The COREP Return
The Malta Financial Services Authority (MFSA) has issued a circular concerning the implementation of the common reporting framework (COREP) under the Capital Requirements Regulation. The guidelines are directed towards Investment Services Licence Holders which qualify as investment firms under MiFID.
The Capital Requirements Regulation requires the harmonisation of supervisory reporting requirements and stipulates prudential requirements in order to ensure maximum harmonisation and achieve a European Single Rulebook. Final draft Implementing Technical Standards (ITS) on supervisory reporting have been published by the European Banking Authority (EBA), outlining the Common Reporting Framework which credit investment firms need to prepare and submit to the MFSA.
In this regard, the MFSA has opted to automate the COREP Returns for investment firms, in order to facilitate the implementation of, and compliance with, the requirements of the CRR. The Return is to be compiled via an MS Excel File in the currency in which the Audited Annual Financial Returns are compiled. The reporting currency of the accounts should be inserted in ISO Code. Moreover, there must also be an indication of the relevant Middle Exchange Rate converting EUR to the reporting currency.
The automated COREP Returns must be completed by Category 2 and Category 3 Licence Holders. Category 3 Licence Holders need to complete all the COREP Templates, provided they are applicable to them according to the type of investment services activities they provide. Certain reporting templates only need to be completed if the Licence Holder exceeds the reporting thresholds on two consecutive reporting reference dates.
On the other hand, Category 2 Licence Holders are only required to complete the Capital Adequacy Templates, together the following sheets in order to be able to calculate the risk components and the fixed overhead requirement:
i. Input Sheet;
ii. Income Statement;
iii. Balance Sheet;
iv. Financial Details;
v. Representations;
vi. the MKR SA FX Working (Foreign Exchange Working) Sheet; and
vii. Fixed Overhead Requirement.
Licence Holders which form part of a consolidated group are required to complete the applicable COREP templates on a consolidation basis.
The Automated COREP Return
The Automated COREP Return comprises the following reporting templates:
a) The Capital Adequacy – (CA) Templates
The Capital Adequacy Templates are divided into five sub-templates and contain information about the own funds (numerator) and the own funds requirements (denominator) of the Licence Holder.
b) The Group Solvency (GS) Template
This template is intended to gather information on entities forming part of a consolidated group, mainly basic details of the individual entities which form part of the group, whether they are subject to own funds requirements and capital buffers.
c) The Credit and Counterparty Credit Risk and Free Deliveries: Standardised Approach for Own funds Requirements (CR SA Templates)
This template relates to the classification of the exposure values according to risk weights and exposure classes, as well as the amount and type of credit risk mitigation techniques. A description of the exposure is to be included.
d) The Geographical Breakdown (CR GB) Template
A Licence Holder is only obliged to complete this template where the non-domestic exposures in all non-domestic countries in all exposure classes are equal to or higher than 10% of the total original exposures. Exposures to counterparties located in the Member State where the institution itself is located are considered to be domestic exposures.
e) The Settlement/Delivery Risk (CR SETT) Template
Information on both the trading and non-trading book transactions which are not settled after their due delivery dates is required in this template to calculate the settlement risk component.
f) The Operational Risk (OPR) Template
This template caters for information on the calculation of the operational risk
g) The Market Risk: Standardised Approach for Position Risks in Traded Debt Instruments (MKR SA TDI) Template
h) The Market Risk: Standardised Approach for Position Risks in Equities (MKR SA EQU) Templates
i) The Market Risk: Standardised Approaches for Foreign Exchange Risk (MKR SA FX) Template
j) The Market Risk: Standardised Approach for Commodities (MKR SA COM) Template
k) The Market Risk: Internal Models (MKR IM) Template
l) The Credit Valuation Adjustment (CVA) Risk Template
Institutions which provide investment services in relation to OTC derivatives need to calculate this CVA risk which forms part of the counterparty credit risk calculation.
m) The Large Exposures (LE) Templates
The limit for non institutions is equivalent to 25% of the eligible capital, whilst that for institutions is the higher of the 25% of the eligible capital or EUR 150 million.
n) The Leverage Ratio (LR) Templates
Category 3 Licence Holders are required to complete the Leverage Ratio Templates, based on a capital measure and a total expense measure, where applicable.
o) The Fixed Overhead Requirement
Category 2 Licence Holders which are subject to the fixed overheads calculation are required to complete this template based on information on the Company’s fixed overheads of the preceding year.
The Reporting Period of the Automated COREP Return
Institutions are required to submit the majority of the information required on a quarterly basis, whilst certain templates such as the GS Template only mandate a semi-annual frequency. The remittance date for the COREP data for the reporting period 1st January 2014 to 31st March 2014 shall be submitted to the MFSA by the 30th May 2014. The first reporting deadline for the submission of the consolidated COREP templates is the 30th June 2014.
Transitional and Grandfathering Provisions
In order to ensure a smooth implementation of the new single rule book, the CRR contains transitional provisions relating to the calculation of the capital requirement. Moreover, the CRR also provides grandfathering provisions to cater for the fact that perpetual non-cumulative preference shares will now be considered as part of Tier 2 capital instead of Tier 1. Perpetual non-cumulative preference shares will be fully treated as Tier 2 capital in the year 2022.
The Integration of the Automated COREP Return with the CBM Returns
The Automated COREP return includes a set of CBM reporting requirements and is expected to replace the current CBM questionnaires/returns:
- Monthly BOP Return
- BOP52 ISP CAT 2 (excluding Fund Managers), 3 and 4
- Financial Return and Balance Sheet (a return within the set of MFSA returns)
Reporting will be due on a quarterly or annual basis depending on statistical criteria and certain Investment Service Providers will be request to report on a security-by-security (S-B-S) basis. The latter refers to the reporting of securities’ data broken down into individual securities.
Companies will be notified in writing on a bilateral basis whether they should fill in the returns on an annual or quarterly basis, and whether they are to report on a S-B-S basis.
