26 April 2023

SSM's Enria: Twenty years of (bumpy) progress: harmonising supervisory reporting in the EU

We were motivated by the belief that a common financial reporting framework would reduce the reporting burden for credit institutions that operated across borders and would help to promote a level playing field in Europe while lowering barriers to an efficient internal market in financial services.

I am particularly happy to introduce this conference because supervisory reporting is a topic that I have a strong personal investment in. I’ve been involved in efforts to harmonise supervisory reporting in the EU for a large part of my professional career.

Today I want to tell you the story of these harmonisation attempts. In one sense it’s a classic EU integration story. A story of friction between national priorities and perspectives on the one hand, and of realising collective gains from pooling sovereignty on the other hand. But it’s also a personal story about my own career and the vision I have been working to achieve, rooted in my belief in EU integration.

The early years: CEBS

It started nearly 20 years ago. When I became Secretary General of the Committee of European Banking Supervisors, CEBS, in 2004, one of the first major tasks on my agenda was an attempt for the EU to produce harmonised reporting for banks, based on the Basel standards.

The vision was bold. As we were moving to implement Basel 2 in Europe through the Capital Requirements Directive, we saw a unique window of opportunity to move to a supervisory reporting setup similar to what they had in the United States. The uniformity and transparency of supervisory reporting support smooth market functioning by promoting investor confidence in the ability to make differentiated investment decisions. In the US system, the Federal Financial Institutions Examination Council (FFIEC) set uniform principles, standards, and report forms used by all financial supervisory authorities. This enabled standardised disclosure of balance sheet and P&L data directly on the authorities’ websites, thus ensuring proper working of market discipline. It also enabled integrated supervision of all entities belonging to the same banking group, even if they were supervised by different authorities within the United States.

We saw the US system as a model that could help us address three issues that we saw as contributing to a fragmented supervisory reporting landscape in the European Union. First, we wanted to tackle the excessive compliance burden for banks operating through different establishments within the Single Market. Cross-border banks had to show compliance with the same requirements across the Union using different reporting templates and IT platforms in different Member States. Second, we wanted to enable a system-wide picture of risks, by allowing supervisors to pool information and compare risks at competing entities supervised by different authorities, also to avoid competition in laxity. And third, we wanted to provide a backbone for a better functioning of the newly established Pillar 3, with disclosures of standardised, comparable information to markets.

We were motivated by the belief that a common financial reporting framework would reduce the reporting burden for credit institutions that operated across borders and would help to promote a level playing field in Europe while lowering barriers to an efficient internal market in financial services.

What did we achieve? CEBS issued guidelines establishing a standardised consolidated financial reporting framework, FINREP, in December 2005, and a common reporting framework for the new solvency ratio for credit institutions and investment firms, COREP, in January 2006.

FINREP was intended to replace existing consolidated financial reporting frameworks when supervisory authorities chose to change the accounting basis for prudential reporting from national generally accepted accounting principles to International Accounting Standards/International Financial Reporting Standards. COREP represented a significant step towards convergence. For the first time, key prudential information was reported in the same manner, using formats and variables with clear common definitions linked directly to the relevant solvency directives.

But the actual outcome remained very far from what we had hoped to achieve.

There was no maximum harmonisation, which would have prevented Member States from imposing additional requirements beyond those defined by the EU legislator.

SSM

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