Reporting requirements for Leverage Ratio - Are you ready?
The first submission for the UK’s updated leverage ratio framework reporting (entry point LRV002) is approaching with a 30th June 2024 reporting period end and submission date of 9th of August 2024.
These new supervisory reporting requirements apply to LREQ firms and were introduced by the PRA in 2023 along with enhancements to ICAAP assessments of contingent leverage risk.
What are the new Regulatory Reporting requirements coming into force?
To meet the increased regulatory reporting requirements, LREQ firms will need to submit 4 new templates on a six-monthly basis at the applicable reporting reference dates (30 June and 31 December):
- LV49.00: Treatment of collateral swaps
- LV50.00: Treatment of repurchase transactions
- LV51.00: Treatment of agency repurchase transactions
- LV52.00: Treatment of internalised trades
Some of these returns will require reporting firms to compute metrics against granular data gathered over a 6-month period.
These new returns will have to be validated against circa 50 regulator-defined validation rules and need to be submitted in XBRL as defined in the version 3.6.0 of the Bank of England Banking XBRL taxonomy
Why is the Bank of England introducing those new regulatory reporting requirements?
The leverage ratio is a measure which allows for the assessment of institutions’ exposure to the risk of excessive leverage. The leverage ratio is calculated as an institution's capital measure divided by the total exposure measure, expressed as a percentage. The higher the percentage, the less reliance an institution has on debt for funding.
When calculating the leverage ratio, certain types of financing have lower exposure measure values than other economically similar transactions. Collateral swaps, repurchase agreements, reverse repurchase agreements, internalised trades, and agency secured funding transactions & derivatives are capital efficient but only under certain conditions. Contingent leverage risk arises when an institution is unable to rely on the capital efficiency of these forms of funding.
During a stress scenario, this risk could materialise and lead to a reduction in the institutions leverage ratio, thereby tightening its capital constraints. Institutions may need to deleverage their balance sheets by selling off assets to maintain compliance with leverage ratio requirements which could ripple through the financial sector.
How can we help?
As a leading provider of Risk and Regulatory Reporting solutions, Suade is well-equipped to offer tailored services ensuring firms meet their Regulatory Reporting obligations. For a discussion on how these changes may impact you and how Suade can assist, please reach out to us.
