Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2018

Administered by Department of the Treasury

Legislation au F2018L00052 Not in force Legislative Instrument

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Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2018 – Reporting Standard ARS 223 Residential Mortgage Lending

EXPLANATORY STATEMENT

Prepared by the Australian Prudential Regulation Authority (APRA)

Financial Sector (Collection of Data) Act 2001 (the Act)

 

Under paragraph 13(1)(a) of the Act, APRA may, by writing, determine reporting standards with which financial sector entities must comply. Such standards relate to reporting financial or accounting data and other information regarding the business or activities of the entities.  Subsection 15(1) of the Act provides that APRA may declare a day on and after which the reporting standards are to apply.

On 16 January 2018, APRA made Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2018 (the instrument) which determines Reporting Standard ARS 223.0 Residential Mortgage Lending (ARS 223.0).

The instrument commences on 1 February 2018.

 

  1. Background

 

APRA’s mandate is to ensure the safety and soundness of prudentially regulated financial institutions so that they can meet their financial promises to depositors, policyholders and fund members within a stable, efficient and competitive financial system. APRA carries out this mandate through a multi-layered prudential framework and is empowered under the Banking Act 1959 to issue legally binding prudential standards that set out specific prudential requirements with which ADIs must comply.

 

Residential mortgages as a proportion of ADIs’ lending exposures has increased over the past few years, currently standing at more than 60 per cent of total loans. Given the significance of the concentration in residential mortgage lending, a build-up of risks in this segment has the potential to pose significant prudential and financial stability risks.

 

In response, APRA and other regulators have increased their focus on residential lending practices, which requires access to robust data about various aspects of ADIs’ lending practices and activities, including loan purpose, counterparty and other risk indicators. Analysis of this information underpins measures taken by APRA to help contain the risks associated with ADIs’ residential mortgage portfolios.

 

2.             Purpose of the instrument

 

The purpose of the instrument is to determine a new reporting standard ARS 223.0, which introduces a new reporting form, Reporting Form ARF 223.0 Residential Mortgage Lending. ARS 223.0 0 collects information from ADIs on both the portfolio stock and new lending activity each quarter. This information will be used by APRA for the purpose of prudential supervision. This information may also be used by the Reserve Bank of Australia.

 

 

3.      Consultation

 

On 24 October 2016, APRA released a discussion paper, Residential mortgage lending reporting requirements for ADIs (the Discussion Paper), on the proposed introduction of ARS 223.0, along with a draft reporting standard[1]. This was followed by a second consultation letter on 23 May 2017[2]. APRA released the final response to submissions and final form of the proposed ARS 223.0 on 10 January 2018, incorporating the feedback received from the consultation[3].

 

4.      Regulation Impact Statement

APRA prepared a Regulation Impact Statement which has been lodged as supporting material.

5.      Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

A Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 is provided at Attachment A to this Explanatory Statement.


 

 

 

ATTACHMENT A

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2018 – Reporting standard ARS 223.0 Residential Mortgage Lending

 

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instrument listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (HRPS Act).

Overview of the legislative instrument

The instrument determines a new reporting standard under the Financial Sector (Collection of Data) Act 2003.  The new reporting standard collects information from ADIs on their residential mortgage lending activity.

 

Human rights implications

APRA has assessed the instrument and is of the view that it does not engage any of the applicable rights or freedoms recognised or declared in the international instruments listed in section 3 of the HRPS Act. Accordingly, in APRA’s assessment, the instrument is compatible with human rights.

