FINREP Flashcards

Question

What types of validation rules exist in FINREP?

Answer 1

Cross-template consistency checks, arithmetic checks, reconciliation checks and regulatory validation rules defined by the EBA.

Answer 2

Data sourcing complexity, reconciliation issues, IFRS interpretation, regulatory changes and system integration challenges.

Answer 3

Changes in EBA ITS or CRR require template updates, system adjustments, new validation rules and reporting process updates.

Answer 4

Regulators and auditors review FINREP submissions, controls, reconciliation to accounting systems and data lineage.

Answer 5

Strong regulatory knowledge, analytical skills, stakeholder management, accounting knowledge and data validation capabilities.

Answer 6

FINREP (Financial Reporting) is a supervisory reporting framework that requires banks to submit detailed financial statement data to regulators. It is developed by the European Banking Authority and implemented under the Capital Requirements Regulation. 👉 It is based on accounting data (mainly IFRS), not risk calculations.

Answer 7

FINREP is required under: Capital Requirements Regulation (CRR) Implementing Technical Standards on Supervisory Reporting (ITS on Reporting) issued by the European Banking Authority Key principle Applies primarily to IFRS-reporting institutions National GAAP banks may have simplified versions (depending on country)

Answer 8

Who reports FINREP? Credit institutions (banks) Investment firms (in some cases) Level of reporting Consolidated level (main requirement) Individual level (depending on regulator) Frequency Typically quarterly Some templates may be semi-annual or annual

Answer 9

Main areas covered 1) Balance Sheet (Statement of Financial Position) -Assets (loans, securities, derivatives) -Liabilities (deposits, debt) -Equity 2) Profit & Loss (P&L) -Interest income/expense -Fee and commission income -Trading income -Operating expenses 3) Detailed Breakdowns Loans by: -sector (households, corporates) -geography -credit quality (performing / non-performing) Financial instruments by: -accounting classification (amortised cost, FVOCI, FVTPL) 4) Credit Quality -Non-performing exposures (NPE) -Forbearance -Impairments (IFRS 9 expected credit losses) 5) Other Areas -Off-balance sheet exposures -Collateral and guarantees -Fair value hierarchy -Related party disclosures

Answer 10

Template Description F 01.01 / F 01.02 Balance sheet (assets / liabilities) F 02.00 Profit & Loss F 03.00 Statement of changes in equity F 04.00 Cash flow statement

Answer 11

Template Description F 07–F 18 Financial assets/liabilities by category F 12–F 18 Loans and advances breakdown

Answer 12

Template Description F 18–F 23 Credit quality (performing / non-performing) F 24–F 29 Forbearance and NPE F 30+ Collateral and guarantees

Answer 13

Template Description F 12 / F 18 / F 23 Expected credit loss (ECL) Staging (Stage 1, 2, 3) Credit deterioration

Answer 14

FINREP is the European supervisory financial reporting framework developed by the EBA under CRR, requiring banks (mainly IFRS reporters) to submit detailed financial statement data, including balance sheet, P&L, credit quality, and impairments. It differs from COREP, which focuses on capital and risk-weighted assets, and from Pillar 3, which is public disclosure based on aggregated FINREP and COREP information.

Answer 15

What is in F 01.01? Balance sheet (assets) Loans, securities, derivatives, cash, etc.

Answer 16

Profit & Loss statement Interest income, fees, trading income, expenses

Answer 17

Mainly F 18 (loans & advances breakdown) Also F 12, F 19, F 20 depending on detail

Answer 18

F 18 / F 19 / F 23 These include performing vs non-performing exposures and impairments.

Answer 19

Exposure where concessions are granted to a borrower in financial difficulty (e.g. restructuring, payment holidays).

Answer 20

Templates around F 30+ Cover collateral, guarantees, and credit risk mitigation.

Answer 21

What is IFRS 9? Accounting standard introducing: Expected Credit Loss (ECL) Forward-looking impairment model

Answer 22

Stage 1 → performing, 12-month ECL Stage 2 → significant increase in credit risk, lifetime ECL Stage 3 → default / non-performing, lifetime ECL

Answer 23

Amortised Cost → held to collect cash flows FVOCI → collect + sell FVTPL → trading / fair value through P&L Under IFRS 9, financial assets are classified based on the business model and cash flow characteristics into amortised cost, FVOCI, or FVTPL. Amortised cost is used for assets held to collect contractual cash flows, FVOCI for assets held to collect and sell, and FVTPL for trading or non-SPPI assets, with key differences in how fair value changes are recognised in profit and loss versus OCI.

