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Summary of Guidelines for the Implementation of the Framework for Consolidated Financial Reporting (FINREP)

Core Content

The Guidelines for the Implementation of the Framework for Consolidated Financial Reporting (FINREP) are designed to assist credit institutions in preparing their consolidated supervisory financial returns in accordance with International Financial Reporting Standards (IAS/IFRS). These guidelines aim to increase comparability and standardisation of financial information across European credit institutions, while still allowing for some flexibility in reporting formats.

Main Points

1. General Guidelines

• Objective: To provide a standardised framework for consolidated financial reporting, based on IAS/IFRS.
• Scope: FINREP applies to credit institutions preparing consolidated financial returns under IAS/IFRS, as required by their national supervisory authorities.
• Structure: FINREP is divided into core and non-core information, with core being the minimum required for prudential reporting.
• Reporting Frequency: Determined at the discretion of national supervisory authorities, with the possibility of different frequencies for core and non-core information.

2. Accounting and Measurement Rules

• Trade Date vs. Settlement Date: Credit institutions may choose to record financial assets and liabilities either on the trade date or settlement date, provided the method is applied consistently.
• Accrued Interest and Interest Rate Margin: Accrued interest is included in the financial instruments category in the balance sheet. In the income statement, interest income and expenses may be reported either as clean pricing (directly) or dirty pricing (under net gains/losses). The calculation of interest rate margin may vary, but national supervisory authorities may standardise it.

3. Links to COREP

• FINREP includes breakdowns and references to the Common Framework for Reporting of the Solvency Ratio (COREP) to ensure alignment.
• Examples of such links include:
  • Breakdown of revaluation reserves and valuation differences for own funds calculation.
  • Use of economic sector allocation classes from Annex 1 to link with COREP exposure classes.
  • Product breakdowns for AFS financial assets to support COREP requirements.

4. Structure of Financial Statements

• Consolidated Balance Sheet: Financial instruments are presented by category (portfolio approach), except for cash balances with central banks and deposits from central banks.
• Consolidated Income Statement: Income and expenses from continuing operations are shown by nature, and gains/losses on financial assets are presented net. Disaggregation is required for both core and non-core information.
• Additional Tables: Provide disaggregated and quantitative data on various financial items, such as impairment, interest, derivatives, and exposures.

Detailed Guidance

1. Deposits from Credit Institutions

• Deposits from credit institutions are included in the consolidated balance sheet and related tables.
• These are defined as financing received from counterparties that are credit institutions, while deposits other than from credit institutions cover other types of liabilities.

2. Equity Component of Financial Instruments

• The equity component of financial instruments is reported under "Other equity" in the consolidated balance sheet.
• This includes all contractual obligations that may result in the future delivery of own equity instruments, as well as the equity component of compound financial instruments.

3. Treasury Shares

• Treasury shares are included in the consolidated balance sheet under equity.
• They refer to financial instruments that have the characteristics of own equity instruments and have been reacquired by the issuing entity.

4. Interest Income and Expenses

• Interest income and expenses from financial instruments held for trading or designated at fair value through profit or loss may be reported either as interest income/expense or net gains (losses).
• This choice is flexible unless national authorities require a specific method.

5. Impairment on Equity Instruments (Available-for-Sale)

• Impairment losses on AFS equity instruments are included in the "Impairment on financial assets at cost (unquoted equity)" item.
• The impairment process is detailed in illustrative examples, showing how fair value changes and cumulative losses are reported.

6. Dividend Income

• Dividend income may be reported either as dividend income or under net gains (losses), depending on the method chosen.
• National supervisory authorities may require separate reporting of dividend income.

7. Provisions

• Provisions are reported in a separate line item in the consolidated income statement, grouped by function.
• Entities may, at the discretion of their national authority, report them by nature instead.

8. Derivatives

• Derivatives are reported by type of underlying risk.
• If a derivative is influenced by multiple underlying risks, it should be allocated to the most risk-sensitive one.
• Derivatives included in compound or hybrid instruments should be recorded separately from the host contract, unless the contract is designated at fair value through profit or loss.

9. Available-for-Sale Financial Assets

• Table 5 provides a product breakdown of AFS financial assets, with details on fair value, impairment, and cumulative losses.
• The illustrative examples clarify the treatment of fair value changes and impairment.

10. Loans and Receivables, Held-to-Maturity Investments

• Table 6 allows for the disaggregation of loans and receivables into unimpaired and impaired categories.
• Credit institutions must disclose allowances for individually assessed and collectively assessed financial assets, which is important for prudential supervision and alignment with COREP.

11. Impairment and Past Due Assets

• Table 7 requires an analysis of past due financial assets that are not yet impaired.
• The analysis is based on the number of past due days and excludes impaired assets, which are reported separately.

12. Tangible and Intangible Assets

• Tables 9, 10, and 11 provide a common harmonised format for tangible and intangible assets, aligning with IAS 16, IAS 40, and IAS 38.
• Credit institutions may choose between the cost model or revaluation model for measuring these assets.

13. Investments in Associates, Subsidiaries, and Joint Ventures

• Table 12 provides summarised financial information on these investments.
• The level of detail is based on IAS/IFRS disclosure requirements.
• Sub-table B is used for subsidiaries not consolidated due to prudential scope limitations.

14. Derecognition and Financial Liabilities of Transferred Assets

• Table 17 includes information on transferred financial assets that do not qualify for derecognition.
• It provides a link to COREP by indicating which assets may be derecognised for capital purposes.

15. Realised Gains and Losses

• Table 21 provides a breakdown of realised gains and losses on financial assets and liabilities not measured at fair value through profit or loss.
• These gains and losses arise at derecognition and are reported net.

16. Repurchase Agreements and Related Instruments

• Repurchase agreements, reverse repos, and related agreements are not presented separately on the balance sheet.
• Table 33 is used to provide detailed information on these agreements, broken down by financial asset/liability category and by the nature of the instrument.
• The "Other" category in Table A may include financial instruments not covered by IAS 39.9, such as those in disposal groups.

Annex 1: Economic Sector Allocation Classes

• Annex 1 provides correspondence tables between FINREP's economic sector allocation classes and the exposure classes used in the CRD and COREP.
• The economic sector classes include:
  • Central governments
  • Credit institutions
  • Non-credit institutions
  • Corporates
  • Retail
• These classes are used to align financial reporting with prudential risk exposure classifications.

Key Information

• Core vs. Non-Core Information: Core is the minimum required for prudential reporting, while non-core is optional and provides additional details.
• Standardisation: FINREP aims to increase comparability across European credit institutions.
• Flexibility: While IAS/IFRS provides presentational choices, FINREP limits some options to ensure standardisation.
• Supervisory Alignment: The framework includes links to COREP, facilitating prudential calculations and supervision.
• Reporting Requirements: National supervisory authorities may require additional qualitative and quantitative information, and they may mandate specific accounting methods for consistency.

This document serves as a comprehensive guide for credit institutions in preparing their consolidated financial reports under FINREP, ensuring compliance with IAS/IFRS and alignment with prudential reporting frameworks.