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HM Treasury consultation on CRD IV country-by-country reporting

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24 Sep 2013

HM Treasury has published a consultation on the government’s approach to transposing the country-by-county reporting requirements in the EU Capital Requirements Directive 4 (“CRD IV”). Responses are requested in writing by 18 October 2013.

CRD IV (consisting of the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)) is the EU package of rules and regulations which implements Basel III, the international regulatory framework for banks. The package is binding on all EU member states. It aims to address the problems that caused the financial crisis by increasing the level and quality of capital held by banks, enhancing risk coverage, expanding disclosure requirements and reducing procyclicality. CRD IV provides a basis for EU liquidity standards and introduces leverage disclosure requirements. 

CRD IV was agreed by the European Council on 20 June 2013 and the legislation was published in the Official Journal on 27 June 2013.  CRD IV is intended to apply from 1 January 2014.  The UK is required to transpose CRD IV into national law. 

CRD IV (Article 89) requires, among other things, all “credit institutions” and “investment firms” to report on a country-by-country basis from 1 July 2014.  This will include a requirement to disclose annually: 

  • Their name;
  • Nature of activities and geographic location;
  • Number of employees; and
  • Turnover on a consolidated basis by country where they have an establishment. 

Certain “important institutions” will be required to disclose additional information such as their pre-tax profit or loss, their taxes paid and any public subsidies received by 1 July 2014.  Should this disclosure not be deemed to be prejudicial all credit institutions and investment firms will have to disclose this information from 1 January 2015.  

The objective of the country-by-country reporting requirements is to restore trust in financial institutions by making their operations, profits and taxes paid more transparent to investors. 

The key areas addressed in the consultation; “Capital Requirements Directive 4: consultation on country-by-country reporting” are:

  • Institutions to which the country-by-country reporting requirements will apply to.  The consultation proposes that the requirements are applicable to all credit institutions and investment firms “with a presence in the UK, be it an entity headquartered in the UK, or UK subsidiaries or branches of institutions established in a third country”.  The consultation proposes that the “important institutions” will be those “identified by the Financial Stability Board to be globally systematically important banks”.
  • Basis of consolidation.  The consultation proposes that “if a top parent company in the EU is itself publishing the information on a consolidated basis for its UK institutions, those institutions should not be required to make their own duplicate disclosures but should explain where the information published by the parent company can be found”.  However if the parent is not disclosing the relevant information, the UK institution will be required to do so”  The consultation also asks whether the term “consolidated basis” should be taken to have the same meaning as that in International Financial Reporting Standards (IFRSs) and disclosure made on the same basis.
  • The proposed definition of establishment.
  • Reporting formats and whether the government should provide a template for disclosure.  The consultation proposes that disclosure is made in “an annex to companies’ annual financial statements, or where applicable, companies’ consolidated financial statements” and where this is not possible “on the institutions website”.
  • Auditing requirements and the concept of materiality

HM Treasury has stated that the responses to the consultation will “inform the legislation which is intended to apply from 1 January 2014”. 

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