FRSGlobal : Risk Analysis and Regulatory Reporting

Regulators in Portugal

The supervisory and regulatory framework in Portugal consists of:

• Banco de Portugal (BdP)
• Comissão do Mercado de Valores Mobiliários (CMVM)
• Instituto de Seguros de Portugal

FRSGlobal also supports submissions to other reporting authorities :

• Direcção Geral dos Impostos (DGCI)
• Instituto Nacional de Estatística (INE)

FRSGlobal in Portugal

The Portuguese banking system weathered the global financial crisis relatively well, reflecting pre-existing strengths, such as limited exposure to toxic assets, the absence of a property bubble, retail-based business models, and a sound supervisory and regulatory framework.

However, banks are now struggling with funding difficulties in the international wholesale debt markets on the backdrop of the recent downgrades on the ratings of the Portuguese Republic, banks and several non-financial corporations and also due to the structural reform measures taken by the Portuguese government under the economic and financial adjustment programme signed to allow for international assistance to the Portuguese economy.

The program envisages several measures aimed at the gradual deleveraging of the financial system and include a reinforcement of solvency rations, imposing a minimum Core Tier 1 ratio of 9% starting from the end of 2011 and 10% by the end of the following year at the latest. Banks are now concentrated on strategies for the reinforcement of their regulatory capital, sales of credit and of non-strategic private and public sector assets and the reinforcement of stable funding sources, such as deposit-taking from customers.

Nevertheless, the stress test carried out by the EU on 74% of the banking system total assets has proven a high degree of resilience to adverse scenarios and no recapitalization measures were called in the case of Portuguese banks.

Regulatory Environment — Portugal

Statutory

DGCI Reporting (Directorate General of Taxation)
The Ministry of Finance – Tax Department (DGCI) is responsible for the collection of data regarding income generated by institutions over period of a year. The DGCI's mission is to administer taxes on income, capital, consumption and other taxes. Our solution provides a reporting module required by the DGCI that covers important reports for credit institutions such as Model 10, 13, 30, 31 etc.

Prudential

COREP
Capital adequacy reporting in Portugal is based on the Basel II framework. Credit institutions are required to submit information on capital adequacy requirements and calculation of credit risk, market risk and operational risk as per as per instruction no. 23/2007. Reporting requirements and frequency of reporting (quarterly or biannual) depend on the basis of information whether individual or consolidated.

CRC - Reporting
The Centre for Credit Liabilities (CRC) is a database, managed by the Bank of Portugal, with information provided by participating entities (institutions that grant credit) on loans to their customers. These reports include information on credit exposure and debtors to be submitted on monthly basis.

Statistical

Statistical Bank reporting (EM_2010)
Our solution incorporates monetary and financial statistical reports relating to consolitated balance sheet statistics compiled by the Bank of Portugal through instruction no. 12/2010.

IBS - International Banking Statistics Reporting
The Central Bank of Portugal requires information on a consolidated basis from the Banks with resident Headquarters (kind A) and non-resident Headquarters (kind B). Our solution covers the International Banking statistics reports related to foreign assets as per instruction no. 20/2004. These statistics are compiled on quarterly basis, based on the requirements and methodology defined by the Bank for International settlements (BIS).

DSB / INE – reporting (Banking Supervision Department - National Institute of Statistics)
Our solution includes the reporting needs of the Bank of Portugal and the National Institute of Statistics. These reports cover a number of instructions from the Bank of Portugal such as 19/2003, 4/96, 23/2004, 18/2005, 13/2009, 9/2003 - Note º 3/95 (Minimum level of Provisions). These are regarding accountancy data including details relating to line items, liquidity, provisions, etc. according to International Accounting Standards (IAS) and the Standards of Accounting adjusted (NCA).

CDT – reporting (Estatísticas de Titulos)
The Bank of Portugal through its instruction nº 31/2005 established that institutions obliged to report this information are: Credit Institutions, Brokers, Dealers and Financial and certain non Financial Institutions. The reported information must include all short, average and long term securities issued by residents and non residents.

EP - Payments Statistics
The Bank of Portugal compiles statistics on payment systems, covering the aggregates of interbank transactions processed in Portugal, or by clearing (SICOI- Interbank Clearing System) or gross (SPGT/TARGET2) through various payment instruments such as checks, credit transfers, direct debits, ATM and bills of exchange. The information collected fulfills the payment systems oversight function required by the ECB.

Transactional

MIFID
MIFID relates to the delivery of information about the details of trading to the Portuguese securities market commission. This helps to fight financial crime including market abuse according to instruction number 2/2007.

Balance of payments reporting (COE)
Banking institutions are required to periodically provide information in electronic format regarding transactions between residents and non residents, as required by the Bank of Portugal’s Instruction 34/2009. And also, other operations done by banks connected with movements on NOSTRO or LORO accounts, or buy or sell operations of foreign currency. COE reporting also includes statistics on funds transfer to offshore markets, according to Instruction nº 17/2010.

CMVM (Comissão do Mercado de Valores Mobiliários)
The Portuguese Committee on Securities Market (CMVM) supervises and regulates the securities markets and financial derivatives. These reports cover information on trading transactions, financial instruments, financial intermediaries etc as based on a series of instructions 2/2011 – 3/2011 –4/2011 –5/2011 –6/2011 –7/2011 –8/2011 –10/2011.

What’s coming Up — Portugal

New and updated regulation from 2011

BCB (Base de Dados de Contas do Sistema Bancário)

As of March 2011, credit Institutions are required to report information on their existing and new accounts to the Bank of Portugal on a monthly basis based on instruction number 7/2011.

COREP

The Instr. 11/2011 introduces changes in instr. 23/2007 of the Banco de Portugal on prudential information. The changes are related to revision of the following reports:

• Modelo FP01
• Modelo RF01
• Modelo TIT MPT 01
• Modelo TIT MPS 01
• Modelo TIT IRBT01
• Modelo TIT IRBS01
• Modelo TIT DET01
• Modelo ROP02
• Modelo ROP03
• Modelo GR01

Operational risk management in market related activities

According to Instr. 18/2011, institutions must take into account the guidelines on operational risk management in market-related activities issued by the EBA on 12 October 2010 to determine and evaluate their operational risk exposure. This instruction enters into force from mid August 2011.

Guidelines on large exposures

Recently the Bank of Portugal published instruction no. 13/2011 (enforced from July 2011), wherein it states that credit institutions must take into account the concept of group connected clients and exclusion of certain exposures while reporting large exposures as per notice 7/2010.

The regulation in notice 7/2010 is in convergence with the guidelines on the large exposures regime published by the EBA on 28 July 2010 and 11 December 2009.

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.