Overhaul of Regulatory Reporting Technology Infrastructure for Australian Banks

For the first time in 15 years The Australian Prudential Regulation Authority (APRA) is overhauling its core regulatory reporting requirements, creating a stir within Australia’s financial industry. The modernized framework, otherwise known as the collection of Economic and Financial Statistics (EFS) data, will require Authorised Deposit-taking Institutions (ADIs) to provide more granular data at a higher quality and ADIs will have approximately one year to comply with the first phase of the plan.

According to a new study from Wolters Kluwer’s award winning Finance, Risk & Reporting business, a vast majority (82%) will either change their current approach or are considering more strategic alternatives for complying with the new regulatory reporting demands. And it appears that adopting regulatory reporting technology to adapt to the new realities will be key.

According to the Wolters Kluwer study completed earlier this month, 75% of more than 30 surveyed ADIs are currently taking a tactical approach, which is either completely manual or only partially automated – typically via internal Macros – with just 4% of respondents taking a vendor automated approach and 21% an in-house automated approach.

Compared to other jurisdictions in the Asia-Pacific region, Australia’s reporting requirements were traditionally considered as being relatively straight-forward: the figures to be reported were high-level, the submissions were infrequent and requirement changes were rare,” notes Wouter Delbaere, Market Manager of Regulatory Reporting for APAC at Wolters Kluwer.  “It is therefore no surprise that many ADIs were able to get away with a tactical, largely manual approach to regulatory reporting in the past. Firms who are prepared to adapt their technology infrastructure and regulatory reporting approaches now will have first mover advantage in the new regulatory landscape.

Interestingly, ADIs note that their top challenges for regulatory reporting ultimately boil down to two key problems. The first one concerns Data Management – obtaining the correct data in the required state for onward reporting, which is a key focus point of APRA. This requires consolidating, validating and enriching relevant data from various systems scattered throughout the organization – typically coming from completely different platforms and data models

The second area is Subject Matter Expertise. ADIs ultimately crave a deep understanding of APRA’s reporting requirements.

Freely changing or adjusting data, formulae and formatting heightens the risk of errors, inaccuracies or inconsistencies, and also makes establishing a clear audit trail difficult. This approach is also inherently limited in terms of extensibility and scale; as the scope of the spreadsheet is extended beyond its original purpose in response to new regulatory demands, the increase in data and complexity will quickly become impractical to manage manually, Wolters Kluwer experts argue.

Once these key problems are addressed, according to the survey, the vast majority of ADIs in Australia (79%) consider the other challenges, such as populating the forms, generating XBRL files and other tasks, such as gap analyses and parallel runs, as much less of a worry. This is a pattern completely consistent with Wolters Kluwer’s observations from other countries across the globe.

Although the EFS changes will certainly be onerous for ADIs in Australia, for regulatory reporting and technology experts at these institutions there will now also be an opportunity for obtaining budgets to implement a more a strategic regulatory reporting solution – one which not only meets external compliance, but also generates greater transparency internally and consequently enhances management information.

The ability of ADIs to adopt their regulatory approaches in a cost-effective and compliant manner will depend on the investment in an infrastructure which collects and automates the production of the required regulatory information, Delbaere notes.

The best-positioned ADIs will be those that upgrade existing infrastructure to collect the additional information required by regulators, while simultaneously consolidating and centralizing this information with other data currently being used for internal and external purposes. A single data repository could then form the basis of all regulatory requirements, including EFS reporting,” he adds.

Author: Dylan Jones

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