by Douglas Cheung, Wolters Kluwer
The tide of changes
to local and international regulations -- such as Basel III and the
implementation of the Net Stable Funding Ratio (NSFR), the International
Accounting Standards Board (IASB) IFRS 9 project, and the Markets in Financial
Instruments Directive II (MiFID II) -- impacting banks active in Australia has
shown few signs of abating in early 2017. The Australian Prudential Regulation
Authority (APRA) embarked in January on a public consultation exercise for the
review of the reporting forms used in Economic and Financial Statistics (EFS)
collection from financial institutions. This represents the first major
overhaul of the reporting framework since many of the forms were first
introduced some 15 years ago.
APRA is aiming to “modernize” a framework
that has in some respects failed to keep up with evolving local and
international regulatory requirements. Mindful of authorized deposit taking
institutions (ADI)’s concerns that requests for information are sometimes
duplicated, APRA is attempting to streamline the forms and clarify
requirements, while enhancing the quality of data and reducing the cost and
administrative burden on financial institutions.
Overall, according to
APRA, the new forms are likely to increase the amount of data collected from
large banks while decreasing the amount collected from smaller ones.
Nonetheless it is important for institutions of all sizes to be aware of when
changes to the reporting regime are likely to come, and to plan resources
In essence, the updates are grouped into three phases,
with phase one focusing on financial position reports; phase two on financial
performance, finance and interest rate reporting; and the final phase -- which
will involve entirely new forms -- on derivatives, margin lending and fees.
These phases will be implemented on a staggered basis over 12 months,
with phase 1 effective on July 1, 2018; phase 2 effective January 1, 2019, and
phase 3 effective on July 1, 2019.
So far, so straightforward -- but in practice implementations
are likely to be more complex since they will effectively straddle several time
periods. APRA has proposed two ‘parallel runs’ for each update; a ‘backward
looking’ parallel run whereby on the effective date a batch of the new forms
covering the previous six months are submitted, and a ‘forward looking’
parallel run during which for six months after the implementation date, old and
new forms are submitted in tandem.
Thus to take the example of form ARF
720.0, included in the first phase, on July 1, 2018 the new form with data from
January to June 2018 would be submitted, and from then on current and new forms
both submitted until the end of the year.
The ‘real’ implementation date
for phase 1 could therefore be viewed as January 1, 2018, since many ADIs will
find it more effective to start the parallel run then, rather than scramble to
re-upload historical data and generate six months’ worth of new reports in
July. Banks should also factor in some time to analyze the quality of the
output of the new reports, as problematic submissions to APRA are likely to
lead to additional requests, re-runs or even extended parallel reporting
Assuming APRA sticks to the proposed timelines, we see the
following options for tackling implementation and parallel runs:
The approach (or combination of approaches) that is most suitable will
depend to a large extent on the size of the institution, as well as the
complexity of its systems, the length of reporting cycles, available resources
and other internal projects in the works. Generally, smaller institutions or
those with smooth reporting cycles and a low project burden are likely to find
it easier to make a head start. What should be avoided at all costs is trying
to compile all the new reports at the last minute.
Banks should also
keep in mind that additional requirements are no doubt in the offing. It is
notable that certain forms the industry expected APRA to mention in the EFS
review -- the consolidated statement of financial position report ARF 322 and
profit and loss report series ARF 330.0, 330.1 and 330.2 -- were not covered.
We expect the regulator to either issue additional consultations concerning
these forms later in the year, or to provide updates on them based on industry
We also expect further details to emerge on the implementation
of forms that require a significant amount of new data, such as ARF 722 on
derivatives, prior to the effective date. APRA is also likely to release more
information on how it might consider a longer ‘lead-in’ period for this form in
June 2017, when it responds to industry viewpoints.
While some industry
participants will no doubt communicate concerns on these implementation
timelines to APRA, it is our view they are unlikely to change radically. The
parallel approach may be softened but we expect the basic requirements to
remain unchanged. ADIs will therefore want to consider planning their
preparations and assessing their ability to deal with new data requirements as
soon as possible. Working with a trusted outside partner that has the requisite
regulatory expertise can help institutions assess their ability to absorb the
upcoming changes and formulate a plan to meet any new reporting obligations in
a timely and accurate manner.