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HM Treasury publishes draft Regulations and draft guidance on CRD IV country-by-country reporting

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20 Nov 2013

HM Treasury has published ‘Capital Requirements (Country by Country Reporting) Regulations 2013’ which will transpose the country-by-county reporting requirements in the EU Capital Requirements Directive 4 (“CRD IV”) into UK law (“the draft Regulations”). Alongside the draft Regulations, HM Treasury has also published draft guidance to aid preparers in interpreting and applying the Regulations. Comments are invited on the draft Regulations and draft guidance for a short period only as HM Treasury intends for the Regulations to be made in December 2013.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.   

HM Treasury has considered the responses received to their initial consultation in September 2013 and used these to inform the draft Regulations and accompanying guidance.  The Regulations implement Article 89 of the Capital Requirements Directive 4.

The key aspects of the draft Regulations are:

  • All institutions (as defined in Article 4(1)(3) of the CRR) should publicly disclose annually, on a consolidated basis, by country where they have an establishment:

a)      their name, nature of activities and geographic location;

b)      number of employees;

c)      their turnover;

d)     pre-tax profit or loss;

e)      corporation tax paid; and

f)       any public subsidies received.

  • Institutions will be required to publicly disclose the information from 1 January 2015 and from 1 July 2014 they must disclose (a)-(c) above. 
  • Certain “global systematically 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. 
  • This information is to be disclosed “on a consolidated basis in accordance with international accounting standards for each country in which the institution has a subsidiary, branch or both”.  The draft guidance states that “in practice this will require institutions to use an accounting approach to consolidation either in accordance with International Financial Reporting Standards (IFRSs) or Generally Accepted Accounting Principles (GAAP)".  The draft guidance explains that aggregation of disclosure may be allowed where more than one institution within the group is within the scope of the Regulations.  The draft guidance also elaborates on how institutions which are part of a wider group may meet their disclosure obligations.
  • The disclosures are required to be audited and the draft guidance explains that this could be part of the statutory audit or part of an additional external assurance engagement.

The draft regulations will be enforced by the Prudential Regulation Authority (PRA) for PRA-regulated institutions and by the Financial Conduct Authority (FCA) for all other institutions.  They will come into force on 1 January 2014.

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