Non-Financial Regulatory Reporting (NFFR)
Non-Financial Regulatory Reporting (NFFR), as the name suggests, refers to the non-financial reports that are required to be reported by firms to the regulator. There are two key aspects - 1) Non-Financial; and 2) Regulatory Reporting. The word 'non-financial' here refers to all reports which are not financial in nature. Usually, they originate outside of the finance function and include reports such as compliance reports, transactional reports and other reports which do not contain financial data. It is also possible that the reports can originate from the finance department but yet it might be of non-financial nature. So, the origination of the report is not important, what is important is that the report is non-financial in nature and/or is classified by the regulators as non-financial. The second aspect "Regulatory Reporting" means that these are mandated by the regulators(s). There can be many reports that a firm publishes but under NFFR we are only concerned with those reports which are mandated to be reported.
Types of NFRR Reports
There are many types of NFRR reports. There is no universal classification of these reports. Nonetheless, the reports can be grouped under the following categories.
- Environmental matters
- Social and employee aspects
- Respect for human rights
- Anti-corruption and anti-bribery issues
- Diversity on board of directors
- Description of principal risks and impact of business activity
- Description of business model
- Trade, Position and Transaction reports; and
- Others
Whom should the reports be submitted to?
The NFFR Reports are required to be submitted to the regulators, either directly or to the appointed reporting agents of the regulators. The number of reports, format, timing and other aspects depend upon the regulatory rules prescribed for such reports. Some reports may have to be submitted on live (near time) basis, while others could be in defined frequency.
Non Financial Regulatory Reporting for Financial Firms
Financial firms, particularly Banks, are required to submit a number of NFRR Reports. While many of the reports are similar to the ones submitted by non-financial firms (reports such as pertaining to environmental matters, diversity, principal risks, social and employee aspects, etc.), there are many additional reports that financial firms have to submit (specific to financial services business) on aspects such as trade positions, collateral, volumes, future delivery notices, etc. The type, frequency and report contents depends on the regulatory jurisdiction, where such reports are mandated, and also on the nature of business of the financial firm. Exchanges, Clearing members, Dealers, Brokers and Commercial banks have different reporting requirements based on their nature of business.
For example, the Hong Kong Monetary Authority (HKMA) requires financial firms to submit reports on aspects such as:
- Account opening and maintenance
- Anti-Money Laundering and Counter-Financing of Terrorism
- Bank Culture
- Code of Banking Practice
- Compliants
- Consumer Protection
- Data Privacy
- Internal Controls
- Liqudity risk management
- Operational risk; and
- Other aspects, as and when required
Similarly, the Commodity Futures Trading Commission (CFTC) of USA has one of its job the task of conducting market surveillance to ensure that there is no market manipulation. Each day, for all active futures and option contract markets, the CFTC's market surveillance staff monitors the activities of large traders, key price relationships, and relevant supply and demand factors. To conduct this surveillance, it procures information from various market participants. Some of this information is publicly available such as data on overall supply and demand; prices of futures, option and cash prices; trading volume and open interest data. Some information is not publicly available and hence CFTC gets this information via regulatory reporting norms. The following are some of the regulatory reports mandated by CFTC.
- Position and transaction reporting for each clearing members (need to be reported by exchanges)
- The aggregate position and trading volume of each clearing member in each future and option contract (need to be reported by exchanges)
- Monitoring of speculative limits (reports to be submitted by exchanges)
- Daily reports of large positions for futures and options (reports to be submitted by clearing members, foreign brokers and dealers)
- Cash position data reports for certain markets for hedgers that hold positions in excess of certain limits (reports to be submitted by merchants and dealers)
The following is an example of a position report submitted by exchanges.
| Trader Name |
Futures Position |
Options Position |
Net Position |
Delivery Notices |
| Long |
Short |
Long |
Short |
Stopped |
Issued |
| ABC Corp |
1115 |
0 |
410 |
20 |
Long-1505 |
0 |
0 |
| PQR Corp |
0 |
986 |
974 |
0 |
Short-12 |
0 |
0 |
Most regulatory reports are not released for public consumption. In fact, CFTC has assigned confidential reporting numbers to reporting firms and traders. It is also prohibited under law from publicly disclosing an person's (or institutions) positions, transactions, or trade secrets, except under limited circumstances.
In Europe, the EU directive titled "Non-Financial Reporting Directive (NFRD)" lays down the rules on disclosure of non-financial and diversity information by large companies with more than 500 employees. This requires companies to include certain non-financial statements in their annual reports from 2018 onwards, apart from submitting some regular reports to the regulators. The EU regulations cover listed companies, banks, insurance companies and other companies designated by national authorities as public-interest entities.
The severity, granularity and number of reports varies from market to market. Global financial firms will have to follow the NFRR guidelines in each of the jurisdiction in which it operates. In many jurisdiction, there are severe penalties for non-compliance and hence firms need to have adequate trained resources to comply with the requirements.
END OF MY NOTES