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ComplianceFinanceMarch 10, 2023

Banks’ AnaCredit experience can shine light on Australia’s emerging GDR requirements

The Australian Prudential Regulation Authority (APRA) is forging ahead with its plan to implement a more tabular data collection format – Comprehensive Credit Collection (CCC) - even though the precise form of the requirement has yet to be finalized.

APRA outlined its plans for CCC late last year, having abandoned an earlier attempt in 2020, and has since published a five-year road map comprising of several phases, and started a pilot with several key Australian banks.

The object of the exercise is to make the task of reporting easier, eliminate duplication and collect large quantities of highly granular and structured data that can be used by APRA for economic review and regulatory decision-making. This, APRA reckons, translates into significant benefits for the 2,000 or so entities covered by the new requirement.

With so many elements of the new requirement still to be finalized, regulated entities have been slow to launch their preparations. The Australian regulator is sticking to its plan for full implementation of its APRA Connect system for collecting bank reports in machine-readable format by 2027. Its message to regulated entities: the time to start preparations is now!

Internal challenges

So far, through the market consultation process, banks have identified potential challenges and called for more clarity as they embark on their preparations.

  • Data remains siloed - for many organizations data is often stored in repositories across different departments and operating units. This creates issues around consistency, ownership and data quality that can undermine efforts to comply.
  • Lack of granularity - many banks don’t have in place the kind of granularity of collection required to meet the APRA rules. Lending data collection, for instance, was highlighted in market feedback to the APRA proposals as posing a challenge, especially where loans are offered under a facility arrangement, which can involve various scenarios of full/partially drawn, revolving/fixed-term loans, or on/off balance-sheet exposures.
  • Insufficient guidance - commenting banks also struggled to understand the requirements around which instruments are covered by the emerging regulation, with some definitions in the initial draft requiring entire sets of financial statements and others suggesting specific exclusions. These are expected to be ironed out in the final specification but make it difficult to plan.
  • Unclear taxonomy - APRA is yet to devise common reporting taxonomy and definitions that cut across different requirements. This adds a burden on the industry to maintain standardization and integration at their end to keep in line with regulators’ expectations.
  • Impact on business - finally, financial institutions urged the importance of understanding the impact of the initiative on their own organizations, so they can decide what is in scope and what may be introduced at a later point by the regulator.

Drawing on past experience to deal with challenges

To prepare for such a regulation, Australia’s banking community can draw upon experiences in other jurisdictions where granular data reporting has been successfully implemented.

The EU’s AnaCredit regulation pioneered the shift toward more granular data collection in 2018 and can offer some useful lessons on what’s needed and how best to approach the emerging requirements.

Lesson 1: Lay the groundwork first

The AnaCredit experience suggests that implementation of GDR is more straightforward for firms that had put the required foundational infrastructure in place.

Existing regulatory reporting solution customers that had previously invested, found they had experience of collating granular data for their balance sheet reporting obligations, such as IFRS. As a result, they already had a good view of the quality of their data and had established a solid base.

Lesson 2: Adapting data models doesn’t need to be daunting

For AnaCredit, then, all that was left to do was to accommodate 13 additional data points. While the actual sourcing of these data sets was challenging in some cases, the data sourcing impact impact was limited for most banks. And from a reporting deployment perspective, they had the software, they had done the testing, and just needed to add to their existing infrastructure.

This preparation made it easier for them to implement GDR under AnaCredit, even as new phases of the regulation - from corporate loans to retail - were rolled out. The foundational approach effectively future-proofed against emerging requirements.
Closer to home, Hong Kong’s Granular Data Reporting (GDR) and Thailand’s Regulatory Data Transformation (RDT) projects - each of which saw banks struggle to source and process the data they required – should pose as a warning to Australian banks and what they need to consider as they prepare their response.

Lesson 3: Expect regulators to cross-check granular data

Furthermore, supervisors were looking to cross-check their granular data against other aggregated data sets to ensure consistency of reporting. So, if the granular data yielded an answer of X, they wanted to ensure the aggregated data came up with the same value in the relevant reports.

Once these are addressed, banks can focus on assessing future needs, and ensuring they are prepared for regulatory changes going forward.

Prepare your data now

To succeed, Australian banks will need a sharp focus on data cleanliness on the understanding that they will be exposing granular data on a day-to-day basis with no room for adjustments and zero scope for hiding behind aggregated data, as has been the case in the past.

