Cash & Liquidity ManagementPaymentsThe Challenge of Central Bank Reporting

The Challenge of Central Bank Reporting

One of the fundamental problems today is that central bank reporting (CBR) for balance of payments purposes is applied in different ways across the EU. Indeed, some EU countries are exempt from this requirement – in Denmark, Finland, Ireland, Netherlands, Sweden and the UK, no systematic balance of payments reporting currently exists. With this in mind, some people reading this article might be wondering what all the fuss is about.

In those EU countries where CBR prevails, typically the obligation to submit monthly reports of cross-border payment data for balance of payment purposes applies to resident large enterprises, financial institutions and government entities that are selected for inclusion in partial coverage collections by the national central bank. Reporting statistics are an important source of information for the balance of payments for many EU member states. EU legislation stipulates that member states have to collect statistical data, but they are completely free as to the choice of the method.

Obviously, balance of payments reporting requirements are costly for banks and corporates. This statistical reporting requires a significant effort – for each payment that it sends or receives, a bank has to report the amount transferred, with an indication on the nature of the goods or services concerned. The work of the bank is particularly cumbersome for incoming payments because the recipient must be contacted to find out about the nature of goods or services.

Impact of EU Regulation 2560/2001

The CBR burden was first reduced with the introduction of EU Regulation 2560/2001. The Regulation mandated member states to remove national reporting obligations for cross-border payments of up to €12,500. However, the situation became more complicated from 1 January 2006 when the threshold for domestic charges on cross-border euro payments was raised to €50,000, whereas the threshold for CBR was not raised at the same time.

This logical corresponding increase in the CBR cap was deleted from the Regulation following concerns expressed by some member states who rely on data provided by banks for balance of payments statistics. So instead, it was decided that the Regulation should be reviewed after a few years (originally not later than 1 July 2004, which date subsequently slipped), to confirm whether it would be advisable to increase the balance of payments reporting threshold to €50,000.

Competitive Disadvantage for Some EU Banks

To recap then, while the scope of the EU Regulation 2560/2001 has been increased from €12,500 up to €50,000 as of 1 January 2006, the balance of payments reporting obligations of seven out of the 12 eurozone countries have not been modified to the same €50,000 threshold. This creates a competitive disadvantage for banks active in these countries, since they have to bear the administrative burden of reporting on cross-border payments on which they are now mandated to charge only domestic pricing.

Furthermore, while in the majority of cases, systematic reporting for cross-border transfers below €12,500 has been abolished within the EU15, in a few isolated cases, such as Austria, Spain and Italy, some simplified CBR prevails even for payments below €12,500. Clearly, this situation is inconsistent with single market principles. Banks have therefore argued that CBR requirements present a significant obstacle to the single euro payments area (SEPA), as they involve additional costs and make STP more difficult.

In the new members states of the EU, the situation is different. Almost all new member states (and the accession countries) rely on bank settlements for the compilation of their balance of payments statistics and it appears that several member states have not yet fully implemented the requirements of EU Regulation 2560/2001.

Multinational corporations also have a particularly hard time fulfilling balance of payments reporting across such a multitude of differing reporting regimes. Currently, there are non-standard, complex requirements to report payments made and the level of detail varies considerably between countries. For enterprises with affiliates in other European countries, this situation can be frustrating, as reporting requires specific data processing for each EU member state where affiliates are domiciled.

Harmonisation of EU balance of payment reporting rules for multinationals is expected to increase the efficiency of the reporting process and foster a more level playing field for the companies concerned. The quality of data to be reported by the multinational enterprises would also benefit from common reporting rules because both transparency and consistency of reporting guidelines should free up time to pay more attention to the source data delivered. For these reasons, many large businesses have called for greater standardisation of requirements throughout the EU.

A few years ago, the European Steering Group on Multinationals (SGM) was formed by the ECB and the EC (Eurostat) in order to test a harmonised balance of payments reporting format for multinationals. The exercise aimed at assessing the feasibility of common forms with a close link with ERP systems. Feedback from a pilot group of European multinationals indicated that a common understanding of information needs and data availability benefits both statisticians and enterprises, by improving the correlation between statistical requirements and companies’ accounting systems.

The extent to which the burden is felt by some corporates is conveyed by Bjorn Carlborn, treasury VP, Phillips, who recently said: “If changes to CBR could be made as part of the SEPA implementation, the popularity and speed of take up by corporate customers would dramatically increase.”

Promise of Harmonization for 2008

The authorities have been mindful of these inconsistencies and CBR has been the subject of much debate. In its Resolution of May 2005 making IBANs and BICs mandatory on euro payments, the European Payments Council urged the EU authorities to increase the balance of payments reporting threshold to at least €50,000 in order to ensure compatibility with Regulation 2560/2001. Subsequently, in September 2005, the European Central Bank asked the European Commission to raise the threshold for balance of payments reporting (cross-border payments in euro) to €50,000 as of 2008 and maintain the current threshold of €12,500 in the meantime.

It is their intention that this will allow the eight member states in the eurozone that still apply a reporting system mainly based on bank settlements to use the period until 2008 to implement alternative methods of collecting data required for balance of payments statistics.

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