’ve put out all the measures understandable in a consistent way.