Although the full specification still hasn’t been released, base requirements call for regulated entities to put in place a data infrastructure capable of supporting the proposed shift from aggregated to granular data reporting.

The biggest challenge facing banks is the ability to collect data on a granular level. Historically, regulatory reporting has been aggregated, so small instances of missing data usually go unnoticed at aggregated level. With granular data reporting, there is no such get-out clause. Individual data errors will be picked up by the regulator’s systems, forcing adjustments and creating downstream issues unless things are rapidly rectified.

Past experience from, say, the Thai initiative suggest there are also hidden complexities. Data dependencies overlap with banks’ IFRS9 projects, meaning that outputs from these systems need to feed into granular data reporting systems - for example in the case of Thai CRDS reporting requirements for Stage Assessments and Accumulated Impairment amounts. Thai banks struggled to get the data right when the country adopted a similar transition as part of its RDT initiative.

Expert understanding of what’s required from a data perspective is a factor in the success of any solution. The regulations are evolving - and in the Australian case have yet to be finalized - so practitioners need to conduct in-depth analysis of the rules and make decisions on potential grey areas where there is a lack of clarity.

Is your technology fit for purpose?

Based on the EU’s AnaCredit experience, many banks will determine that their technology infrastructures aren’t sufficiently scalable and may need to be upgraded or replaced. The switch to granular data may also require greater performance from applications and toolkits supporting the data collection process, and existing rules logic may need to be revisited.

Legacy systems may not be capable of capturing all the data banks need to report, raising issues around data quality, completeness, and availability. Replacing or upgrading may incur delays and costs, additional training, and generally more complexity. These technology challenges may have repercussions. For instance, data quality issues may require adjustments to be made until the data is demonstrably correct, incurring more delays and cost.

System performance at high volume is also a consideration, based on firms’ experience of other granular reporting initiatives. Granular reporting requires that systems can scale in line with the volume of business in order to ensure sufficient performance to give enough time for internal review of the report output before it is submitted to the regulator.

What you need from a solution partner

Affected banks need to assess their existing in-house solutions for their ability to deal with the increase in data volumes that will result from the new reporting requirements.

The challenge is where and how will this be done, especially if another tactical legacy solution is already in place.

Experience from AnaCredit in the EU, GDR in Hong Kong and RDT in Thailand shows that these obstacles can be overcome, provided firms make the necessary preparations and select a technology partner that is well versed in the requirements and knows how to deliver a solution that will both meet immediate needs and provide a foundation for future ones.

When considering a vendor partner, banks should take into account several key factors:

  • Chief among them is the need for a consistent, functional and effective data layer or model. This can help the bank cut across multiple siloes and ensure consistent data capture and output into regulatory reports.
  • Another essential capability is in business analytics. Is the solution able to slice and dice data for the firm’s commercial benefit? In this way, banks can enjoy the benefits of granular data while meeting the regulatory imperative.
  • A vendor partner also should be able to present a clear view of its plans for handling additional reporting scope. With many regulations either works in progress or destined for wider or deeper application, it’s essential to put in place a single data layer capable of handling consistent reporting in any contingency, with all aspects manifested within the same data model.
  • Any solution should, of course, offer the bank true reduction of effort. This should encompass time savings, ease of reconciliation concerns and risk, and ultimately money a home-build.
  • Finally, vendors with experience of supporting cross-jurisdictional applications may represent a ‘centre of excellence’ that can provide the functional analysis required to make decisions on data requirements.

Taking a last-minute approach is risky

Put in place base data collection processes now so you are in a good position to meet the GDR requirements, respond to future phases of the APRA regulation and meet the growing internal requirement for cross-checks. This experience suggests that starting preparations early can makes things more manageable when it comes to APRA deployment.

Time to talk to us

Although things aren’t as clear as they could be, banks can draw upon the experience of their peers. Central to their success will be their ability to tap into earlier learnings and partnering with a technology supplier that’s already helped others in Europe, Hong Kong and Thailand. At Wolters Kluwer, we can share our experiences from these initiatives, so talk to our experts today.

Swati Kothari
Product Management Associate Director
As an Associate Director of Product Management at Wolters Kluwer, Swati Kothari is responsible for multiple regulatory products. A Product solutionist, she works across multiple geographies to elevate banks and financial institutions regulatory capabilities.
Joost Roelin
Director of Product Management, Wolters Kluwer FRR
OneSumX GDR Solution
A user-centric regulatory reporting platform catering to critical data validation and audit needs, designed to handle millions of data points through in-memory and parallel processing.
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