APRA’s economic and financial statistics reform: extracting value from tech and new data demands

Where there’s a reform, there’s an opportunity

Banks are well advised to prepare to meet the new data demands emerging with the Australian Prudential and Regulatory Authority (APRA)’s updates to its economic and financial statistics (EFS) reporting regime, taking effect in early 2019.

And while compliance with the new regime should be banks’ primary goal, EFS change programmes can do more than simply tick the boxes on the compliance checklist. In fact, preparing for EFS creates chances to extract more value from technology infrastructure and processes, and generate data that serves strategic purposes, as Douglas Cheung, regulatory product manager for Wolters Kluwer’s Finance, Risk & Reporting business, examines.

With APRA introducing various regulatory changes at once, many banks are struggling to do the minimum when it comes to data management. A recent survey of Australia’s authorised deposit-taking institutions which Wolters Kluwer conducted in 2017 showed three-quarters are still using fully or partially manual approaches to producing regulatory reports. Most evidently see such approaches as inadequate for the future, with 82% either planning or considering changes.

There are several reasons why data management in the context of reforms like APRA’s EFS is such a challenge. First, sourcing new types of data is often complex and costly. Many institutions operate across borders and the availability of data depends on where it is stored — if it is stored at all.

We’ve already seen cases where clients have faced issues with the requirement to report more data for amounts not denominated in AUD (“non-AUD data”). If sourcing data is dependent on head office systems based outside of Australia that aren’t subject to requirements to split local and non-local currencies, institutions may not have the capability internally to generate and provide that data as per APRA requirements. This means compiling it manually until the banks find a way to adjust their systems — and that manual effort will include procedure development, documentation, and most likely a review and approval process as well.

Even after they find a way to source the data, banks need to determine what structure or processes to put in place to reliably and securely retrieve it. This inevitably requires additional time from staff, documentation and even more system changes if automation is attempted.

The pain of parallel runs

Parallel runs like those envisioned in the EFS timetable, which essentially require banks to do everything twice, are another area of concern. Not only do banks need to dual report, they also need to prepare for new reporting forms, which means more teams working overtime. For the sake of data integrity, an analysis will be performed during the parallel run to check if data is landing in new reports in line with current reports. This is effectively an old versus new report reconciliation, another process that’s delicate and time-consuming.

Rising to these challenges means understanding the true capabilities of current systems and determining to what extent they can be used for future reporting requirements. Many teams forget just how much their systems are able to do; manuals and operational documentation get lost or forgotten over the years, and systems get slapped with the ‘legacy’ label. We’ve seen instances where teams have pushed themselves to the limit to manually complete statutory and management reports, only to find out months later that their “legacy” systems were perfectly capable of group consolidation reporting, trend analysis and ad hoc management report development.

Staffing skill sets also need to be considered. The loss of just one or two key people can impact an organisation’s ability to coax the necessary data from their infrastructure, while engaging the right experts makes it easier to leverage current resources. Just like systems, people can often do more than whatever their job formally entails, and should be deployed flexibly to address specific issues or better align skill sets.

It’s therefore vital that institutions conduct a comprehensive assessment of whether current systems and processes can be upgraded to meet evolving finance team requirements. As we’ve noted earlier, it’s also important to look holistically at all requirements and pinpoint any current and likely future interdependencies, so any system changes are built to last.

Mind the gaps

Investing in more robust infrastructure can significantly enhance the efficiency of reporting. However, this should be preceded by a thorough gap analysis between current infrastructure and what’s needed to meet new regulatory demands. From there a bank can determine whether to leverage current infrastructure, spend on new resources, or do a bit of both to best achieve compliance, efficiency gains and return on investment.

The findings of a gap analysis can be used to identify areas of potential or synergies in existing systems that can be tweaked or leveraged to produce “quick wins” in terms of meeting new regulatory demands. These wins in turn can build momentum for a more ambitious, extended change program. By using a modular and incremental approach to extend their reporting capabilities, supported by the right personnel strategies, banks can adapt to future regulatory changes faster, and improve their ability to integrate new data sources.

It’s also worth bearing in mind that new data sources can be channelled directly to the management reporting groups that bridge business and finance, slicing and dicing system information to produce findings that inform sound management decisions. The resource investments that are at times required by initiatives like APRA’s EFS, in other words, can pay off in more ways than one.