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CEBS Consultation Paper on the New Solvency Ratio Summary

Core Content

The CEBS Consultation Paper (CP04) outlines a proposed framework for common reporting in the European banking sector, aiming to harmonise reporting practices and reduce compliance burdens. The British Bankers' Association (BBA) has responded to this consultation, expressing both support and concerns regarding the implementation of the framework.

Main Views and Key Points

The BBA supports the introduction of a common reporting framework, which they believe can help reduce compliance burdens and promote supervisory convergence, ultimately contributing to financial market integration in Europe. They appreciate the emphasis on consistency and standardisation as the foundational principles of the framework.

However, the BBA also highlights several material concerns:

1. Timing of Implementation

• The BBA acknowledges the rationale for a common European reporting framework but is concerned about its timing.
• They note that Basel II rules in key areas are still being finalised and urge CEBS to delay the implementation of the solvency ratio framework until these rules are well established.

2. Purpose and Relevance of Reporting

• The link between detailed reporting requirements and their intended use is unclear.
• The BBA recommends that CEBS clarify the objectives of the framework and ensure that the reporting data is relevant and "fit for purpose."
• They advocate for common reporting rather than a common calculation methodology, to allow for flexibility and meaningful data.

3. Scope of the Reporting Framework

• The BBA suggests that the framework should be limited to Pillar I requirements, as Pillar II varies across institutions.
• They argue that Pillar II should be handled through individual agreements between firms and their regulators, based on on-site inspections and interviews, rather than being included in the solvency ratio framework.

4. Compliance Burden and Practicality

• The BBA is concerned that the current extensive and detailed proposals will not reduce the compliance burden but rather increase it.
• They recommend that CEBS base the framework on best practices rather than all practices, focusing on core components of the solvency ratio agreed upon by regulators.
• This approach would help reduce the complexity and costs associated with implementing the new capital regime.

5. Cost-Benefit Consideration

• The BBA notes that there appears to be limited consideration of cost-benefit analysis in the design of the framework.
• They argue that a granular framework may have significant implications for the industry's systems infrastructure and may require additional system development.
• They urge CEBS to ensure that the benefits of the reporting framework outweigh the costs, particularly by adopting minimum core requirements for both EU and non-EU regulators.

Conclusion

The BBA encourages CEBS to consider the industry's concerns and to refine the framework to ensure it is practical, cost-effective, and aligned with the goals of supervisory convergence and financial integration. They also express willingness to participate in further discussions, either directly or through the European Banking Federation (FBE).

Key Information

• Recipient: Mr Andrea Enria, Secretary General, Committee of European Banking Supervisors
• Sender: Simon Hills, Director, British Bankers' Association
• Date: 29 April 2005
• Document: CEBS Consultation Paper on the New Solvency Ratio (CP04)
• Main Concerns:
  • Timing of implementation
  • Purpose and relevance of reporting
  • Scope of the framework
  • Compliance burden and practicality
  • Cost-benefit analysis