Answer 24

Through impairment columns in FINREP templates (e.g. F 18, F 23) Split by stage (1, 2, 3)

Answer 25

Exposure is non-performing if: >90 days past due, or unlikely to pay

Answer 26

General Ledger (GL) Sub-ledgers (loans, deposits) Risk systems (credit risk, staging) Data warehouse

Answer 27

FINREP totals must match audited financial statements Reconcile: balance sheet P&L equity

Answer 28

Missing counterparty data Incorrect staging Inconsistent product classification GL mapping errors

Answer 29

FINREP exposures (e.g. loans) feed into COREP RWA calculations

Answer 30

eported in: dedicated FINREP templates include guarantees, commitments

Answer 31

Eliminated in consolidated FINREP Reported at individual level

Answer 32

Reported at fair value Split into assets/liabilities

Answer 33

Moves to Stage 3 Reported as NPE Higher impairment (lifetime ECL)

Answer 34

Possible reasons: lower interest rates margin compression shift in portfolio quality

Answer 35

Because: higher risk weights rating downgrade model changes

Answer 36

Cross-template consistency totals reconciliation sign checks mandatory fields

Answer 37

Incorrect staging poor documentation reconciliation gaps inconsistent definitions

Answer 38

FINREP vs financial statements FINREP vs COREP Current vs previous period

Answer 39

NPE → non-performing exposure (>90 days past due) Forbearance → concession due to borrower distress ECL → expected credit loss Stage 2 vs 3 → SICR vs default

Answer 40

FINREP is the EBA supervisory reporting framework based on IFRS, requiring banks to submit detailed financial data including balance sheet, P&L, and credit quality. It supports supervisors in assessing financial performance and risk, and differs from COREP which focuses on capital adequacy.

Answer 41

Asset quality in FINREP is reflected through the classification of exposures into performing and non-performing exposures (NPE), as well as through IFRS 9 staging into Stage 1, Stage 2, and Stage 3. It also includes information on impairments using expected credit loss and identifies forborne exposures. This information is mainly reported in templates such as F18 and F23, which provide detailed breakdowns of credit quality and impairments.

Answer 42

Stage 2 exposures are those with a significant increase in credit risk since initial recognition, but they are not yet defaulted. Indicators include 30 days past due, credit rating downgrades, or forbearance measures. These exposures are subject to lifetime expected credit losses. Stage 3 exposures are credit-impaired or defaulted exposures, typically defined as more than 90 days past due or assessed as unlikely to pay. These correspond closely to non-performing exposures in FINREP and also require lifetime expected credit losses.

Answer 43

Stage 3 exposures are generally aligned with non-performing exposures, but they are not always exactly the same. Stage 3 is an accounting concept under IFRS 9 based on credit impairment, while NPE is a regulatory definition based on criteria such as 90 days past due or unlikely to pay. In most cases they overlap, but differences can arise due to variations in definitions, thresholds, or timing between accounting and regulatory frameworks.

Answer 44

A loan starts in Stage 1 at initial recognition, where credit risk is low and a 12-month expected credit loss is recognised. If there is a significant increase in credit risk since origination, the exposure moves to Stage 2. Indicators include 30 days past due, rating downgrades, or forbearance. In Stage 2, lifetime expected credit losses are recognised. If the exposure becomes credit-impaired or defaulted, for example more than 90 days past due or assessed as unlikely to pay, it moves to Stage 3. Stage 3 exposures also require lifetime expected credit losses and are typically aligned with non-performing exposures in FINREP

Answer 45

FINREP data is sourced mainly from the general ledger, sub-ledgers such as loan systems, and risk systems for credit risk information like staging and impairments. This data is typically integrated through a data warehouse or reporting engine. To ensure data quality, key controls include reconciliations between the general ledger and FINREP templates, as well as consistency checks between FINREP and risk systems. Additional controls include validation rules based on EBA requirements, review and sign-off processes, and proper documentation of adjustments and data transformations.

Answer 46

FINREP and COREP can differ because they are based on different frameworks. FINREP follows IFRS accounting standards and reports exposures based on accounting values, such as amortised cost or fair value. COREP, on the other hand, is based on prudential rules under CRR and focuses on risk measurement and capital adequacy. It applies regulatory adjustments such as credit risk mitigation, risk weights, and exposure at default calculations. As a result, the same exposure can have different values in FINREP and COREP due to differences in valuation, risk adjustments, and definitions.”

