On the 23rd of August 2017, APRA (the Australian Prudential Regulation Authority) released its long awaited response to the industry submissions relating to the EFS (Economic and Financial Statistics) reform proposed in January 2017. The final announcement reveals delays to all phases, though the time between each phase is now shorter. Although the delay should be well received by the industry, banks should still devote time to correctly budget, resource and plan technology projects for EFS based on the new timelines.
The new first submission dates relating to EFS are as follows: For Phase 1 it’s March 2019 and for Phase 2 it’s July 2019. Phase 3 has various dates: ARF 722 “Derivatives”: will undergo further consultation; ARF 723 “Margin Lending” will be September 2019 and ARF 730.1 “Fees charged” will be June 2020
This delay directly addresses the greatest concern across most institutions when the reform was first proposed in January 2017. Importantly, the new dates mean banks have a longer implementation timeframe – 19 months between the release of the final requirements and the first report submission – which will give them more room to address budgeting, resourcing and infrastructure needs, along with data quality challenges across the transition period.
The timeline is further softened by APRA’s allowance to run the parallel reporting period using only the “forward looking” approach. The previous requirement of loading historical data as a part of the “backward looking” approach which effectively moved the first submission date from July 2018 to January 2018 was removed. This addresses the banks’ second biggest concern and provides them with much needed relief. With the requirements being finalised so late in the year and banks highlighting their limited capabilities in loading historical data, such an implementation approach would have resulted in non-compliance across several institutions.
Reducing the transition and reporting burden
APRA further addressed calls from the industry to reduce the efforts required to transition to the new forms. Changes in the announcement included:
- The reduction of the parallel reporting periods to four months, with the exception of quarterly based reports which will require two submissions. This greatly reduces dual reporting efforts which were initially proposed to last 12 months for many of the reports, and also allows for a quicker transition between each phase.
- The proposal of calendar days for submission periods has been dropped and the current business day method will be maintained. The exception applies only to reports with calendar day submission periods of greater than 20 days. This allows submission periods to be more aligned with banking business practices.
- The thresholds of several of the balance sheet and finance related forms have been raised. This will further reduce the reporting burden for smaller institutions.
- There have also been additional thresholds applied to the “Credit stocks, flow and interest rate” forms that allow small to medium sized institutions that do pass the base threshold to submit a reduced form with less data requirements.
Proposals stay where benefits outweigh costs
Banks typically face higher costs when sourcing information outside normal accounting systems, and attaining such data often requires further manual efforts and additional processes to ensure the accuracy of that data. The EFS reform in comparison to the current framework requires a greater degree of data granularity, and in light of this, banks would generally respond with reluctance to provide the new data given the higher associated costs.
The request for the cost and margin data was one of the more controversial requests for information, and banks strongly opposed this due privacy concerns, fear of a political backlash, and highlighted the lack of insight the data would provide due the incomparability of such costing information across different institutions. The agencies however, in their need to understand the transmission of monetary policy, have kept this requirement for cost and margin information in place, recognising that while there does exist a level of incomparability, the information is still relevant and useful.
Wolters Kluwer expects a continued release of formal consultations for reports outside the EFS reform. APRA has also announced high level plans for capital adequacy reporting updates, and before the close of 2017 is expected to release a consultation for ARF 722 Derivatives as well as a long awaited consultation for the replacement of the data submission tool D2A. The response to the updated data quality proposals close on 18 October 2017.
Overall, the updated EFS reform will remove significant pressures on the industry, and a greater number of smaller institutions would be exempted from some of the new reports all together due to the threshold changes. The activities in preparation for the reform however remain as before, and banks should now (if they haven’t already) correctly budget, resource and plan for the EFS based on the new timelines.
As before, data quality begins with clear instructions and should be accompanied with regulator provided examples. Banks are encouraged to pro-actively reach out to APRA and other industry professionals where further clarification to instructions are needed.
Douglas Cheung is regulatory product manager, Australia, for Wolters Kluwer Finance, Risk & Reporting.