COREP and XBRL: the devil in the detail

The official confirmation of 290 erroneous validation rules included in the CRD IV ITS and the associated XBRL taxonomy (against which data should not be validated) coincided with the announcement last week by the EBA of the delay in the first round of Liquidity and COREP reporting (from 30 April and 30 May respectively to 30 June).

This temporary reprieve has been welcomed by many, not least because even at this late stage, there continue to be firms (and not necessarily small firms) who are still in the process of sourcing reporting software that will allow them to generate and validate their CRD IV submissions in XBRL format. Had the EBA not announced the delay to 30 June, these firms were facing the prospect of having to identify, test, procure, possibly deploy and learn how to use software within the same calendar month during which they were required to actually begin reporting to their relevant National Competent Authority.

One of the reasons a sizeable number of firms put COREP and FINREP implementations on the back-burner was because it was an easy option to assume that their incumbent technology providers would take care of providing a workable solution for CRD IV reporting in XBRL. However, the reality is that many vendors are struggling to deliver an XBRL-enabled application aligned with the functional and technical requirements of what is a vastly complex reporting regime. The result is that a large number of regulated firms have found themselves in need of a contingency option that will allow them to get across the finish-line on time.

If there is one lesson to be learned here, it is that the crucial enabling role of specialist XBRL technology has been severely underestimated by firms themselves, the enterprise solution providers that they have worked with up until now and even many advisory bodies. In the face of incessant change, the best technology approach is necessarily ‘generic by design’ and inherently flexible; unfortunately many firms are having to learn this lesson the hard way.

Coping with rapidly changing circumstances needs to be accepted by Europe’s financial sector as part and parcel of the new ‘normal’, especially with regard to supervision and regulation. Firms are required to arm themselves to achieve desirable outcomes even in the face of uncertainty; inaction is not a realistic option and procrastination is often synonymous with costly and sub-optimal results.

The reality is that the regulatory reporting burden for Europe’s financial services sector isn’t set to diminish any time soon. If firms are to extract value from the investment they will necessarily have to make in compliance with CRD IV and the other regulations that affect them, they need to take a holistic view of the impact of these changes on their EU-based business operations and how their internal risk management, compliance and external reporting functions are equipped to cope, both in terms of staff and infrastructure. Anything less than a concerted and proactive approach will reduce firms’ margin for manoeuvre, potentially leaving them victim to the operational and reputational consequences of their irresolution.