FRSGlobal : Risk Analysis and Regulatory Reporting

Regulators in the Slovak Republic

The supervisory and regulatory framework in the Slovak republic consists of:

• National Bank of Slovakia, Narodna Banka Slovenska (NBS)

FRSGlobal in the Slovak Republic

The Slovak economy is quickly recovering from a deep recession caused by the global economic downturn.

Overall, the financial sector is weathering the global financial crisis well. Slovak banks, mostly subsidiaries of foreign banks, do not hold toxic assets and have limited exposure to sovereign risk in peripheral euro zone countries.

The relative resilience of the banking sector has become clear in the EU stress tests undertaken in July 2010. They indicate that the banking sector can absorb a variety of domestic shocks, including a severe decline in output and unemployment.

With mostly foreign-owned banks, strong cross-border supervisory co-operation will continue to be crucial. Slovak supervisory authorities will have to help ensure effective co-operation and co-ordination with to-be-established EU-level supervisory institutions in particular.

Regulatory Environment — Slovak Republic

Statutory

Balance sheet reporting
Balance sheet reporting provides information on financial statements position and is required by Narodna Banka Slovenska (NBS) on a monthly and quarterly basis. Under this type of reporting all the banks in the Slovak Republic are required to submit the reports on assets and liabilities, balance sheet items and profit & loss statement.

Prudential

Capital adequacy reporting
This type of reporting is mainly concerned with risk incurred by banks and is centred around risk reporting. The NBS uses the Basel II framework to calculate the capital adequacy requirements.

Liquidity reporting
The liquidity position of banks, maturity profile and selected data for stress testing is needed to be reported to the NBS on a monthly basis in order to analyse the positions of the banks in the country.

Statistical

Loan and deposit reporting
Banks are required to submit reports on deposits and average interest rates both for all existing deposits and for new deposits received in a reported period. Similarly reports on loans and average interest rates both for all existing loans and for new loans provided in a reported period, deposits and loans by economic sectors, deposits and loans by economic activities (NACE2 classification), deposits and loans by region are the reports which need to be reported on monthly, quarterly and yearly basis.

Securities reporting
Debt securities owned by banks and financial derivatives, equity and debt securities owned by residents have to be reported on monthly basis.

Transactional

Balance of payment reporting
Banks need to report to the NBS on monthly and quarterly basis payments between residents and non-residents, information about accounts of non-residents and transactions on accounts of non-residents, information about domestic securities owned by non-residents and between residents and non-residents by region.

Interbank operations reporting
Interbank debt securities transactions as well as interbank transactions in Euro currency need to be reported to the NBS on a daily basis.

What’s coming up — Slovak Republic

New /Updated Regulation with deadlines - 1

The Národná banka Slovenska announced that there will be no changes in reporting requirements in 2011

New /Updated Regulation with deadlines - 2

For 2012 new provision will be drafted by the NBS and banks in July and August 2012. NBS provided banks with suggested updates in reports, most of them are due to:

• convergence to monetary and financial statistics of ECB,
• Updates in lay-outs for more efficient compiling of reports into ECB’s statistical concept
• Reduction of reports subparts dealing with accrual classification (due to relatively small percentage from total amounts).

In order to provide ECB and domestic institutions with data in requested form, there will be added specific subparts dealing with reporting based on MUFA (Monetary Union Financial Accounts) and Slovak Statistical Office (affected reports: M2-12, M3-12, V5-12, V33-12).

The reports focusing on securities and derivatives will be ceased and integrated into new report V86-12 with detailed reporting requirements on single financial instruments (“security-by-security” approach).

Movement of loans (drawing and paying) will be scrutinized in new report V30-12. Cases of (i) standard payment, (ii) prior full payment and (iii) prior partial payment of loans will be reported in 2012 as well as amount of loans reclassified from (i) standard to failed and (ii) vice versa. Credit drawings will have to distinguish between new loans and refinancing of existing ones.

Reports V31-12 and V41-04 are likely to be integrated into one. Loans to SMEs (small and medium-sized companies) will be additionally reported as a separate figure from sector of non-financial companies.

New subpart of M4-12 requires data on provided facilities, guarantees and other credit lines.

Reported transactions (V14-98) on money market with foreign counterparties have to carry SWIFT code as bank’s identification.

The way of origination for electronic money needs to be reported in V5-12 and M3-12.

Based on presented draft with new requirements the reports mentioned below will be amended in 2012.

Ceased reports

• Pb3-12 : Monthly statement on domestic securities in non-residents ownership
• Pb5-12 : Monthly statement on portfolio level of estate securities
• Pb6-12 : Monthly statement on portfolio level of debt securities

New reports

• Pb8-12 : Monthly statement on import and export of Euro notes for legal persons outside the Euro zone
• V30-12 : Monthly statement on loan’s movements in non-financial sector and domestic sector
• V86-12 : Monthly statement on securities owned by banks and financial derivatives

Updated reports

• M2-12 : Monthly statement on revaluation of balance sheet items
• M3-12 : Monthly statement on re-classification of balance sheet items
• M4-12 : Monthly statement on monetary structure of balance sheet and sub-balance sheet items
• o M10-12 : Monthly statement on new credits granted in current month reported in Euro and on the level of average interest rates
• Pb2-12 : Monthly statement on transactions and accounts levels of non-residents
• V5-12 : Monthly statement of full sector division of deposits and received credits and disbursed securities
• V14-12 : Daily statement of transactions in the inter bank money market in Euro currency
• V31-12 : Monthly statement on credits by Statistical classification of economic activities
• V33-12 : Monthly statement on complete sector classification of credits
• V41-04 : Quarterly statements on credits provided to non-financial companies by the Statistical classification of economic activities
• V51-12 : Monthly statement on deposits and received credits by Statistical classification of economic activities

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.