THE MAIN METHODOLOGICAL ELEMENTS: MIR-BSI-FINREP-COREP

Issue

MFI interest rate requirements (MIR)

MFI balance sheet

requirements (BSI) FINREP (IFRS) approach

Reporting population

All resident credit institutions and all other institutions (within MFI sector) which take deposits from and/or grant loans to households and/or non-fi nancial corporations resident in the participating Member State comprise the potential reporting population.

The potential reporting population does not include money market funds and central banks.

Data effectively collected either from a census or most often from a sample of the potential reporting population.

Monetary fi nancial institutions (MFIs), comprising resident credit institutions as defi ned in Community law and all other resident fi nancial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs, and, for their own account, to grant credits and/or make investments in securities. It includes, in particular, money market funds (MMFs).

Financial institutions that according to national supervisory rules are required or allowed to use IAS/IFRS in the preparation of their consolidated fi nancial statements. As a minimum, all EU credit institutions whose securities are listed are required to use IAS/ IFRS for their consolidated fi nancial statements.

Consolidation scope

MFIs should consolidate the business of all their offi ces located within the same national territory (“host” principle, i.e. only the business of resident MFIs, excluding foreign branches, is reported).

MFIs should consolidate the business of all their offi ces (registered or head offi ce and/ or branches) located within the same national territory. No consolidation for statistical purposes is permitted across national boundaries. The BSI reporting is defi ned on the basis of the so-called “host” principle, i.e. only the business of resident MFIs is reported.

The selection of the consolidation scope is a matter of national discretion; national supervisory authorities may choose between the IAS/IFRS consolidation scope (all subsidiaries), that provided in the new CRD (only credit institutions and fi nancial institutions, excluding insurance undertakings) or both. FINREP follows the “home” basis reporting concept, i.e. resident groups should report the business of non-resident branches and subsidiaries.

Main valuation concepts

Nominal amount (value) of loans and deposits; in new business and outstanding amounts.

Market or fair valuation is recommended, except for loans and deposits, where nominal amounts outstanding at the end of the month are mandatory. Despite this recommendation, the BSI Regulation is rather fl exible as regards the valuation method, making a general reference to Council Directive 86/635/EEC and any other international standards applicable.

When a fi nancial asset and liability is recognised initially, it shall be measured at fair value plus, in the case of fi nancial assets or liabilities not at fair value through profi t and loss, transaction costs that are directly attributed to the acquisition or issue of the fi nancial assets and liabilities. Subsequently, all fi nancial assets shall be measured at fair value, except for some items (e.g. the portfolios “loans and receivables” and “held-to- maturity”), which shall be measured at amortised cost using the effective interest method. In general, all fi nancial liabilities shall subsequently be measured at amortised cost using the effective interest method, except for fi nancial liabilities at fair value through profi t and loss, which shall be measured at fair value.

A N N E X E S

COREP (CRD/CAD) approach

Key similarities and differences between COREP, FINREP and MIR

Key similarities and differences between BSI and FINREP

EU credit institutions, investment fi rms and fi nancial intermediaries subject to Directives 2006/48 (CRD) and 2006/49 (CAD). As a minimum, all EU credit institutions and investment fi rms.

Substantial overlap between the populations: credit institutions.

MMFs (and some other MFIs) are not obliged to use COREP.

Supervisory authorities may request other non-MFI fi nancial institutions and investment fi rms to use COREP.

Non-MIFs such as investment fi rms and OFIs do not report MIR.

Substantial overlap between the two populations.

MMFs and some other MFIs are not obliged to use IAS/IFRS in the preparation of their unconsolidated accounts. Supervisory authorities may request other non-MFI fi nancial institutions to use FINREP.

The application of the framework on a solo or consolidated basis is a matter of national discretion. However, both may become compulsory under the new CRD.

In both cases, COREP follows the “home” basis reporting concept, i.e. resident intermediaries or groups should report the business of non-resident branches and subsidiaries.

MIR “host” basis reporting versus COREP “home” basis reporting.

Differences, in particular as regards the consolidation of non-resident branches (on a solo basis) and of domestic and foreign subsidiaries (on a consolidated basis).

BSI “host” basis reporting versus FINREP “home” basis reporting.

Differences, in particular as regards the consolidation of non-resident branches and of domestic and foreign subsidiaries.

Items are reported at the fi nancial statement value (IAS/IFRS or national GAAPS), gross of value adjustments and provisions and adjusted for the prudential fi lters (see CEBS guidelines dated Dec. 2004).

No link between FINREP and MIR. No real link between COREP and MIR either, although in COREP for some business lines under ASA approach total nominal amount of loans and advances is needed.

Institutions using IAS/IFRS and reporting supervisory information on the basis of FINREP may use the same valuation concepts when reporting for BSI purposes, except for loans and deposits.

In the BSI reporting scheme, loans and deposits should be reported at nominal value whereas in FINREP these are generally recorded at amortised cost and can in certain restricted cases be recorded at fair value.

Issue

MFI interest rate requirements (MIR)

MFI balance sheet

requirements (BSI) FINREP (IFRS) approach Time of recording Contract date for new business. For

outstanding amounts the same rules as BSI apply, i.e. settlement date preferred but contract also allowed provided that it does not cause signifi cant distortions.

Transactions should be recorded at the settlement date (i.e. the date on which the payment is made).

Either trading date or settlement date accounting, provided that the chosen method is applied consistently for all purchases and sales of fi nancial assets that belong to the same category of fi nancial assets.

Treatment of accrued interest

No such concept in MIR new business. In MIR outstanding amounts, all interest is considered regardless of whether it is only accrued or also paid.

Accrued interest should be subject to on-balance-sheet recording as it accrues (accrual basis). Accrued interest on loans/ deposits should be classifi ed, on a gross basis under “remaining assets”/ “remaining liabilities”.

Accrual accounting is also required in the FINREP framework. Accrued interest not yet due should be reported with the underlying instrument in the balance sheet, i.e. to follow “dirty price” accounting.

Recognition and derecognition

Concept has no relevance in MIR new business, in MIR outstanding amounts BSI concept is followed.

Loans (assets) should be derecognised only when all risks and rewards of ownership are transferred. Generally, fi nancial derivatives are recognised on balance sheet at their fair value only if MFIs follow IAS/IFRS for their individual accounts, otherwise they are recorded off balance sheet.

Financial assets should be derecognised when the contractual rights to the cash fl ows from a fi nancial asset expire or when the fi nancial asset is deemed to be transferred and that transfer qualifi es for derecognition.

Netting (offsetting) arrangements

Gross recording should be applied. Netting is only applicable to outstanding amounts which are taken from BSI.

In BSI, for deposits and loans, net recording is permitted under restrictive conditions (same customer, currency and original maturity, enforceable by law).

Gross reporting should be applied, in particular, to loans and deposits. As an exception, loans/deposits may be presented in net terms if credit and debit balances have identical features, i.e. are vis-à-vis the same customer (resident in same territory as the reporting MFI), in the same currency, have the same original maturity, and the right of set-off is enforceable by law.

A fi nancial asset may be offset against a liability and the net amount presented in the balance sheet when, and only when, an entity: (i) currently has a legally enforceable right to set off the recognised amounts; and (ii) intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.