Large Credit Institutions Prepare for XBRL Pillar 3 Reporting

As part of a move to streamline reporting processes and improve data handling, EU Pillar 3 disclosures are now required to be submitted in the eXtensible Business Reporting Language (XBRL). XBRL enables standardized, machine-readable reporting, improving data quality, reducing errors and facilitating data analysis.

The mandate went live in early 2024 for large credit institutions with European Economic Area (EEA) regulated market-listed securities. While getting a handle on XBRL language can take time, it’s important to do so because of its growing role in reporting frameworks around the world.

Requirements for XBRL and Extensible Markup Language (XML) filings are becoming more commonplace for financial institutions beyond the European Banking Authority’s (EBA) established reporting frameworks.

For example, the European Securities and Markets Authority (ESMA) uses the European Single Electronic Format (ESEF), which requires reports to be submitted in inline XBRL to provide a “hierarchical structure used to classify financial information,” which is “essential for structured electronic reporting using XBRL.”

(ESMA regularly updates the XBRL taxonomy files available on its website. Whenever an issuer is preparing an IFRS consolidated financial statement, it must mark up these statements using XBRL.)

Beyond the financial institutions

As the global push for data harmonization powers the move to machine-readable formatting, financial institutions will not be the only ones impacted. Take the European Commission (EC), which is exploring XML disclosures for the EU Emissions Trading System, the cap-and-trade system aimed at reducing greenhouse gas (GHG) emissions.

Unlike their financial counterparts who already have a handle on XBRL/XML reporting as part of other regulations, non-financial corporations may find themselves less prepared to manage upcoming mandates.

“The European Union is expanding the use of XBRL (eXtensible Business Reporting Language) for financial disclosures, starting with ESG Pillar 3 regulations for large credit institutions.”

Machine-readable disclosure requirements result in standardized regulatory filings, reduced risk of human error in data entry and improved data analysis. As a machine-readable format, XBRL facilitates:

• Easy comparison with external data, helping to streamline alignment with the European Commission’s (EC) financial sustainability goals.
• Marked reduction in the time and costs to banks and regulators by offering simplified analysis and a streamlined business reporting process.
• More efficient communication across disparate information systems.
• Flexible XBRL-based analysis, allowing regulators to develop their own “taxonomies” or sets of data tags to enable deeper, more customizable analytic capabilities.

Banks have been working toward many of these goals for a long time, spurring the adoption of XBRL/XML. Even Excel can now consume XBRL information with the appropriate add-on.

As handy as XBRL is, it isn’t without its challenges. Common pain points include:

• Data-quality issues: XBRL requires the accurate and consistent tagging of financial information. Companies face challenges ensuring data quality, including inconsistent mappings, incorrect tags and missing information—all of which have carry-on effects on submitted filings.
• Training requirements: XBRL adoption necessitates a strong grasp of its concepts, taxonomies and software tools. A lack of awareness and understanding of these factors prolongs the organization’s learning curve and hinders successful implementation.
• System integration: XBRL integration with existing systems and workflows poses technical challenges, including software compatibility issues, infrastructure limitations and the need for technical expertise.

Nonetheless, getting up-to-speed with XBRL pays dividends. One way for firms to futureproof their reporting processes is by deploying platforms which integrate the language directly.

“As XBRL adoption continues to grow, it’s fast becoming a reporting standard. XBRL is used in more than 200 reporting implementations in over 65 countries, according to estimates from XBRL International.”

XBRL and CRR3 implementation

This brings us back to the European Union. The new ESG Pillar 3 XBRL regulation is just the start of the EU’s machine-readable disclosure requirements for sustainability reporting. As part of this trend, there’s tighter integration between CRR3, the EU’s implementation of Basel IV and the EBA’s overarching XBRL taxonomy and data-point model.

For example, the range of institutions in scope for XBRL reporting continues to expand. The EBA’s initial mandate took effect in December 2023 for large credit institutions with EEA regulated market-listed securities and semi-annual disclosures. Small and non-complex institutions with annual disclosures come into scope for the CRR3 regulation from 1 January 2025, as determined in the updated CRR3 banking package.

Resolving the difficulties surrounding a move to machine-readable disclosure requirements is just one component in the long list of changes in regulatory reporting driven by Basel IV and its implementation across jurisdictions.

In the manner of the EU’s CRR3, institutions must get to grip with new regulations not only around submission formats but capital adequacy, ESG disclosures and the many other aspects of Basel’s three pillars. As a result, banks must contend with an influx of change seemingly all at the same time, increasing the pressure toward integrated solutions which save time and effort.

Key features of scalable XBRL solutions

To address the technical challenges, as well as the conflicting regulatory requirements, credit institutions need end-to-end solutions that scale and leverage data across reporting streams while facilitating data validations. With respect to XBRL, the solutions should:

• Directly map client data to the XBRL taxonomy’s cell cubes.
• Deliver workflow automation, validation, risk aggregation, data lineage and analytics in the XBRL format.
• Efficiently facilitate integration with existing data inputs, software and the XBRL taxonomy’s technical aspects in accordance with institutions’ operating models.

Machine-readable reporting in general, and the XBRL format in particular, is already widespread, and will likely become even more ubiquitous in time. By using a platform which integrates XBRL, companies can prepare themselves for increased automation, reduce the need for training and bring overall efficiency to the reporting process.