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Supervisory Reporting Requirements in Financial Services Legislation

Summary
Evaluation
Commission Proposal
Legal Act
Implementation

Overall state of play:

Fitness check finalised: SWD(2019) 402, on 6.11.2019.
Strategy on supervisory data in EU financial services adopted: COM(2021) 798, on 15.12.2021.

State of play, main conclusions, outlook

Between 2017 and 2019, the Commission has carried out a fitness check of supervisory reporting requirements, which aimed at assessing the challenges in the current EU-level supervisory reporting system and identifying areas where the efficiency of the overall reporting framework can be increased. In that context, the Commission also considered the opinion of the REFIT Platform.

Building on the conclusions of the comprehensive fitness check of EU supervisory reporting requirements in financial sector legislation, the Commission adopted in 2021 the strategy on supervisory data in EU financial services (link: Strategy on supervisory data in EU financial services (europa.eu)). The objective of the strategy is to modernise EU supervisory reporting and put in place a system that delivers accurate, consistent, and timely data to supervisory authorities at EU and national level, while minimising the aggregate reporting burden for all relevant parties. A dedicated website provides an overview and updates of all follow-up activities that are part of the strategy: Supervisory data collection (europa.eu).

The Commission’s long-term vision on supervisory data in EU financial services focuses on four building blocks: (1) increased consistency and standardisation of data, (2) better data sharing among authorities, (3) an improved process for developing and adopting reporting requirements, and (4) joint governance. Delivering these essential building blocks will enable a more effective and efficient use of modern technologies. The next key implementation milestones will be: the assessments by the European Supervisory Authorities (ESAs) to further integrate reporting and improve consistency and data standardisation within the respective sectors; the establishment of sectoral data dictionaries; the review of obstacles to data-sharing; and the formalisation of the governance arrangements.

REFIT Platform

The REFIT Platform issued its opinion X.13.a on supervisory reporting in which it suggested streamlining supervisory reporting requirements and reducing unnecessary administrative burdens on financial institutions. The opinion confirmed the evidence gathered by the Commission in 2015-2016 and supported the need for action.

State of Play:

Fitness check - Finalised: SWD(2019) 402, 6.11.2019.

Scope:

Assessment of the effectiveness, efficiency, coherence, relevance, and EU added value of a significant number of supervisory reporting frameworks (e.g. Capital Requirements Directives - CRR/CRDIV, Markets in Financial Instruments Directive - MiFID/MiFIR, European Market Infrastructure Regulation - EMIR etc.), with particular focus on those frameworks adopted or published by the end of 2016 and which contain structured reporting requirements.

Evaluation findings:

According to the findings of the fitness check, EU supervisory reporting requirements are largely effective and remain relevant, and harmonisation at the EU level generates added value. EU supervisory reporting requirements have generated significant benefits, both for supervisory authorities and for entities which are required to report financial information. Supervisors are better able to carry out their obligations of monitoring systemic risk in the single market, the interconnectedness of the financial system, and any developments that may pose a risk to financial stability. They are able to carry out more detailed, accurate, and complex data analyses of the supervised entities, mirroring the shift to more data-driven supervision. EU supervisory reporting requirements are also a valuable tool for supervisors to identify market abuse and other risks to market integrity, and therefore help ensure the protection of investors and consumers of financial services. At the same time, these requirements have contributed to improving internal control and risk management processes within supervised entities

Nevertheless, a number of issues in the development process, adoption, set-up, and implementation of these requirements significantly reduces their efficiency and coherence, and has an adverse impact on the quality and usability of the reported data. To improve the system, the fitness check suggests the need for action in a number of specific areas and a comprehensive approach by the Commission and the relevant stakeholders to further streamline the requirements and develop a supervisory reporting that is fit for the future. The fitness check identified five main areas for improvement: i) legislative process and instruments; ii) data needs and uses; iii) consistency and harmonisation; iv) governance; and v) technology.

Building on these conclusions, the Commission adopted the strategy on supervisory data in EU financial services on 15 December 2021, setting out its long-term vision in this policy area.

Estimated savings and benefits

The benefits of initiatives to simplify and streamline EU supervisory reporting would stem primarily from the reduction of the burden and cost resulting from the current supervisory reporting requirements – although an additional benefit could be the improved quality and reliability of reported data, and hence an improvement in the supervisory authorities’ ability to fulfil their statutory obligations. As these types of benefits are inherently difficult to quantify, it has not been possible to provide a quantitative comparison of costs and benefits of EU supervisory reporting, and it is therefore difficult to provide a precise figure of any possible savings due to improvements in the functioning of EU supervisory reporting. Nonetheless, the available evidence on costs suggests that reporting entities spend significant financial resources on complying with the current reporting requirements, with additional costs also arising for supervisory authorities as the recipients of the data. In addition to the one-off implementation costs, the ongoing incremental costs of complying with EU supervisory reporting requirements represent around 20-30% of the total compliance costs or 1-2% of annual operating costs of the EU financial sector for the frameworks considered in the fitness check (2017 data). In absolute terms, this results in a range of 4 – 12 billion EUR per year for the EU financial sector as a whole. Simplifying and streamlining EU supervisory reporting by undertaking efforts in the five action areas identified in the fitness check would almost certainly lead to a reduction of these costs. While it is difficult to estimate the precise amounts of such savings, even a relatively small percentage reduction of these costs would be result in significant overall savings for all stakeholders.