The latest developments on the country by country reporting requirements in Capital Requirements Directive IV


This Newsflash summarises the developments from the past 3 months and our current understanding of the issues and uncertainties created by Article 89.

Recent developments

It is now confirmed that HM Treasury (‘HMT’) will be the body responsible for transposing Article 89 into UK domestic legislation rather than the Prudential Regulatory Authority.

With an implementation deadline of 31 December 2013 for the whole of CRD IV, HMT have little time to work on the implementation of the legislation that will bring country by country reporting into force in the UK. Given the time constraint, HMT have taken the first steps towards a consultation and are expected to commence an impact assessment shortly.

Our current expectation is that the consultation will start in the middle of September. Despite the fact that there is still little clarity around the direction of travel on some of the key outstanding questions, HMT have made it clear that they want to implement the requirements in a careful and proportionate manner.


The indication from HMT is that the consultations should provide a clear indication of the direction of travel of the key uncertainties around Article 89.

The expectation is that the consultation will suggest HMT’s favoured approach to implementation of the requirements and this is likely to be UK legislation which follows the wording of Article 89, but which is accompanied by a more detailed set of supplementary guidance.

The consultation is also expected to include interpretations of aspects of Article 89, including further clarity on the definitions of ‘institution’ and ‘establishments’, as well as include draft legislation and supplementary guidance, which institutions will be invited to comment on.

European union member states

Despite the requirement for Member States to transpose CRD IV into domestic legislation by 31 December 2013, there has been slow progress in respect of implementation of Article 89 across the European Union with the exception of Germany and France.

With the majority of institutions operating across multiple Member States there is concern that each jurisdiction will implement different interpretations of Article 89, making compliance even more burdensome.


The German regulators have taken a cut and paste approach to implementation with little deviation from the wording of Article 89. This seems to suggest that institutions will have some freedom to interpret the wording; however we are expecting supplementary guidance notes to accompany the legislation.


The Dutch regulators have expressed their concern about the implementation timetable noting that it typically takes 18 months to transpose a European Directive into domestic legislation and that the timeline is therefore unworkable.


The French authorities have now included CRD IV into French legislation; however institutions must wait for the decree which will provide guidance on the legislation. The expectation is that the CRD IV rules will be extended to all listed companies. Further clarity is expected in the Finance Bill in September.


With continued uncertainty around the UK interpretation of Article 89, a number of outstanding questions remain.

Prescribed format

A prescribed format may ensure institutions’ country by country disclosures are comparable; however an inflexible prescribed format may increase the risk of misleading the readers of the disclosures. HMT have acknowledged the pros and cons of using this approach and the initial indication is that a prescribed format can be expected. Regardless of the approach adopted, HMT have acknowledged and accepted the importance of allowing institutions to include narrative to support their disclosures and this is therefore expected to be reflected when Article 89 is implemented.

June 2014 reports

Considerable uncertainty remains around the first reports, which are required by 30 June 2014, and it is still unclear which accounting periods will be captured by this first reporting deadline. Our expectation is that the data required will need to relate to the most recent accounting period ended before 30 June 2014, although the wording in the directive is not clear on this. This leaves December year end institutions with considerably more time to act than those with March year ends and HMT have acknowledged this.

Approach to implementation

Although not formally confirmed, given the implementation deadline of 31 December 2013, HMT have acknowledged that the likely approach will be to enact domestic legislation that is closely aligned to the wording of Article 89 followed by supplementary guidance. HMT recognise the potential administrative burden that country by country reporting may create by accelerating institutions’ reporting cycles and are therefore exploring different mechanisms by which Article 89 could be implemented into domestic legislation. They are currently exploring both the possibility of the report being a standalone document as well as the possibility of a legal requirement to include country by country reporting within statutory financial statements.

Cash vs. Accounting

Although there has been no clear indication given by HMT on the direction of travel, they have acknowledged the dangers of reporting a cash tax number and the likelihood that this would be misinterpreted by readers of the disclosures and have therefore been considering making the disclosure requirement current tax only or current tax plus deferred tax.


There has been no further guidance on the meaning of ‘consolidated basis’. Key questions remain outstanding around whether this is consistent with IFRS consolidation principles or whether it is likely to be an aggregation. There is also no further clarity as to whether a regulatory consolidation or an accounting consolidation would be required.

Definitions of institution and establishment

Despite no further clarity on the definitions of either an establishment or an institution, HMT have indicated they are looking at the OECD definition of an establishment as a starting point. They have also acknowledged that the definition of an institution could cover parts of Insurance groups and Asset Management groups to the extent they meet the definition of an investment firm.

Double reporting

The wording of Article 89 requires ‘each institution’ to report. This raises the prospect of double reporting, although HMT have indicated that this is not in line with the intentions of the directive and therefore only the top ‘institution’ within the EU should be required to report. Although HMT have indicated that a UK exemption to prevent double reporting may be available, there is no certainty as to whether other Member States will take the same view and therefore double reporting could still exist.