Pension funds fear paperwork burden from proposed ECB rule change
European pension funds are concerned that a European Central Bank directive will require additional paperwork burdens and eventually lead to new capital requirements being imposed. Proposed regulations require funds to report their investments on a security-by-security basis, beginning with investments for 2018. Fund managers are also concerned that new regulations requiring quarterly, rather than annual, reporting of investments will mean they incur additional costs. 

Although the ECB has issued assurances the regulation is to benefit the stability of the eurozone's monetary system, a number of European pension fund associations raised concerns about the costs.

"In consequence of the new reporting requirements, internal operative expenses for German pension funds will rise and new IT modules or programs will become necessary (and will incur) additional costs," said Klaus Stiefermann, CEO at Arbeitsgemeinschaft fur betriebliche Altersversorgung, the German occupational pension funds association in Berlin. AbA represents 174 pension funds with €174 billion ($207.7 billion) in assets.

Gerard Riemen, managing director at Pensioenfederatie, the Dutch pension association based in The Hague, which represents 220 retirement funds with €1.1 trillion in assets, added: "It is not desirable that pension funds must hire a provider to harvest the data. The funds then have no other option but to pass these additional costs on to their participants."

The key sticking points associated with the incoming regulation are the formula by which pension funds will be calculating and reporting liabilities to the ECB, and the frequency of the reporting, pension fund executives said during a public hearing on the regulation held by the ECB on Sept 21.

While most pension funds in the eurozone now report data annually to domestic regulators, the draft regulation on the ECB's website stipulates, that starting in 2019, pension funds will be expected to provide the data quarterly.

Consultants present at the hearing voiced concerns that adhering to new pan-European rules will incur unwanted costs associated with producing the data more regularly. And because domestic reporting rules vary across the eurozone, pension funds fear that they will be expected to aggregate data in unfamiliar ways. Asset owners highlighted at the hearing that some jurisdictions might feature more advanced practices, such as in the Netherlands, where market-based valuations of liabilities are conducted.

But ECB officials said during the hearing that asset owners will be expected to report liabilities according to established models in their respective member states to national central banks and supervisory authorities, which then will provide the required quarterly updates to the ECB.

To collate and streamline the data of occupational pension funds, the ECB teamed up with the European Insurance and Occupational Pensions Authority, which supervises occupational pension funds in the eurozone. But sources said the reporting templates expected by the two institutions vary, too, and could be a source of additional work.

"Even though the intention was to coordinate the reporting requirements between the ECB and EIOPA, we doubt that the objective of consistent reporting requirements which avoid double reporting and limit the related costs will be achieved," the AbA's Mr. Stiefermann said. For example, pension funds in Germany will have to report three different sets of data: to the national regulator, the EIOPA and the ECB, he said.

"A different breakdown and a different format for each reporting requirement mean that extra work will be needed," he added.