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Questions and Answers on the Commission's new Supervisory Data Strategy in EU financial services

Met dank overgenomen van Europese Commissie (EC), gepubliceerd op woensdag 15 december 2021.

Why is the Commission proposing this strategy?

Financial companies (such as banks, insurance companies, or asset managers) in the EU are required to report a wide range of data on their financial condition and activities to EU and national supervisory authorities. These authorities need these data to supervise financial institutions and markets in order to monitor risks, ensure financial stability and market integrity, and protect investors and consumers of financial services.

Over the last decade, reporting obligations have increased in order to help address issues identified during the global financial crisis and also as a result of the ever increasing complexity and interconnectedness of the financial system. Consequently, the volume and granularity of data reported for supervisory purposes has grown substantially. While this has significantly improved supervisory oversight, it has also placed an increasing burden on both the companies reporting the information, and the supervisory authorities receiving and analysing the data.

In a comprehensive fitness check of EU supervisory reporting requirements, the European Commission concluded that there are inefficiencies and gaps in the way these requirements are defined in EU law and data is collected. This can have an effect on the ability of authorities to perform their supervisory functions. It also generates unnecessary costs for companies and does not allow full use to be made of modern digital technologies. Digital technologies can significantly reduce the reporting burden for companies and allow supervisors to gain insights from the reported data more effectively and efficiently.

The Commission is proposing the Supervisory Data Strategy to address the shortcomings identified in the above-mentioned fitness check and to enable supervisory authorities to seize the opportunities of data-driven supervision. The objective of the strategy is to modernise EU supervisory reporting and put in place a system that delivers accurate, consistent, and timely data to supervisory authorities at EU and national level, while minimising the overall reporting burden for all relevant parties.

Why is this strategy being proposed now?

Today's strategy contributes directly to the implementation of the Commission's wider European Data Strategy and the Digital Finance Strategy. The European Data Strategy highlighted the need for improved access to data and data sharing within the EU, and for setting up common European data spaces in specific sectors. The Digital Finance Strategy spells out the approach to establish a common data space in the financial sector, spanning across: business-to-business data (covered by the upcoming ‘open finance' framework as announced in the November 2021 Capital Markets Union Communication), publicly disclosed information (covered by the European Single Access Point) and supervisory data (this initiative). The strategy also delivers on recent Commission commitments to systematically and proactively seek simplification and burden reduction. Furthermore, by supporting supervisory convergence, the strategy contributes to the objectives of the Capital Markets Union.

What are the key elements of the strategy?

The strategy takes a gradual and balanced approach to modernising supervisory reporting. It contains both targeted sectoral measures and more far-reaching horizontal, cross-sectoral initiatives to deliver improvements around the following main building blocks:

  • Ensuring consistent and standardised data that relies on clear and common terminology, as well as on common standards, formats and rules.
  • Facilitating the sharing and re-use of reported data amongst supervisory authorities by removing undue legal and technological obstacles to avoid duplicative data requests.
  • Improving the design of reporting requirements by developing guidelines based on best practice in applying better regulation principles in supervisory reporting.
  • Putting in place joint governance arrangements in order to improve coordination and cooperation between different supervisory authorities (such as the European Supervisory Authorities, the European Central Bank, the Single Resolution Board, and the European Systemic Risk Board) and other relevant stakeholders, allowing them to share expertise and information.

What are the main benefits for companies?

Reporting requirements place a financial and administrative burden on companies. Streamlined reporting and the use of digital technologies would help companies reduce their compliance costs, thereby generating significant savings in the long-term.

The Commission is proposing a gradual approach to the implementation of the strategy, supported by joint governance and close stakeholder collaboration, which will ensure that optimal choices are made and sufficient time for adjustment is provided. This will help to ensure that the costs associated with the implementation of the future supervisory reporting system are minimised and the benefits maximised for all stakeholders.

What are the main benefits of the strategy for supervisors?

The aim of the proposed strategy is to modernise EU supervisory reporting and put in place a system that delivers accurate, consistent, and timely data to supervisory authorities at EU and national level. Moreover, the strategy aims to create the conditions necessary for greater use of digital technologies. Digital technologies (particularly “SupTech”, i.e. supervisory technology) can significantly reduce the reporting burden and at the same time allow supervisors to gain much better and faster insights from the reported data. Finally, robust governance arrangements for designing, implementing and maintaining a modern and improved supervisory reporting system will enhance coordination and foster greater cooperation between different supervisory authorities and other relevant stakeholders, allowing them to share their expertise and strengthen supervisory convergence. The need for coordination and cooperation extends beyond the EU to our international partners. The Commission, in coordination with other EU authorities, will continue to support and shape international efforts to enhance data standardisation and alignment of reporting requirements at global level.

What is the “common data dictionary” and what is its purpose?

There is wide agreement that a common data dictionary is indispensable to promote consistent and standardised data across the financial sectors. The purpose of the data dictionary is to avoid data and process redundancies and improve data comparability. It will also allow reporting entities to interpret more easily and unambiguously what data they have to report. Having common standards to define the format of the data will also make it easier to share and reuse data for different purposes. In addition, the data dictionary will contribute to other longer-term goals such as making reporting requirements machine-readable and executable. The data dictionary will be a repository containing a description of the content and format of all data collected under various reporting frameworks in a structured, comprehensive, consistent and unambiguous manner, using terms anchored in legislation to establish a clear link between collected data items and the relevant legislative requirements.

What is the “supervisory data space” and what is its purpose? How will it function?

In the European Data Strategy, the Commission highlighted the need for better access to data and data sharing within the EU and the need to set up common European data spaces for that purpose[1]. The supervisory data space aims to ensure that the data is reported only once and then shared and reused as needed by the different authorities overseeing the financial system in the EU. The supervisory data space will be based on a set of rules for determining data access rights and allocating responsibility for assessing data quality, as well as procedures to be followed by various authorities before adding, modifying and discontinuing reporting requests. It will also involve an IT environment, in which data can be accessed and exchanged safely, in compliance with data protection rules, irrespective of its physical storage location. The Commission has already proposed targeted amendments in certain legislation (e.g. Review of the Alternative Investment Fund Managers Directive (AIFMD), and the October 2021 Banking Package) to facilitate efficient sharing and reuse of data by authorities. Working with the European Supervisory Authorities (ESAs) and other authorities, the Commission will, by 2023, review the relevant legislation to identify other legal obstacles to data sharing and stands ready to address them where necessary. This work will build on provisions in Union legislation which already provide for data sharing between authorities at both EU and national level under strict conditions.

What are the next steps?

The development of a modern and more integrated supervisory reporting system is an ambitious, complex, and long-term undertaking. For this reason, work on modernising supervisory reporting in the EU will take a gradual approach and will build on existing tools. This is in line with stakeholder expectations and reduces implementation risks and related costs. This pragmatic approach consists of both targeted, primarily sectoral measures that will have concrete impacts in the next few years and more far-reaching, longer term cross-sectoral improvements. The next key implementation milestones will be: the assessments by the European Supervisory Authorities (ESAs) to further integrate reporting and improve consistency and data standardisation within the respective sectors; the establishment of sectoral data dictionaries; the review of obstacles to data-sharing; and the formalisation of the governance arrangements.

[1] Data spaces were introduced in the wider European data strategy to mean concrete arrangements for data sharing and data pooling. See COM(2020) 66 final.

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