Proposed by the Committee of European Banking Supervisors, translated from officialese by Michael Imeson.

What is it?

CP06 is another set of accounting regulations. Fantastic! Just what we need after this year’s IFRS humdinger. It’s still at the embryonic stage but if it saw the light of day it would require many listed banks in the EU to give national regulators more information than they already give in their IFRS-compliant annual report and accounts. That would be great news for finance and compliance directors – they would be able to work longer hours and cancel a holiday or three.

It is based on the not-so-widely held premise that IFRS-compliant accounts are not detailed or consistent enough. If CP06 were adopted, banks would be able to delve deeper into their accounting systems to produce megabytes of incredibly useful additional, harmonised figures.

Who dreamed it up?

It is the bright idea of the Committee of European Banking Supervisors (CEBS). This cosy club issued the proposal in the spring and gave bankers until July 8 to report back.

Who wins, who loses?

Everyone wins, of course. The regulators would gain because standardised reports would make their work easier. Banks would have to spend more time and money complying but just think what a lovely set of figures they would produce and all those extra bean-counting jobs they would create.

How much will it cost?

Not much – just a few million euros per bank to modify their accounting systems (but see health costs below).

What does the industry say?

Not surprisingly, bankers are strongly opposed. The British Bankers’ Association, International Swaps and Derivatives Association and the London Investment Banking Association, for example, have issued a joint response against CP06. They say there is no need to go beyond IFRS. If regulators want extra information for prudential supervision purposes, they should use the common framework for bank solvency ratios that is being drawn up by the CEBS. Specific arguments against CP06 are:

  • In going further than IFRS, sometimes contradicting it and by not being mandatory, it will, ironically, introduce inconsistency, not harmony, in financial reporting. It will also knock EU firms out of kilter with global reporting.

 

  • It runs counter to the principle of “better regulation”, trumpeted in the European Commission’s green paper in May on financial services policy.

 

  • Although the financial costs would be low, the health costs would be high: overworked and irritated bankers would suffer from higher blood pressure and stress.

 

What’s in the small print?

The choice of IT application for implementing a standardised reporting system will be “a matter of national discretion”, says the CEBS…but it recommends that it should be based on XML or XBRL languages. The problem is that not all banks can use these languages. Banks fear that what is only recommended today could be compulsory tomorrow.

What do the regulators say?

The CEBS argues that a standard format for EU banks is necessary as it would “increase the cost-effectiveness of supervision across the EU”. It also claims it would reduce the administrative burden on cross-border banking groups and encourage financial market integration.

The law of unintended consequences

The committee says it is not its intention to “impose additional reporting requirements”.

Could we live without it?

You bet. The proposal is driven by supervisors in a few countries, such as Spain, who already insist that banks provide huge amounts of superfluous information in their published financial statements. If CP06 is about formalising the excessive requirements of a few regulators, why should the misery be imposed on everyone else?

RATING: 1

Rating scale: 5 = Essential and costly. 4 = Useful (and costly). 3 = Neutral (and costly). 2 = Unnecessary (and costly). 1 = Waste of time (and costly). 0 = Commercially damaging (and costly).

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