Answer 47

The main challenges in FINREP reporting are primarily related to data quality, system complexity, and regulatory changes. First, ensuring data quality is challenging because FINREP relies on multiple source systems, such as the general ledger and credit risk systems, which may have inconsistencies or missing data. Second, the level of granularity required in FINREP is often higher than what is available in accounting systems, which makes mapping and reconciliation more complex. Finally, frequent regulatory changes and updates to EBA taxonomy require continuous system adjustments and can introduce implementation risks and data issues.

Answer 48

The exposure starts in FINREP at amortised cost of €100 million, which reflects the accounting value under IFRS. For COREP, this exposure is first adjusted to a prudential exposure value. If applicable, off-balance sheet items would be converted using credit conversion factors, although for a loan this is typically already on-balance sheet. Next, credit risk mitigation techniques are applied, such as eligible collateral or guarantees, reducing the exposure value. The adjusted exposure is then used to determine the Exposure at Default (EAD). After that, a regulatory risk weight is assigned based on the counterparty type, rating, and approach used (Standardised or IRB). Finally, Risk-Weighted Assets are calculated as: RWA = EAD × Risk Weight.”

Answer 49

In FINREP, derivatives are reported at fair value on the balance sheet, either as assets or liabilities, reflecting their accounting valuation under IFRS. In COREP, however, derivatives are treated under counterparty credit risk rules, typically using the Standardised Approach for Counterparty Credit Risk (SA-CCR). The exposure is calculated as the sum of replacement cost and potential future exposure. In addition, netting agreements and collateral, such as variation margin under a CSA, are taken into account, which can significantly reduce the exposure. As a result, the exposure reported in COREP can differ significantly from the fair value reported in FINREP.

Answer 50

Under SA-CCR, the Exposure at Default for derivatives is calculated as: EAD = 1.4 × (Replacement Cost + Potential Future Exposure). Replacement Cost represents the current exposure, calculated as the positive mark-to-market value of the derivative, net of collateral and within a netting set. Potential Future Exposure reflects the possible increase in exposure over time and is calculated using supervisory add-ons, which depend on asset class, notional, and maturity. A multiplier is applied to account for collateralisation and netting effects. These components are aggregated at the netting set level, and the resulting EAD is then used to calculate Risk-Weighted Assets by applying the appropriate risk weight based on the counterparty.

Answer 51

FRTB significantly changed the Internal Models Approach compared to the previous VaR-based framework. The key change is the replacement of Value-at-Risk with Expected Shortfall, which better captures tail risk. In addition, FRTB introduces liquidity horizons, meaning that risk factors are assigned different holding periods depending on their liquidity, which increases capital requirements for less liquid positions. Another major change is the introduction of the Risk Factor Modellability Test. Non-modellable risk factors attract a separate capital charge, increasing the conservatism of the framework. FRTB also introduced stricter model validation through the P&L Attribution Test and backtesting requirements, and model approval is now granted at the trading desk level rather than the entire bank. If a desk fails these tests, it must revert to the Standardized Approach. In terms of implementation challenges, banks face significant difficulties with data availability for modellability, system upgrades to calculate Expected Shortfall and liquidity horizons, and increased governance requirements around model validation and desk-level approval.

Answer 52

Non-Modellable Risk Factors are risk factors that do not meet the regulatory modellability criteria under FRTB, meaning there is insufficient real price observation data to reliably model them. To be considered modellable, a risk factor must have a minimum number of real price observations over a defined period, for example at least 24 observations per year with no 90-day gap. If a risk factor fails this test, it is classified as non-modellable and excluded from the Expected Shortfall calculation. Instead, it attracts a separate stress scenario capital charge, which is typically more conservative. NMRFs are challenging because they significantly increase capital requirements, introduce volatility as modellability can change over time, and require strong data infrastructure and governance to collect, validate, and demonstrate sufficient market data to regulators.

