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With a number of regulatory deadlines looming, we thought we’d remind you of another one – mark January 2017 in your calendars (if you haven’t already) for MiFID II.

The aftermath of the recent financial crisis exposed weaknesses within Europe’s current Economic and Monetary Union and highlighted the need to strengthen it.  Although RegTech readers may be well aware of the rolling regulatory tsunami that has been gathering pace to do just this, the European Commission also proposed a Single Supervisory Mechanism (SSM) for banks, led by the European Central Bank (ECB), in 2012.  This proposal was viewed as the first step towards an integrated ‘banking union’ which includes components such as a single rulebook, common deposit protection and a single bank resolution mechanism.

1. What is AnaCredit?

To help push the SSM initiative through, the ECB began a project to create a central register of granular data about the credit exposure of credit institutions and other loan-providing financial firms within the Eurozone.  Today, this register is known as the Analytical Credit and Credit Risk Dataset (or AnaCredit for short).  AnaCredit aims to be the first step in establishing a harmonised statistical reporting framework within the Euro area.

2. What information will be held on the database?

The AnaCredit database will contain highly detailed information on loans and other credit from financial institutions to non-financial institutions, such as book loans, deposits held at other institutions, financial derivatives and citizens’ mortgage information.

Current discussions suggest that the dataset will encompass around 175 credit, credit risk and accounting aspects.  However, National Central Banks (NCBs) may be required to provide additional – country specific – attributes, such as the number of employees, annual turnover and asset encumbrance.

Note: although borrower information will remain anonymous, lender data will not be.

3. What will the database be used for?

Once this project is completed, it will facilitate the collection of data using consistent quality measures across the EU.  This information will undeniably aid further research and the production of statistics.  In particular, this dataset should be able to shed more light on sole traders and the Small and Medium Enterprise (SME) sector, who represent a significant proportion on the European economy.

The ECB, in particular, plans to use this data to support banking supervision.  Furthermore, the information held will also enable the ECB and partaking NCBs to conduct analyses of monetary policy and financial stability.

4. How will the data be collected?

The data will be collected from participating NCBs, who themselves collect it from financial institutions, before being harmonised and made more granular.  The aim is that, by the end of 2017, AnaCredit will be the central database held by the European System of Central Banks (ESCB).

5. Who does AnaCredit affect?

Reporting of AnaCredit data will be required from all financial institutions, not just banks, which are operating within the Eurozone.  This means that financial institution subsidiaries of non-Euroarea firms operating within the Eurozone will also need to pass on information.

Although AnaCredit applies to members of the Euroarea, other countries within the European Union have also been given the option to participate in the programme.

6. What are the reporting requirements?

Each financial institution will be required to report information based on a loan-by-loan approach, i.e., reporting information on each individual loan, to their respective NCBs.  A low reporting threshold of €25,000 is anticipated for all instruments covered by AnaCredit.

Many of the data attributes that financial institutions must report on have never previously been required for external reporting.  The, approximately 175, attributes, such as variables of credit data including currency, collateral type, origin and maturity, have been grouped into six reporting packages: lender/borrower attributes, exposure features, valuation measures, risk measures, loss measures and balance sheet status.

7. When are the deadlines?

The draft AnaCredit regulations will be finalised next month and the reporting requirements arising from the project are expected to be implemented in three stages:

  • The first stage, planned for 2017: individual information will be provided by credit institutions on credit granted to legal entities
  • The second, planned for mid-2019: information will be collected on a consolidated basis on significant institutions under ECB banking supervision
  • Finally, the third stage, planned for mid-2020: anonymised information will be gathered on mortgage loans to households and credit granted to sole proprietors.

8. What at the key challenges?

To implement these regulations correctly, firms will require a data warehouse that can encompass up-to-date regulatory content, the ability to hold current and past AnaCredit reporting data and be able to detect all required data reporting elements.  Further to this, firms will also need to build, test and implement the associated data processes.  Another key challenge will be to find a mechanism to insure that reported data is complete and accurate.

In light of the continuing pursuit of compliance to new regulations, global retail banking IT spending is set to increase 20% over the next four years and is predicted to hit $152.2 billion in 2018 (source: Ovum).

9. Which other regulatory regimes are relevant?

Considering the increasingly complex internal and statutory requirements of industry specific regulatory reporting, such as AIFMD, Solvency II, Basel III, MiFID II, etc., there is a risk of inconsistent reporting if firms choose to manage requirements separately.

These regulations have provided an opportunity for firms to employ a single reporting platform that can ensure consistency between reports submitted for different regulations.  Using a single platform would also help to reduce costs and complexity as firms would no longer need to maintain separate systems to comply with different reporting requirements.

10. What should firms be doing now?

The regulatory clock continues to tick and financial institutions currently have 18 months until AnaCredit officially comes into force in January 2017.  Until this time, firms should aim to examine their current data warehouse and reporting systems and address any shortfalls to ensure that they will be able to cope with the full demands of AnaCredit in 2020.  If firms fail to implement systems in time, the costs and disruption are likely to be substantial.

 

Questions?

mondy.holten@mr-data.nl

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