FRSGlobal : Risk Analysis and Regulatory Reporting

Regulators in the Czech Republic

The Czech National Bank is responsible for the supervision of the financial market in the Czech Republic.

FRSGlobal in the Czech Republic

The Czech banking sector has weathered the global financial turmoil relatively well. Healthy capital and liquidity buffers, strong retail funding, and limited exposure to foreign currency risk eliminated the need for the authorities to undertake bank recapitalisation or other exceptional measures to shore up financial stability.

The Czech Republic has a sound financial supervisory and prudential framework. The framework was further strengthened by the recent widening of the array of remedial measures to deal with weak credit institutions and systemic risk.

Regulatory Environment — Czech Republic

Statutory

Balance sheet reporting

Balance sheet reporting provides information on financial statements position and is required by Czech National Bank (CNB) on a monthly and quarterly basis. Under this type of reporting all banks in the Czech Republic are required to submit balance sheet, profit & loss statement, additional information to balance sheet and profit and loss statement, consolidated reports and a report on selected assets and liabilities by country is required.

Prudential

Capital adequacy reporting
Czech National Bank uses the Basel II framework to calculate the capital adequacy requirements. Capital adequacy reporting collects information on capital, credit risks, market risks, currency risk and operational risk.

Liquidity reporting
The liquidity position of the bank and maturity profile is reported to Czech National Bank on a monthly basis in order to analyse the positions of the banks in the country.

Other supervisory reports
Supervisory reports on bank large exposures, country exposures, interest rate risk for investment book, concentration of loans and deposits, mortgage loans and mortgage securities are required on monthly or quarterly basis.

Statistical

Loan and deposit reporting
Banks are required to submit a report on client loans and receivables, interbank loans and deposits, client deposits, client deposit interest rates, client loan interest rates, client deposit new deals interest rates, client loan new deal interest rates to the CNB on a monthly basis.

Securities reporting
Reports on the securities held by clients, securities held by bank, securities issued by bank, non-tradable securities interest rates (including new deals) need to be submitted to CNB on a monthly and quarterly basis.

Electronic banking and account statistics reporting
The banks in the Czech Republic need to report to CNB the banking operations and the account statistics on a quarterly basis.

Transactional

Markets in financial instruments directive (MiFID) reporting
Banks in the Czech Republic need to report deals with quoted investment instruments, deals with quoted investment instruments made through the institution, instruments acquired for trading are to be reported to the Czech National Bank on a daily basis.

Balance of payment reporting
Banks need to report to the CNB outgoing and incoming payments and prediction of future income of non residents from domestic securities as well as future repayments of loans to non-residents. The reports are delivered on a monthly and quarterly basis.

What’s coming up — Czech Republic

There are only minor changes in reporting requirements for 2011 – the CNB created only one new attribute for reporting syndicated loans.

As in previous year, some reports ceased from banking methodology and were replaced by the new ones in capital market methodology. There is an overview of the changes below.

Ceased reports (Banking methodology)

• OCP 31-04 : Quartely report on kinds and extent of provided financial services
• OCP 35-04 : Quartely information on customers property
• V50-12 : Monthly review of securites held by clients

New reports (Capital markets methodology)

• MKT 51-12: Overview of securites hed by clients
• MKT 52-12: Overview of investment instruments other than securities owned by clients
• MKT 53-12: Overview of funds owned by clients

There have been no changes for 2012 announced by the Czech National Bank as yet.

CEBS change over to EBA

The European Banking Authority (EBA) came into effect from 1 January 2011 and took over the responsibilities of Committee of European Banking Supervisors (CEBS). EBA is responsible for safeguarding public values such as stability of the financial system, transparency of markets and financial products, protection of depositors and investors wealth.

Financial Reporting (FINREP)

The aim of FINREP has always been to harmonise the financial reporting within the member states to improve comparability. However after implementation it has become apparent that the large number of national discretions has prevented to reach this goal. With the announced adjusted guidelines, the member states are obliged to apply at least the balance sheet and P&L statement and can choose out of 23 additional templates to apply. However CEBS insists that on all templates that the national regulator adopts, no changes should be made to its meaning or appearance.

