APRA’s Economic and Financial Statistics Form Review: Planning for parallel runs, and the future| Wolters Kluwer
  • Insights

  • APRA’s Economic and Financial Statistics Form Review: Planning for parallel runs, and the future

    by Douglas Cheung, Wolters Kluwer

    Published March 21, 2017

    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 accordingly.

    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.

    Learning to look in two directions at once

    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 periods.

    Assuming APRA sticks to the proposed timelines, we see the following options for tackling implementation and parallel runs:

    • Treating January 1, 2018 as the ‘effective’ implementation date and starting to produce the new forms then. This will prevent a reporting crunch later in the year when the real implementation date rolls around but will require a very early start. Our experts have assessed the burden the new forms and calculations are likely to place on the typical financial institution and estimate this will involve up to six months of advance preparations.
    • Start preparing the new forms for January 2018 sometime that month, to get a head start on producing the reports for the July 1, 2018 implementation/parallel run date.
    • Prepare new forms for the preceding months in May and June 2018, to submit them in a batch on July 1 as required. This is still manageable, but leaves little time to analyze and assess the quality of new forms.

    The arguments for an early start

    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 feedback.

    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.

  • Please take a moment and tell us what you think of our content.