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

 

 

 

[1] http://www.apra.gov.au/adi/PrudentialFramework/Pages/residential-mortgage-lending-reporting-requirements-ADIs-Oct16.aspx

[2] http://www.apra.gov.au/adi/PrudentialFramework/Pages/Response-to-submissions-New-residential-mortgage-reporting-requirements-for-ADIs.aspx

[3] http://www.apra.gov.au/adi/PrudentialFramework/Pages/Residential-mortgage-lending-reporting-requirements-response-Jan-2018.aspx

Overview

The Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2018, published by the Australian Prudential Regulation Authority (APRA) under the Financial Sector (Collection of Data) Act 2001, was enacted to address the growing risks associated with residential mortgage lending in Australia's financial sector. With residential mortgages comprising over 60 per cent of total loans in the Australian Depository Institutions (ADIs) sector, there is a need for robust data to assess and manage potential prudential and financial stability risks. This legislation was introduced to ensure that ADIs provide APRA with comprehensive data on their lending activities, enabling better supervision and risk assessment. The instrument, which came into effect on 1 February 2018, mandates a new reporting form, ARS 223.0, which collects quarterly data on both the portfolio stock and new lending activity from ADIs. This data is essential for APRA's prudential oversight and may also be used by the Reserve Bank of Australia. The determination followed consultations and submissions, culminating in the final form of the reporting standard on 10 January 2018.

Scope and Application

The Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2018 (ARS 223.0) applies to authorised deposit-taking institutions (ADIs) within Australia. Under the Financial Sector (Collection of Data) Act 2001, the Australian Prudential Regulation Authority (APRA) is empowered to determine reporting standards, and this instrument establishes the new Reporting Standard ARS 223.0, which mandates ADIs to submit quarterly data on their residential mortgage lending activities. This includes information on the portfolio stock and new lending, aimed at enhancing the prudential supervision of ADIs and mitigating financial stability risks associated with the residential mortgage sector. The instrument commenced on 1 February 2018, and it extends APRA's authority to enforce compliance with these reporting requirements, ensuring that ADIs provide accurate and timely data to facilitate effective oversight and risk management within the financial sector.

Key Provisions

The Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2018 (the instrument) under the Financial Sector (Collection of Data) Act 2001 (the Act) introduces a new reporting standard, ARS 223.0 Residential Mortgage Lending (ARS 223.0). This standard requires authorised deposit-taking institutions (ADIs) to submit detailed information on their residential mortgage lending activities each quarter. The primary objective of ARS 223.0, as per section 2, is to collect data on both the portfolio stock and new lending activities to assist the Australian Prudential Regulation Authority (APRA) in its prudential supervision efforts. This information is crucial for assessing and managing risks associated with residential mortgage lending, which currently constitutes over 60% of total loans by ADIs. Under the Act, section 13(1)(a) empowers APRA to determine reporting standards that ADIs must comply with. The instrument, which came into effect on 1 February 2018, as per section 15(1) of the Act, mandates ADIs to report on their residential mortgage lending activities using the specified Reporting Form ARF 223.0. This requirement aims to provide APRA and the Reserve Bank of Australia with comprehensive data to support informed decision-making and policy formulation. The data collected includes information on loan purposes, counterparty details, and other risk indicators, which are essential for risk assessment and financial stability. APRA's role in regulating ADIs is to ensure they meet specific prudential requirements, and the implementation of ARS 223.0 is a critical component of this regulatory framework. The obligations imposed on ADIs under this instrument include timely and accurate submission of the prescribed data, ensuring that all aspects of their residential mortgage lending activities are comprehensively captured. Non-compliance with these reporting requirements could lead to regulatory scrutiny and potential sanctions, as APRA uses the collected data to monitor and mitigate risks within the financial sector. The Act does not explicitly state penalties for non-compliance with the reporting requirements of ARS 223.0. However, under the broader provisions of the Financial Sector (Collection of Data) Act 2001, failure to comply with reporting standards can result in civil and criminal penalties. Civil penalties can include fines, while criminal penalties may involve imprisonment, reflecting the seriousness of non-compliance in maintaining financial stability. APRA retains the authority to take enforcement actions against ADIs that fail to adhere to the reporting standards, thereby ensuring that the regulatory objectives are met effectively.

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