Final Draft ITS on reporting and disclosures requirements for investment firms

General Information

This document is the final report of the European Banking Authority (EBA) dated 2 December 2024, entitled "Final Draft ITS on reporting and disclosures requirements for investment firms." It is an Implementing Technical Standard (ITS) amending Commission Implementing Regulation (EU) 2021/2284 on reporting and disclosure requirements for investment firms. The scope covers prudential reporting requirements for investment firms in connection with Regulation (EU) 2019/2033, incorporating recent developments in the European regulatory framework, notably the CRR3 and CRD VI reforms published in June 2024. The document is addressed to supervisory authorities and investment firms subject to these obligations, with application planned from 1 January 2025 (p. 1-11).

Executive Summary

The document presents the proposed amendments to the ITS on prudential reporting by investment firms, in connection with recent reforms of the European regulatory framework (CRR3/CRD VI) published on 19 June 2024. These reforms implement the post-crisis Basel III recommendations, adapted to the European banking sector. Reporting by investment firms is closely linked to that of credit institutions, especially when these firms apply certain CRR rules for calculating capital requirements related to market, credit, and CVA (Credit Valuation Adjustment) risks. The document explains that, for market risk (K-NPR), class 2 investment firms will continue to apply the previous framework (CRR2) and not the new CRR3 rules, which requires "freezing" the corresponding reporting requirements to avoid inconsistencies. Conversely, for counterparty risk and CVA risk, the rules and reporting are aligned with those of credit institutions, except for the explicit exclusion of the output floor reporting obligation for investment firms. Furthermore, minor technical adjustments are introduced, notably the removal of the Croatian Kuna currency and a relaxation of the minimum precision requirements for monetary data. These changes are considered non-substantial, justifying the absence of a new public consultation. They will enter into force on 1 January 2025, with a specific submission deadline for CVA data between January and April 2025 set at 30 June 2025 (p. 3-10).

Context and Objectives

The European regulatory framework imposes prudential reporting obligations on investment firms defined by Regulation (EU) 2019/2033 (IFR) and its Implementing Technical Standards (ITS). Since 2022, investment firms have reported their data according to Commission Implementing Regulation (EU) 2021/2284. However, the publication in June 2024 of the CRR3/CRD VI reforms, which notably modify the rules for calculating capital requirements for credit institutions, requires an update of the reporting ITS to ensure coherence and adequacy of the collected data. The document aims to adapt the reporting framework for investment firms, taking into account cases where they apply CRR rules, while respecting the specificities of the IFR. The objective is to ensure maximum harmonization, data comparability, and enhanced supervisory capacity, while avoiding disproportionate reporting changes when the underlying rules do not change substantially (p. 4-6).

Summary of Key Points by Theme

Regulatory framework and reporting: The document recalls that investment firms must comply with a prudential reporting framework defined by the IFR and its ITS, with formal links to credit institution reporting when CRR rules apply (p. 4).

Market risk (K-NPR): Class 2 investment firms may calculate K-NPR according to different CRR methods (Standardised Approach, Alternative SA, Alternative Internal Model Approach). However, a transitional provision (Article 57(2) IFR) exempts them from applying the new FRTB rules from CRR3 before June 2026. Consequently, reporting must remain compliant with the CRR2 framework, requiring modification of the ITS to remove references to the new CRR3 requirements, without substantive changes to the reported data (p. 5).

Counterparty risk and CVA: For investment firms opting for partial or full application of CRR rules on counterparty risk (CCR) and CVA risk, reporting is aligned with that of credit institutions via the corresponding COREP templates. Template C 34.02 has been updated to integrate the impact of the output floor, but investment firms are not subject to this requirement and therefore must not report this information. For CVA risk, CRR3 introduces a new framework with three distinct approaches, leading to the renumbering of template C 25.00 to C 25.01. The ITS is amended to reflect this change, impacting the concerned investment firms (p. 5-6).

Technical amendments: Minor adjustments have been made, notably the removal of the Croatian Kuna currency and Croatia from the currency and country lists, as well as a relaxation of the minimum precision requirements for monetary data, moving to a precision of one ten-thousandth of a unit (p. 6).

Regulatory process: The EBA considered that the proposed amendments did not involve substantial changes justifying a new public consultation, particularly as they continue evolutions already consulted on, notably for CVA (p. 3, 6, 9).

Main Findings and Lessons Learned

Established facts:

- The publication of CRR3/CRD VI in June 2024 modifies prudential requirements for credit institutions, indirectly impacting investment firms applying certain CRR rules.

- Reporting by investment firms must be adapted to reflect these developments, while respecting the specific provisions of the IFR, notably the transitional clause on market risk.

- The COREP templates used for reporting CCR and CVA risks have been updated under CRR3.

Assumptions:

- The absence of a public consultation on these amendments is justified by their non-substantial nature.

Interpretations:

- The need to decouple market risk reporting from the new CRR3 requirements for investment firms arises from the IFR transitional provision.

- Aligning CCR and CVA reporting with that of credit institutions facilitates supervision and data comparability.

Uncertainties:

- The precise operational impact for investment firms depends on their choice to apply or not CRR rules for certain risks.

- The future evolution of the regulatory framework after the transitional period is not detailed in this document (p. 3-10).

Conclusions and Recommendations

The EBA concludes that the ITS on reporting by investment firms must be amended to integrate the developments of CRR3 while respecting the specificities of the IFR. These amendments aim to ensure consistency between the reporting frameworks of credit institutions and investment firms when rules are common, and to preserve independence when frameworks differ, notably for market risk. The EBA recommends applying these amended ITS from 1 January 2025, with a specific submission deadline on 30 June 2025 for CVA data from the first months of 2025. It considers that these adjustments do not require a new public consultation due to their limited scope. The document thus formalizes a harmonized, clear, and adapted framework to recent regulatory developments, facilitating prudential supervision of investment firms in the European Union (p. 3-10).