FRSGlobal : Risk Analysis and Regulatory Reporting

Regulators in Greece

Greece has two regulatory body for the financial industry:

• The Bank of Greece
• Hellenic Capital Market Commission (HCMC)

FRSGlobal in Greece

The global financial crisis was felt in a number of countries around the world, and none more so than in Greece. The repercussions of the crisis highlighted systemic weaknesses in the economy which resulted in drastic changes to everyday life.

The erosion of public finances, a loss of confidence in government stemming from inaccurate and misreported statistics, and a consistent underperformance in the implementation of reforms prompted major credit rating agencies to downgrade Greece's international debt rating in late 2009, which led to increased financial instability. Under intense pressure by the EU and international market participants the government adopted a medium-term austerity programme including government spending cuts, a reduction in the size of the public sector, decreased tax evasion, health care and pension systems reformation, and improved competitiveness through structural reforms to the labour and product markets.

Athens faces long-term challenges to push through unpopular reforms in the face of often vocal opposition within the country.

The situation in Greece led to a co-ordinated effort by the EU member countries to support the Greek economy through the implementation of measures which included guaranteeing the country’s sovereign debt against default.

As a result Greece’s financial performance is under intense scrutiny by local Bank of Greece (BoG) and supra-national ( EU, ECB) regulators who are not only demanding economic reforms and restraint by the government, but also greater transparency and validation of the banking sector’s performance in order to ensure stability and confidence in the economy.

The focus of the regulators, both Greek and EU-wide, is for more stringent measures, paying greater attention to the performance of banks, their risk management process and how they report financial performance.

This closer scrutiny is driving the need for improved, higher quality data to be made available quickly right across the bank, and the added demands of the CEBS for stress testing in July 2010 places further demands on the staff and the systems used by banks to meet the need for transparent and accurate financial and statistical reporting.

Regulatory Environment — Greece

Statutory

FINREP
FINREP is a standardised financial reporting framework for credit institutions designed by the EBA (formerly CEBS). For supervision of financial institutions, all credit institutions are required to submit core FINREP reports to the Bank of Greece (BoG) on solo and consolidated basis. These reports based on IFRS/IAS accounting framework provide information on balance sheet and income statement. In addition, all cooperative banks and investment firms are required to submit their annual financial statements to the central bank of Greece based on national GAAP.

Prudential

Basel II reporting
Risk and capital adequacy supervision of financial institutions in Greece is based on the Basel II framework. COREP is implemented nationally by the Bank of Greece and all credit institutions are required to submit COREP reports on quarterly basis. Beside COREP reports, additional periodic reports on detailed trading book positions, provisions to loss against loans and minimum reserve calculations are also to be submitted for monitoring solvency positions.

Large exposures reporting
All transactions exceeding the threshold limit of more than 1 Million Euro are required to be reported to the BoG by credit institutions on biannual basis. The BoG collects these reports along with COREP reports to evaluate solvency positions and exposures faced by financial institutions on large transactions. Banks are also required to submit reports on initial exposures faced by residents and non residents on quarterly basis.

Liquidity reporting
All credit institutions have to submit quarterly reports on liquidity ratios and relevant data on asset and liabilities classification to the BoG on solo and consolidated basis. In addition, annual reports on budgeted amounts are also required to be submitted for sound liquidity risk management.

Statistical

Balance sheet statistics
These reports are required to collect information used for statistical purposes. Included are annual reports on balance sheet and income statement breakdown per country, economic sector, currencies, maturities, profit accounting etc. to be submitted on monthly basis.

Securitization reports
These reports cover information related to securitization (promoting liquidity in the market) schemes and their related exposures to be submitted on monthly basis.

Interest rate statistics
These reports are based on information on rate of returns on deposits, bills, loans, advances, overdrafts and credit facilities provided by banks and are required to be reported on monthly basis.

Securities reporting
The Bank of Greece collects quarterly reports on covered bonds issued providing information on assets that cover bonds and Cover Bonds in Issue. Additionally, they also include information on covered bonds and covering assets past due and broken down by maturity.

Transactional

Balance of payments reporting
BoP reporting covers monthly reports on all transactions between Greek residents and non residents during a specified period of time to assess the economic position of the country.

Daily transaction reporting
Daily transaction reporting includes reports on foreign exchange transactions in currency futures, currency options and swaps to be submitted on daily basis.

What’s Coming up — Greece

New challenges for Greece

The banking system in Greece will face major challenges due to upcoming changes in the European environment. The major changes are expected in the areas of prudential supervision of capital requirements and liquidity for banks (Basel III/ CRD IV amendments) and insurance companies (Solvency II). In monetary policy report 2011, the Governor addressed that Greek banks must be vigilant over the global regulatory changes.

COREP

The EBA will publish new COREP reports by 1 January 2012. These new reports will contain all the changes resulting from subsequent amendments of the Directive CRD (II, III and IV), including reporting on large exposures. Greece will have to implement these changes into their national law as a part of EEA agreement.

The EBA recently revised their common reporting framework (COREP rev3). These changes based on the CRD III amendments (Directive 2010/76/EU) of the European Parliament and of the Council of 24 November 2010 will be applicable from 31 December 2011.

On September 2011, the Bank of Greece incorporated the provisions of CRD III amendments into their national law. It concerned calculation of capital requirements in trading book with regard to market risk, including new correlation trading provisions or reviewed provisions for internal models (e.g. stressed VaR).

Additionally, the central bank also revised its framework related to calculation of weighted exposures for securitisation (re-securitizations) positions, counterparty risk and the establishment of the criteria that must govern credit institution’s Internal Capital Adequacy Assessment Process (ICAAP) and Supervisory Review Process (SRP).

Basel III

Basel III is scheduled to be implemented in Europe Union (EU) and EEA through CRD IV amendments. The Greek banks will have to prepare themselves for the gradual implementation of this new international regulatory framework Basel III by 2018.

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.