XBRL in Financial Services: Where Does the ESEF Fit?
It's a busy time in reporting for financial services firms with new accounting standards (IFRS 7, 9, 17), changing regulations and reforms (IBOR) and a growing focus on non-financial reporting (sustainable finance).
In addition, financial services firms have to be in compliance with a wide range of regulatory reporting requirements, including those set by the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA).
To make matters more complex, listed financial institutions also need to comply with the new European Single Electronic Format (ESEF), which is mandated by the European Securities and Markets Authority (ESMA).
Since financial services firms have already been complying with European-wide XBRL® mandates, many are hoping they can support the ESEF with their existing solutions. Unfortunately, for most firms this will not be the case.
While the reporting requirements of ESMA, EIOPA and EBA are based on XBRL, there are three important differences in how they make use of the electronic reporting standard:
1. Regulation vs. communication
The XBRL reports are being created with different final destinations in mind.
The XBRL created for financial regulatory reporting is used by the prudential regulators and not generally published for public use. The reports do not need additional information to explain how a company expects that data to be presented.
Annual financial reports, as produced for ESMA compliance, are published and intended for use by investors and other company stakeholders. These reports also include content intended for communication and branding, as well as content required for compliance. The presentation of the annual report forms an important part of the information to be communicated.
This means that ESMA has made use of parts of the XBRL standard that the EBA and EIOPA requirements do not.
2. Scope and detail
Prudential regulators require large sets of data. Their regulatory reports usually contain standardised sets of data and an expectation that all the available data in a report is tagged and immediately available for processing (sometimes referred to as straight-through processing). As such, the XBRL contains all the data expected in a report and is primarily numeric in nature.
By contrast, annual financial reports for investors contain large quantities of narrative, are much less standardised and may contain entity or industry-specific disclosures. These requirements affect the way ESMA has made use of XBRL in the ESEF technical standard.
For example, the rules for ESMA's ESEF mandate currently only require tagging for a subset of the IFRS consolidated financial statements, ask for items to be tagged even if they are not present in the IFRS Taxonomy and introduce tagging of some narrative in 2022.
3. Same XBRL, new mandate
All XBRL reporting is based on the same set of specifications published and managed by XBRL International. However, these specifications support many types of business reporting and have features that are used for some types of reporting, but not others.
The most obvious example is the difference between XBRL and Inline XBRL®.
The XBRL used for European financial services regulation is XBRL only—data files not intended to be read directly by people but to be processed and analysed by computers. Inline XBRL includes that same machine-readable data but embeds it in a file—the same standard that web pages use, (X)HTML. The file is intended to be read directly by people, such as investors.
This embedding means that reporting solutions working with Inline XBRL have to be able to understand the difference between numbers reported for us to read (one million) and the number the computer will be working with (1,000,000), in addition to working with content placement on pages (a single reporting topic could be split across multiple pages), styles, design and web formatting.
Another example is the ESMA use of XBRL extensions to allow companies to include all their primary statement disclosures in their tagged data, whether they are standardised or entity-specific.
While the European XBRL mandates are all based on the same technical standard, the three bodies use that standard to fulfil a different set of core requirements, and therefore, they use a different subset of the features that XBRL provides.
There are a number of common requirements in the XBRL mandates discussed in this article: the board and executive team are ultimately responsible for the quality of the reports and the data, plus comprehensive oversight, data integrity, control and collaboration are all key.
However, there are also several key differences. It's important to understand these differences and make sure your reporting solution has been built with the annual report process and ESEF requirements in mind.
For more information on how you can prepare for the ESEF, reach out to us to schedule a quick consultation.
XBRL® and iXBRL® are trademarks of XBRL International, Inc. All rights reserved. The XBRL® standards are open and freely licensed by way of the XBRL International License Agreement.