Leveraging XBRL for Basel II Daniel D’Amico XBRL Int Basel II Working Group Chair IBM Business Consulting Services, Risk and Compliance Boston, April 27, 2005

Agenda The three real pillars of Basel II XBRL towards aligning the pillars XBRL Basel II plans

The three Pillars of Basel II Minimum Capital requirements Supervisory Review Process Market Discipline

The three Pillars of Basel II The regulators Basel II The Public The Banks

The public Shareholders, Investors, ECAI, Analysts, Depositors, Investigators…. all want to have information about the risks a given bank is taking, the distribution of their banking books, the riskiness of their portfolio….. This has to be true at an international level given cross border activities of the average banking group It is necessary to: Develop common definitions (cross border) Use common/global standard Obtain timely information Low cost of acquisition

Meaningful and useful public disclosure is can be reached if… Common Definitions Common Global Standard Timely Information Low Cost of acquisition

The three Pillars of Basel II The regulators Basel II The Public The Banks

The Banks “…Banks in revolt against ‘regulatory exuberance’, Bankers face unprecedented volume of regulation. Proposal to establish wise men’s group to provide a new way forward .…” Global Risk Regulator, April 2005 Banks in europe: -Capital Requirements Directive (CRD) -Variety of directives associated with the Financial Services Action Plan, -Market in Financial Instruments Directive (MiFID) and the -Markets Abuse Directive (MAD). US Banks: Basel II Sarbanes-Oxley Act, The Patriot Act, intended to combat money laundering and terrorist financing Global banks such as Citibank and HSBC have to report to hundreds of regulators. HSBC chairman John Bond says his bank now has more than 370 regulators, while complying with regulatory obligations around the world costs it $400 million a year. There are worries, too, about the reputational risk that may arise from any compliance and control failures, a risk that is compounded by overlapping regulations.

Regulatory reporting from many local regulators e.g. International Bank Reporting to: -Canada -US -UK -France -Spain -Italy

Many regulators, but also many requirements Some challenges of Financial Institutions: Slice and dice information Similar information but not the same Ad hoc processes Reactive to evolving regulations Thus difficult to align internal reporting processes US GAAP UK local GAAP IFRS Multiple requirements from local regulators ..but also different requirements

With Basel II, Banks are faced with concurrent challenges Changes in Processes, Governance, Systems and Data Complex integration requirements Organisational: i.e.Business Unit/Group, Functional: i.e. Finance/Risk Systems and Data: i.e. Product/Collateral systems) Data consolidation and integration issues Co-existance of other projects/regulatory frameworks Multiple reporting requirements …and finally Business as usual

Reporting Challenges Internal view vs. external view of the data Timing for model development Internal reporting vs. external reporting From data centric to information centric Conflicting drivers Consolidating/Prime regulator vs other regulators Who and what? What is the different between public disclosure and regulatory reporting?

The problem in the Basel II consultation process Basel II requirements and reporting rules Basel II requirements and reporting rules Central Banks/ Banking Regulators Basel II requirements and reporting rules Central Banks/ Banking Regulators Central Banks/ Banking Regulators Central Banks/ Banking Regulators Basel II requirements and reporting rules Bank for International Settlements Basel II requirements and reporting rules Basel II requirements and reporting rules Office of Superintendent Of Financial Institutions Basel II requirements and reporting rules

Which translates in a lot of work for banks!! Basel II requirements and reporting rules Basel II requirements and reporting rules Basel II requirements and reporting rules Basel II requirements and reporting rules “HSBC chairman John Bond says his bank now has more than 370 regulators, while complying with regulatory obligations around the world costs it $400 million a year” Global Risk Regulator Apr 2005 Basel II requirements and reporting rules Basel II requirements and reporting rules Office of Superintendent Of Financial Institutions Basel II requirements and reporting rules

Banks are under pressure Internal External Mapping internal models to external world Use test across the organisation Basel II objectives vs. Risk Mgmt strategy What is the public disclosure framework? How much granularity do I want to give to the public? Bank How many regulators? Will the regulators deliver to the Basel II promises of cross border exchange of information XBRL can relieve some of the pressure

Is this a crazy idea? Would it not be nice to have one set of requirements no matter who I report them to? Yes it is a Crazy idea!! The list of whys would be endless Global Public Disclosure Taxonomy Global Regulatory Reporting Taxonomy

…but CEBS (Committee of European Banking Supervisors) have done so for EU with Common Reporting (COREP) Other economic areas could follow these footsteps This would substantially reduce the burden of the regulated as: International banks are mainly active within an economic areas Any level of commonality would reduce costs

The three Pillars of Basel II The regulators Basel II The Public The Banks

So what are the regulators doing to meet these challenges? Key Challenges Manage expectations of regulated Co-existence of jurisdictional definitions and alignment to other regulators Contain costs for regulated (and themselves) Show clarity and leadership

Agenda The three real pillars of Basel II XBRL towards aligning the pillars XBRL Basel II Plans

XBRL for Basel II, how? Internal taxonomy extensions or mapping to internal data models Public Disclosure taxonomy All this can only happen with clear, cross border and communicated common definitions from the Regulators Jurisdictional Regulatory reporting taxonomies based on common definitions Common definitions (from the regulators)

Agenda The three real pillars of Basel II XBRL towards aligning the pillars XBRL Basel II plans

XBRL Basel II Working group objectives Liaison working group Fosters the adoption of XBRL for regulatory reporting worldwide Does not build taxonomies Does not want to do the job of the regulator Does not want to set policies It is an XBRL Int working group, not a national one, nor a European working group

XBRL Basel II today XBRL Basel II working group is supporting COREP in expressing definitions in XBRL XBRL Basel II working group is liaising with other regulators worldwide to build awareness on the use of XBRL for Basel II Will support the development of disclosure taxonomies if necessary

XBRL Basel II at national level Different jurisdictions have created sub working groups for Basel II In EU - CEBS is very clear that mandates will be at national discretion As such any ‘local’ reporting will have to be supported by localised taxonomies hence the need of a local Basel II working group

Thank you Daniel D’Amico XBRL Int Basel II Working Group Chair IBM Business Consulting Services, Risk and Compliance Boston, April 27, 2005 Daniel.damico@uk.ibm.com