Putting AnaCredit in a broader regulatory perspective

In May 2016, the European Central Bank (ECB) adopted the regulation on the collection of granular credit and credit risk data known as ‘AnaCredit’. This is the first of the ECB’s efforts to further enhance statistics that will help improve decision-making in the Eurosystem and it calls for the comprehensive development of more granular, frequent and flexible analytical credit data. European credit institutions will need to report specifically collected and standardised credit information to the ECB on a more frequent basis, including counterparty references, instrument details or specific accounting information.

Today, many of these data attributes are scattered across multiple banking systems and the quality of data is incomplete in existing legacy core lending systems. Significant research needs to be undertaken by institutions to find existing data sources, assess their accuracy and granularity, and understand which additional data needs to be sourced.

Although data management is a common thread running through multiple new regulatory requirements, when planning for AnaCredit compliance it is important to understand the potential overlaps with adjacent regulations. These include BCBS 239, MiFiD II/EMIR, the capital requirements directive IV (CRD IV), and other accounting standards such as IFRS 9 and IFRS 13.  

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As illustrated above, the overlap becomes apparent in CRD IV where it focuses on credit mitigation characteristics, and MIFID II also integrates reference data such as the unique Legal Entity Identifier (LEI) that is needed to track all financial transactions. IFRS 9 needs to be looked at more broadly with the standardisation of accounting classifications and impairment methodologies, and IFRS 13 for its fair value calculations.

Within the Single Supervisory Mechanism (SSM), AnaCredit will be the first of many European reporting frameworks that will deliver a wider and more harmonised statistical reporting framework. Besides AnaCredit, FinRep and CoRep also define new ways of reporting on capital, financial information and risk. The BCBS 239 principles also cannot be ignored in this context because they will ask financial institutions to completely review their current reporting processes, data quality and data infrastructure.

The principles of effective risk data aggregation and risk reporting, BCBS 239, set out international guidelines for global and domestic systemically important banks where they are required to improve their ability to manage the data quality of risk reports so that the data is materially complete, with any exceptions identified and explained. Therefore, banks subject to BCBS 239 will need a flexible infrastructure and an operational environment that can meet demands for high-frequency reporting during a crisis. As larger institutions are already preparing for BCBS 239, the AnaCredit requirements will have a larger impact on smaller institutions.

Looking at all overlapping regulations in isolation without planning a sound longer-term risk data strategy will lead to higher operational costs in achieving regulatory reporting compliance. Inefficient reporting processes will also lead to errors and compromise timely reporting. Banks need to find a more holistic path to compliance that provides an agile end state with more data granularity, better governance and regulatory reporting that can accommodate future changes in market practices and regulations. From a forward-looking risk data management perspective, this means that comprehensive data structures should only be built once and in a way that enables banks to capture all relevant data across business lines in a consistent and well-defined database structure that is easy to extract, analyse and report on. The end-to-end credit process will need to be consistent and deliver coherent data throughout the lifecycle of customer limits and exposures to facilitate the required data attributes without costly and time-consuming manual data reconciliation.

The wider goal of any successful regulatory project must be twofold: firstly, to be well-defined early in the process to achieve compliance within the required timeline, and secondly, to incorporate a wider strategic vision that can provide the business with a better end state, whether this is enhanced control and oversight, improved efficiency and productivity, reduction of operational costs, or from a technological perspective a horizontal and vertical infrastructure that can cope with an increasingly complex business environment that can contribute towards maintaining revenue and profitability.