Many of the regulations coming into effect after 2010, are the result of the financial crisis that has significantly re-shaped the financial industry worldwide and especially in Europe. One of the major projects that has been undertaken by the statistics team of the ECB, launched in 2011, is the setup of a dataset containing granular credit and credit risk data about the credit exposure of credit institutions and other loan-providing financial firms within the Eurozone. On 18 May 2016 the Governing Council of the ECB has adopted the relevant regulation for the collection of these data in a common register to be called AnaCredit. This regulation is coming into effect in September of 2018 and the opinion is certainly divided on it, with doom-laden predictions of its likely ill-effects counterbalanced by the sunlit uplands of hope that it will make the task of central banks easier.
Understanding the scope of AnaCredit
But what exactly is it, and how will it work? AnaCredit is short for analytical credit dataset, and it is a new dataset containing detailed information about individual bank credit exposures in the euro area. It covers the whole euro area, and quite a number of non-Eurozone central banks are also involved. The dataset uses a combination of new data and existing national credit registers to support central banking functions. Most of these are statistical—in other words, linked to reporting—and the results will be used for purposes such as supporting Eurozone and central bank decision-making around monetary policy.
The idea behind AnaCredit is to improve comparability and harmonization among banks and financial institutions across euro states. This will improve the efficiency of reporting, as well as making it easier for the European Central Bank to make cross-country comparisons. The current system means that the ECB can sometimes end up doing the equivalent of comparing apples with pears, which is not helpful when it comes to keeping an eye on credit risks across the Eurozone.
The big difference with AnaCredit—and much of the reason why new data collections are needed—is the move away from reporting aggregated data towards a more microdata approach. This means data granularity will be higher.
The scope of the application of AnaCredit is pretty wide. The system covers all credit institutions located in the Eurozone that are not branches of other credit institutions. It includes both non-Eurozone branches of credit institutions that are headquartered in Eurozone countries, and Eurozone branches of institutions headquartered outside the zone.
Focus and timing
AnaCredit will mainly focus on loans and deposits. However, there are certain off-balance sheet items that will need to be reported, which means that banks and lenders need to be alert to the requirements. It only covers credit extended to legal entities, and there is a threshold of €25.000 per debtor. The original plan was to extend it to loans made to private households, but plans to do so currently seem to be on hold.
Perhaps the most obvious challenge is the timing: the first monthly and quarterly transmission of data to the system needs to start at the end of September 2018. This sounds some distance away, but there are several problems with this.
First, banks and other institutions need to ensure that they have systems in place that will enable them to provide monthly or quarterly reporting, which is not always the case at present. Second, not all the required data may currently be collected, or may not be of sufficient quality. Setting up new data collection systems takes time, and just over a year is not long. Finally, validation and reconciliation may be challenging, because of the changes needed to current systems. For example, reporting to AnaCredit will be on the basis of legal entity, and not per business, and the level of granularity may also be difficult to achieve. Systems set up around businesses will need to be amended to report on legal entities instead. It is conceivable that some banks will need to develop new data warehouses to manage the requirements.
Implementation is not the only challenge, of course. As always, there are a huge number of groups and organisations worrying about data privacy and security. The potential for personal information to be released is certainly relatively high. But banks, including central banks, already have access to significant amounts of personal data, and have strong systems in place to safeguard it.
From complaints to compliance
These challenges are not trivial, but in the European Central Bank’s eyes at least, they are outweighed by the potential benefits of having good, reliable data on which to base assessments of financial stability. One of the major issues emerging from the financial crisis was the lack of reliable information, and AnaCredit is an important step towards addressing that.
Like it or not, in fact, AnaCredit is on its way. Banks and financial institutions need to get to work to make sure that their systems are compliant and can support the reporting requirements. The time for complaining is over.
Insights to deepen your knowledge
If you want to learn more about AnaCredit, you can watch the on-demand webinar Support AnaCredit and Regulatory Reporting requirements. SAS experts will present best practice based on real cases and experiences in order to be compliant with regulators requests.
Last but not least, a great chance to explore the AnaCredit topic is coming soon. Join our discussion on Twitter on Thursday 20th July kicking off at 14:00 CET / 13:00 UK / 08:00 EST. Use the hashtags #saschat and #AnaCredit to follow the conversation around these questions:
- How are the goals of the Anacredit regulations useful to the businesses they impact?
- What do you see as the data governance priorities for compliance?
- Why are many banks still struggling to progress towards this?
- What is the relationship between iAnaCredit and BCBS239, IFRS9,COREP/FINREP compliance?
- Who are stakeholders for AnaCredit compliance?