MAS and APRA are among the regulators that have wholeheartedly endorsed the use of technology to improve the quality, accuracy and speed of reporting.
The rapid growth of data-enabled processes in financial services presents something of a double-edged sword for both banks and the regulatory bodies that oversee them.
Digital technologies have radically increased the speed and efficiency with which banks and other institutions operate, providing them with new capabilities to be more competitive and innovative. On the other edge of the digitation sword, as practically all of a bank’s transactions with customers and ecosystem partners become digitised, the volume of data they produce grows exponentially.
Added to this are the increasing data and reporting requirements from financial regulators. The combination can result in a vicious cycle, as increased regulatory requirements further fuel data collection, analysis and reporting processes, which in turn generates even greater workloads for financial institutions to ensure the appropriate management of their data.
Efforts to automate reporting workflows can feed off this cycle, providing opportunities for financial institutions to make reporting more seamless, generating immediate efficiency benefits and freeing up staff to focus on activities that require greater specialist knowledge and experience. Increased reporting automation can also provide longer-term analytical benefits, empowering firms with better tools to anticipate and resolve higher-order operational and financial risks.
Regulators around the world are likewise advancing efforts to revamp legacy data collection systems in favour of automated tools that improve regulatory oversight and make analysis and reporting easier. While these efforts have been evolving for years at different speeds in different markets, notable advances have been particularly visible in Australia and Singapore.
A fully automated platform
In Singapore, MAS (Monetary Authority of Singapore) has moved quickly to encourage the adoption of digital solutions that facilitate more efficient data preparation and reporting processes. In November 2020, for example, the regulator launched a SGD 35 million grant to help smaller financial institutions adopt digital solutions to streamline data reporting.
Meanwhile, MAS has been directly working with SupTech solutions provider Vizor Software since early 2019 to develop machine-readable reporting rules and replace its legacy data collection system, known as the ERSS (Electronic Returns Submission System).
Today, Vizor Software underpins a new Data Collection Gateway (DCG), a fully automated platform through which MAS can manage and consolidate all reporting activity from regulated financial institutions. The DCG allows for the collection of more granular sets of data, better administration and tracking of submissions, and improved visualisation and analysis of data, while also providing a better user experience.
Since April 2020, the DCG has been undergoing pilots for MAS 610 and MAS 1003 reporting – the core set of returns required of Singapore banks and merchant banks, respectively. The updated MAS 610/1003 returns represent a years-long overhaul of reporting requirements which sharply increased the granularity and frequency of data financial institutions are required to report.
The overhaul resulted in an increase in the number of data points financial institutions report from about 4,000 to more than 300,000 across 67 reports, a change that was seen as a significant compliance burden for the industry. It set into motion a number of industry initiatives in recent years which sought to better understand and simplify the MAS data ask.
Having facilitated the development of the DCG, Vizor itself began working with Singapore banks and regulatory reporting solution providers in early 2020 to enable their consumption of MAS’ machine-readable rules, the application of data models that can directly plug into the DCG, and validate prepared returns prior to submission. So far, tests by Singapore banks using DCG-compatible solutions for MAS 610/1003 reporting have yielded success.
Aligning the software used by both MAS and the financial institutions it supervises helps to streamline the process of validating regulatory data and preparing files for submission. It creates a machine-to-machine process that allows regulators and regulated entities to pay more attention to other areas like analysis and risk management.
The compatibility between the technology used by financial institutions and the regulator also has added scalability benefits. It allows reporting entities to quickly adapt to any future regulatory changes, eliminating the need for complex system upgrades while reducing the cost and impact of such changes.
Modern, efficient and flexible
Meanwhile in Australia, APRA (Australian Prudential Regulation Authority) has undertaken a project to overhaul its own 20-year-old data collection system, known as D2A (Direct to APRA). The new platform, known as APRA Connect, is scheduled to launch at the end of September 2021, also leveraging Vizor’s technology.
APRA Connect is described as a modern, efficient and flexible solution to improve data collections and support evolving regulatory needs. It is designed to underpin the regulator’s broader ‘capability uplift’, to ensure APRA keeps pace with advances in data, analytics and technology.
