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CEBS Consultation Paper on the New Solvency Ratio: Summary

Core Content

The CEBS Consultation Paper on the New Solvency Ratio outlines the development of a common reporting framework aimed at harmonizing supervisory reporting across the European Union. This initiative is driven by the need to reduce administrative burdens on financial institutions, especially cross-border ones, and to improve the exchange of information between supervisory authorities.

The framework is based on a data model that allows for flexibility, consistency, and standardization. It includes a set of templates designed to capture data relevant to the calculation of the solvency ratio, with specific breakdowns for different risk categories such as credit risk, market risk, and operational risk.

Main Objectives

• To reduce the compliance burden on financial institutions.
• To improve cooperation and information exchange between supervisory authorities.
• To move towards a level playing field in Europe.
• To provide a common format for reporting, while allowing national flexibility.

Key Principles

1. Flexibility

   • The framework allows for three levels of detail (A, B, C) to accommodate different supervisory needs.
   • Institutions can choose to report at different levels of aggregation, depending on the supervisory target.

2. Consistency

   • Ensures that the same concepts are used with the same meaning across all templates.
   • Concepts are preferably linked to EU Directives or international supervisory guidance.

3. Standardization

   • Minimizes the number of templates to simplify reporting.
   • Aims to create a uniform structure for reporting data, while allowing for some variations.

Templates Overview

The framework consists of 25 templates and includes:

1. Ratio and Summary Templates

• Summary template provides an overview of the numerator and a simplified view of the denominator.
• IAS adjustment template details the prudential filters between IAS accounting figures and regulatory own funds.

2. Standardised Approach (SA) Templates

• 4 templates for SA capital requirements, including:
  • Capital Requirements
  • Impact of CRM
  • Traditional securitisations
  • Synthetic securitisations
• SA templates are broken down by exposure types (total, on-balance, off-balance, repos, derivatives) and exposure classes (e.g., central governments, regional governments, institutions, corporate, retail).

3. Internal Ratings-Based (IRB) Templates

• 9 templates for IRB capital requirements, including:
  • Foundation IRB approach
  • Advanced IRB approach
  • Equity PD/LGD approach
  • Equity simple risk-weighted approach
  • Equity internal models approach
• IRB templates also include slotting criteria, risk redistribution, and securitisation positions.

4. Market Risk Templates

• Templates for Internal Model Approach (IMA) include:
  • Overview of capital requirement computation
  • Information on regulatory VaR and back testing
• CEBS is also developing templates for Standardised Approach market risk, which will be released at a later stage.

5. Operational Risk Templates

• Two templates:
  • Capital requirement computation
  • Information on operational losses

6. Other Supervisory Information Templates

• Five additional templates:
  • Individual exposures
  • Sectorial exposures
  • Affiliates
  • Individual operational losses
  • Securitised exposures

Data Model

• The data model is hierarchical, allowing for different levels of detail.
• It supports national flexibility in terms of frequency, scope, and level of detail.
• The data model is designed to be neutral regarding the reporting standard, with a preference for XBRL for its functionality.
• It includes unique definitions for each item and references to relevant EU Directives and guidance.

Implementation Timeline

• The formal consultation period lasted three months.
• CEBS planned to announce the formal adoption of the common reporting framework by the end of June 2005.
• Each member state is expected to implement the framework on a best effort basis, according to its own needs and practices.

Scope and Flexibility

• The common reporting applies to credit institutions and may be extended to investment firms if aligned with Basel II/CRD requirements.
• It does not cover areas such as liquidity, large exposures, or credit registers.
• The framework includes three levels of detail (A, B, C) to allow for varying degrees of specificity in reporting.

Conclusion

The CEBS Common Reporting Framework aims to streamline and harmonize supervisory reporting in the EU, with a focus on the new solvency ratio. It is designed to reduce administrative burdens, enhance transparency, and improve supervisory effectiveness. The framework includes a comprehensive set of templates and a flexible data model that supports XBRL and other reporting standards, and is expected to be finalized by the end of 2005.