Answer 53

Initial Assessment & Materiality “First, I would assess the materiality and scope of the inconsistency to understand the impact on capital and regulatory reporting.” 2. Root Cause Investigation “I would then perform a structured reconciliation between FINREP and COREP by breaking down the exposure into key components: FINREP: accounting value (amortised cost / fair value) COREP: EAD, CRM adjustments, CCF, and risk weights I would compare data sourced from Finance and Risk systems, focusing on differences such as credit risk mitigation, off-balance sheet conversion, and regulatory adjustments.” 3. Cross-Functional Coordination “I would coordinate closely with Risk, Finance, and IT teams to identify whether the issue is driven by data sourcing, mapping logic, or regulatory calculation differences.” 4. Root Cause & Resolution “Once the root cause is identified, I would define and implement remediation actions, such as correcting data mapping, adjusting calculation logic, or enhancing controls.” 5. Regulator Communication “I would prepare a clear explanation for the regulator, outlining the root cause, impact, and remediation plan, including whether resubmission is required.” 6. Control Enhancement “Finally, I would implement additional controls, such as reconciliations and validation checks, to ensure consistency between FINREP and COREP going forward.”

Answer 54

Exposure at Default is the regulatory measure of exposure used for capital calculation. It includes accounting exposure plus adjustments such as credit conversion factors for off-balance sheet items and, for derivatives, potential future exposure

Answer 55

Because FINREP reflects accounting values, while COREP applies prudential rules such as credit risk mitigation, conversion factors, and risk weights. These differences lead to variations in exposure values.

Answer 56

Non-performing exposure is defined as exposures more than 90 days past due or assessed as unlikely to pay, and is a key credit quality metric in FINREP.”

Answer 57

WA is calculated as Exposure at Default multiplied by the applicable risk weight, which depends on counterparty type, rating, and regulatory approach

Answer 58

CRM includes techniques such as collateral and guarantees that reduce the effective exposure or risk weight, thereby lowering capital requirements.”

Answer 59

Off-balance sheet items are converted to exposure using credit conversion factors before calculating EAD and RWA.

Answer 60

In FINREP derivatives are reported at fair value, while in COREP exposure is calculated using SA-CCR, which includes replacement cost and potential future exposure. ## Footnote Derivatives in FINREP are measured at fair value through profit or loss under IFRS 9, meaning they are marked to market and changes in value are recognised in the P&L. The only exception is when hedge accounting is applied, where some effects may be recognised in OCI

Answer 61

EAD = 1.4 × (Replacement Cost + Potential Future Exposure), calculated at netting set level.”

Answer 62

FRTB replaces VaR with Expected Shortfall, introduces liquidity horizons, and strengthens model validation with desk-level approval and modellability requirements

Answer 63

SBM captures market sensitivities, DRC captures default risk, and RRAO captures risks not covered by standard models.

Answer 64

Non-modellable risk factors lack sufficient observable data and attract a separate stress-based capital charge under FRTB.”

Answer 65

“Ensuring data quality and consistency across Finance and Risk systems, especially given regulatory complexity and increasing data granularity requirements.”

Answer 66

Yes, for example due to credit risk mitigation or netting effects, although in many cases EAD can also be higher due to off-balance sheet components or add-ons.”

Answer 67

Under the Standardised Approach, collateral typically reduces RWA via risk weight adjustment rather than EAD directly.”

Answer 68

Because it incorporates potential future exposure and supervisory add-ons, making it more risk-sensitive than simple fair value approaches

Answer 69

Due to changes in risk weights, credit quality deterioration, or regulatory adjustments.”

Answer 70

It is backward-looking and accounting-based, which may not fully capture forward-looking risk compared to prudential metrics.”

Answer 71

“It loses IMA approval and must revert to the Standardised Approach.”

Answer 72

“They significantly increase capital and depend heavily on data availability and modellability criteria.”

Answer 73

Data inconsistency across systems leading to incorrect capital reporting and regulatory breaches.

Answer 74

“Because inconsistencies undermine data reliability and can indicate control weaknesses.”

Answer 75

FVTPL → “mark-to-market through P&L” FVOCI → “mark-to-market through equity” AC → “ignore market price, use amortised value”

Answer 76

Under FINREP, fair value treatment means that financial instruments classified as FVTPL or FVOCI are measured at current market value. For FVTPL instruments, all fair value changes are recognised in profit and loss, while for FVOCI instruments, unrealised gains and losses are recorded in other comprehensive income, with different recycling rules for debt and equity instruments.

Answer 77

Under FINREP, amortised cost treatment means that financial assets are measured using the effective interest rate method without fair value revaluation, with interest income recognised in profit and loss and credit risk captured through expected credit loss provisions, which adjust the carrying amount of the asset.

Answer 78

A financial asset is measured at amortised cost if: It is held in a “hold to collect” business model Cash flows are solely payments of principal and interest (SPPI) 👉 Typical instruments: Loans to customers Mortgages Some debt securities

FINREP Flashcards

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