The new system will significantly expand the amount of data the regulator will collect and enhance its analytical capabilities, increasing its ability to assess how regulated entities are performing, while at the same time reducing their regulatory burden and making the collection process more efficient. APRA Connect will also eliminate the duplication of work that results from multiple regulatory agencies making similar, but not identical, data requests.
In September, the first submissions using the new system will be made by private health insurers and superannuation entities, to be later followed by banks, other authorised deposit-taking institutions, and registered financial corporations.
“When fully rolled out, the expected result is a framework that delivers APRA the data it needs to achieve its objectives while at the same time minimising entities’ effort and compliance costs,” the regulator said in a recent update.
As in Singapore, Vizor has released a solution that automatically synchronises financial institutions with APRA data models and rules, eliminating the need for complex system upgrades and reducing the cost and impact of future regulatory changes.
It has also launched a return preparation tool known as Reporting Centre, which allows reporting entities to identify and resolve issues in reporting data prior to submission, thereby reducing the likelihood of errors.
A new state of play
The introduction of machine-readable reporting rules in Singapore and Australia – two of Asia’s most sophisticated financial markets – represents a significant step change towards enhanced reporting automation, which has implications for cost, efficiency and data quality.
“Working with both APRA and MAS to deliver their new data collection platforms, we see common data trends in line with other leading regulators we work with,” says Joanne Horgan, Chief Innovation Officer at Vizor. “Regulators will be moving to standardised, machine-readable data models and from aggregate to granular requests. It is no longer enough to simply submit data on time, your data must be explainable and high-quality.”
That regulators themselves are becoming first movers in the promotion of automated reporting processes is perhaps atypical, given that government entities are often forced to play catch-up when it comes to innovation. But, given the growing pressure to make regulatory compliance more efficient, it is not surprising.
Automated reporting platforms allow jurisdictions with entrenched legacy systems baroquely laden with ever-changing reporting requirements, and those with less mature infrastructure, to leapfrog to a new state of play – one that empowers reporting entities to make submissions faster, while also ensuring that reported data is of high quality and veracity.
For example, in a recent project with Bank of Ghana, Vizor implemented granular data collection of all loans, investment and deposit data via direct machine-to-machine submission through an API. The same system will be used to manage licensing of financial institutions, and promises to deliver significant efficiency and consistency across departments, along with data mining and analytical capabilities that will enable the central bank to spot new risks as they emerge.
The shift to automated reporting offers a unique opportunity for regulators to get ahead of digital transformation trends and, in doing so, ease the regulatory burden for firms currently dealing with intricate sets of data management processes – many of which rely on manual action by human staff – while also promoting a continuous and integrated innovation ecosystem.
Through automation, reporting activity can move from a perfunctory box-ticking exercise to a process which can generate data-driven insights into regulatory requirements, including the data reporting requirements themselves. Automated reporting promises to greatly streamline regulatory change management processes, allowing for data chains and validation processes to be adjusted in real time as needed.
Weaning a developed market off complex legacy reporting processes is often difficult, as these systems require a significant undertaking to upgrade or replace. In jurisdictions with less developed regulatory systems, however, the shift to automated reporting may not only be easier to accomplish, but it may prove to be a much more impactful change.
The rapid digitisation of reporting underway in markets like Singapore and Australia – along with the potential for less-developed markets like Ghana to leapfrog more advanced peers – underlines progress towards global harmonisation of regulatory reporting requirements. Such an alignment can be particularly significant for firms that have reporting obligations in multiple jurisdictions.
Increased harmonisation of reporting processes across jurisdictions can yield significant efficiency benefits which would swiftly accrue within firms and across the financial industry. In today’s regulatory reporting landscape, as compliance costs creep up, the ability to use technology solutions to automate reporting processes – and reduce labour-intensive components – becomes a compelling proposition.
The ability to streamline reporting processes lowers compliance costs for the industry, improves the quality of reported data and empowers regulators with enhanced capabilities to fulfil their mandates. Through greater access to accurate and timely data, regulators will be able to better foresee and detect financial stability risks, and better protect the financial system from potential threats.
Vizor Software won the RegTech Award for API Innovation and was highly commended in the Regulatory Reporting category in the Regulation Asia Awards for Excellence 2020. The award winners were selected by a panel of industry experts serving as judges.