Financial Sector (Collection of Data) (reporting standard) determination No. 7 of 2021
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Financial Sector (Collection of Data) Act 2001, sections 13 and 15
Acts Interpretation Act 1901, section 33
Under subsection 13(1) of the Financial Sector (Collection of Data) Act 2001 (the Act), APRA has the power to determine reporting standards, in writing, 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 33(3) of the Acts Interpretation Act 1901 provides that where an Act confers a power to issue an instrument the power shall, unless the contrary intention appears, be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to revoke any such instrument.
Subsection 15(1) of the Act provides that APRA may declare a day on and after which the reporting standards are to apply.
On 22 March 2021, APRA made Financial Sector (Collection of Data) (reporting standard) determination No. 7 of 2021 (the instrument) which revokes Reporting Standard ARS 114.0 Standardised Approach – Operational Risk (ARS 114.0) made under Financial Sector (Collection of Data) (reporting standard) determination No. 1 of 2011 and determines a new version of ARS 114.0.
The instrument commences on 1 April 2021.
- Background
APRA’s prudential framework includes a suite of prudential standards that impose capital requirements on authorised deposit-taking institutions (ADIs). One of these standards is Prudential Standard APS 114 Capital Adequacy: Standardised Approach to Operational Risk (APS 114). APS 114 sets out the requirements that must be met by an authorised deposit-taking institution (ADI) that uses the standardised approach to calculate operational risk for regulatory capital purposes.
ARS 114.0 outlines the overall requirements for the provision of information to APRA relating to an ADI’s operational risk regulatory capital. ARS 114.0 includes Reporting Form ARF 114.0 Standardised Approach – Operational Risk (and the associated instructions), which captures the calculation of the capital requirements for operational risk in accordance with APS 114.
ARS 114.0 was last determined by APRA in 2011 (the existing ARS 114.0).
2. Purpose and operation of the instrument
The purpose of the instrument is to remake ARS 114.0.
The existing ARS 114.0 is to be repealed by sunsetting on 1 April 2021 under subsection 50(1) of the Legislation Act 2003. APRA has reviewed the regulatory performance of the existing ARS 114.0 and found that it continues to be fit for purpose. Consequently, APRA intends that it be remade without significant changes. The purpose of the instrument is to revoke the existing ARS 114.0 and remake ARS 114.0 with minor changes to use the drafting style in APRA’s recent instruments.
The changes to the new version of ARS 114.0 compared to the existing ARS 114.0 do not alter the existing reporting obligations or interests of ADIs. The key changes:
- insert a new paragraph to provide information that the instrument is made under section 13 of the Act;
- insert a new paragraph that specifies the commencement of the instrument;
- broaden the method by which an ADI may provide information;
- update references to the quality control obligations of an ADI in relation to the information it provides, including referring to the up-to-date audit obligations of an ADI under Prudential Standard APS 310 Audit and Related Matters; and
- refer to the up-to-date definitional standard for ADI prudential standards, Prudential Standard APS 001.
Where the instrument refers to an Act, Regulation, Prudential Standard, Reporting Standard, Australian Accounting Standard or Auditing Standard, this is a reference to the document as it exists from time to time, and which is available on the Federal Register of Legislation at www.legislation.gov.au.
There are a number of powers that may be exercised by APRA in reporting standards that involve an element of discretion and which may impact the interests of the financial sector entity to which the reporting standard applies. These decisions include APRA refusing to change a reporting period or due date for an ADI to provide information required by ARS 114.0. Decisions made by APRA exercising those powers are not subject to merits review.
APRA considers decisions made by APRA exercising discretions under its reporting standards should not be subject to merits review as they are financial decisions with a significant public interest element.
APRA’s reporting standards collect financial data from regulated entities. This data contains critical indicators of a regulated entity’s financial wellbeing, including data on an entity’s assets, capital, liquidity, expenses and risk exposures. APRA relies heavily on this financial data to inform its supervisory actions towards its regulated entities. Without timely and complete data, APRA may miss indicators that an ADI is taking on imprudent risk or is in distress. APRA’s supervisory decisions may be jeopardised if its receipt of data is unreliable due to entities seeking merits review under its reporting standards.
The data collected by APRA’s reporting standards is also often used to compile key macroeconomic indicators for Australia. The Reserve Bank of Australia uses the data to compile and publish its monetary and credit aggregates. The Australian Bureau of Statistics uses the data to compile the national accounts. The data is also used to meet Australia’s international reporting obligations.
Delays caused by an entity seeking merits review of APRA’s decisions under one or more reporting standards could significantly compromise these publications. As the publications are done at an aggregate level, any lack of data from one entity caused by a merits review claim prevents the release of the entire publication.
3. Consultation
APRA is satisfied that consultation is not appropriate and not reasonably practicable to undertake for this instrument. The instrument does not alter the existing reporting obligations that are required to be complied with by ADIs and any changes to ARS 114.0 are minor and machinery in nature. APRA has publicly consulted on amendments to the operational risk prudential and reporting framework, including consultation between December 2019 to February 2020 on a new operational risk reporting standard[1]. This new operational risk reporting standard is intended to replace ARS 114.0 from 1 January 2023[2].
4. Regulation Impact Statement
The Office of Best Practice Regulation has advised that a Regulation Impact Statement is not required for these legislative instruments.
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. 7 of 2021
This legislative instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (HRPS Act).
Overview of the Legislative Instrument
The purpose of the instrument is to revoke Reporting Standard ARS 114.0 Standardised Approach – Operational Risk (ARS 114.0) determined by APRA in 2011 and replace it with a new version of ARS 114.0.
ARS 114.0 outlines the overall requirements for the provision of information to APRA relating to the operational risk regulatory capital of an authorised deposit taking institution (ADI). ADIs are bodies corporate authorised to carry on banking business in Australia.
A new version of ARS 114.0 is being made as the existing ARS 114.0 is due to sunset on 1 April 2021.
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
The legislative instrument is compatible with human rights as it does not raise any human rights issues.
[1] Release of final Prudential Standard APS 115 and draft Reporting Standard ARS 115.0 for comment | APRA <https://www.apra.gov.au/release-of-final-prudential-standard-aps-115-and-draft-reporting-standard-ars-1150-for-comment>.
[2] Release of final Reporting Standard ARS 115.0 Capital Adequacy: Standardised Measurement Approach to Operational Risk (ARS 115.0) | APRA <https://www.apra.gov.au/release-of-final-reporting-standard-ars-1150-capital-adequacy-standardised-measurement-approach-to>.