Further it asks the member states for a firm commitment that the FINREP reporting will be the only consolidated financial reporting that an individual banking group has to provide to the regulator. Also the scope of consolidation will need to be aligned with the CRD.

Common Reporting (COREP)

In general the adoption of the COREP templates has been more straightforward between the member states than FINREP. However there have been still numerous differences. Here CEBS intends to align this further medium term with clearer definitions and tuning of the COREP templates.

Large Exposures is included in the COREP framework with the revised guidelines. It will be applicable as of 1st of January 2011, but only move into a binding core reporting framework as of 31st December 2012.

Read our data sheet for more information on the Large Exposure Reporting requirements

Concentration risk

Draft guidelines have been published on a revision of the concentration risk reporting. The most notable change is that reporting on concentration risk within an individual risk type (intra-risk) is considered to be insufficient. It pleas for reporting based on risk interaction (inter-risk) and would be related to credit, market, operational and liquidity risks.

Read the comment piece “CEBS pushes forward with reporting harmonisation agenda” for more information on the new requirements and their impact on financial institutions »

CEBS stress testing

Read the comment piece "CEBS stress testing" which looks at the results of the CEBS EU-wide stress testing exercise of July 2010, compares them with the previous US and UK FSA stress testing results, and looks at what the market can glean from them »

Solvency II

Solvency II is a fundamental and wide-ranging review of the capital adequacy regime for the European insurance industry. It represents both a challenge and an opportunity for European insurers. Globally it is scheduled to come into effect by 31 Dec 2012..

The project initiated by European Commission as an advancement to Solvency I is expected to enhance a revised set of EU-wide capital requirements and risk management standards..

The objective of new system is to introduce more sophisticated solvency requirements for insurers, in order to guarantee that they have sufficient capital to withstand adverse events, such as floods, storms or big car accidents..

Currently, EU solvency requirements covers insurance risks, whereas in future insurers would be required to hold capital also against market risk (e.g. a fall in the value of an insurer's investments), credit risk (e.g. when debt obligations are not met) and operational risk (e.g. malpractice or system failure). This will help to increase their financial soundness with implementation of sound economic risk management practices in insurance industry.

With a demand of more streamlined approach towards supervision, the new system would enable insurance groups to be supervised more efficiently, through a 'group supervisor' in the home country that would have specific responsibilities to be exercised in close cooperation with the relevant national supervisors.

The introduction of group supervisors would ensure that group-wide risks are not overlooked and would enable groups to operate more efficiently, while providing policyholders with a high level of protection. Groups that are sufficiently diversified may also be allowed to lower their capital requirements under certain conditions.

The Directive often referred as Basel II for insurers is based on a three pillar approach which is similar to the banking sector (Basle II) but adapted for insurance.

The new provisions of Solvency II will be adopted under the Lamfalussy process:

Level 1 – Solvency II directive includes overall framework principles developed by European Commission approved by European Parliament and European Council.

Level 2 –Includes introduction to implementation measures developed by European Commission and approved by European Insurance and Occupational Pensions Committee (EIOPC)

Level 3 –Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) will guide European Commission to enhance supervisory standards.

Level 4 –European Commission will finally monitor, Compile and enforce the regulation regime.

Maximum harmonization is assumed with the new Solvency II framework Directive. This means the European rules will be implemented all countries of the European Economic Area (i.e. the EU plus Iceland, Liechtenstein and Norway). The European Union’s Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has recommended to the European Commission that Bermuda, Switzerland and Japan will be the first countries assessed for equivalence with EU insurance regulations under Solvency II.

Thus the new solvency II requirements with challenges and opportunities ahead will be more risk-sensitive and more sophisticated than in the past, thus enabling a better coverage of the real risks run by any particular insurer.