European Commission to fix broken reporting framework – starting in 2018

Two years after its Call for Evidence determining whether EU regulation is fit for purpose, the European Commission (EC) has found that automation and standardisation should ultimately pave the way towards reducing the regulatory burden for the industry – improving law making in the EU. This means that reporting experts and RegTech providers of all shapes and sizes can expect more work to come, starting now.

The EC acknowledges how significant effort is required to redefine a regulatory framework which is more accommodating to smaller and less risky firms and less burdensome to all market participants.

On this point, it notes how many respondents to the Call of Evidence highlighted that diverging and inconsistent supervisory approaches contribute to unnecessary regulatory burdens, expressing the following concerns about the compliance burden stemming from reporting requirements:

  • Reporting requirements are perceived as too numerous and too complex due to duplications and overlap across different reporting frameworks but also, due to insufficient standardisation and lack of clarity as to what has to be reported
  • Regulatory reporting is costly – IT systems and internal procedures need to be augmented to meet changing requirements
  • Ad hoc requirements, e.g. requests by supervisors that go beyond the regular reporting requirements, were perceived as particularly disruptive and costly.

Followers of these RegTechFS pages will hardly find these issues to be new.  What is new, is that at long last a path forward has emerged. It comes from the highest level and clearly has the backing of the Cabinet. Europe has recognised that piecemeal attempts to align reporting frameworks will not suffice and that a more comprehensive approach is warranted. While giving a nod to efforts like the EBA proposals to reduce the burden of reporting in the banking sector and ESMA’s amendments to technical standards on reporting to align EMIR and MIFID II, the EC has found that a cohesive approach and concerted effort is required – and it cannot wait. All policy briefs moving forwards will need to take note of a new approach to regulatory reporting that will get underway next year.

The solution

The EC has proposed a two-pronged approach to solving the issues it has identified: immediate action to tackle the most problematic areas in reporting, and eventually, a more comprehensive, long-term approach to address the costs and benefits of regulatory reporting.

The approach outlined has two over-arching objectives:

  1. Identify areas where action is required – overlapping requirements; lack of standardisation; insufficient clarity
  2. Devising concrete measures that help reduce compliance for firms – implementing a ‘report once’ principle.

Two projects are critical to meeting these objectives (i) a Fitness Check of supervisory requirements; and (ii) the ‘financial data standardisation’ project (FDS).

The Fitness Check, due to be completed by the end of 2018, will identify potential areas where reporting can be streamlined. Important to this is an open public consultation (consultation period: 1 December 2017 – 28 February 2018) which will look to collect information on, amongst others, the investments required to meet the reporting requirements, examples of duplicative reporting and examples of reporting of redundant or unnecessary data. This will be carried out in conjunction with the FDS, which will also look to iron out inconsistencies in reporting – focusing especially on harmonising data definitions (e.g. a common financial data language) and reference data.

Innovative RegTech will be critical to these efforts. In identifying these solutions, the Commission will explore the merits of automation technology, reducing the amount of human intervention in both reporting and data analysis.

Sound familiar? It should. Our coverage of the FCA/BoE reporting TechSprint last month and our coverage of the US and global efforts in this space has noted the importance of innovative ICT technologies in regulatory reporting.

Many of the issues raised by the Commission in its report have been identified and addressed by our Reporting and Reference Data Special Interest Group (RRDS) several times over the course of 2017. We will continue to consult with industry participants on these issues beginning of 2018 – our next meeting is scheduled for 13 February 2018 at the FCA – where we will discuss the best approach to engage with the Commission.

Contact RRDS@jwg-it.eu if you would like to get involved.  You can also keep up to date with Reporting and Reference Data related news on our LinkedIn Group or follow us on Twitter and subscribe to our newsletter alerts.

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