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Letters

Response to ADI data confidentiality consultations and public disclosure requirements

Thursday 2 September 2021

Published 2 September 2021

APRA is responding to two consultations on authorised deposit-taking institutions (ADI) data confidentiality: the 2020 key ADI metrics proposal and the 2019 ADI data confidentiality consultation.1  

On 29 September 2020, APRA released the consultation on key ADI metrics. This consultation revised and narrowed the 5 December 2019 consultation, which had been paused in response to COVID-19. The December 2019 consultation was on the data sources for its ADI quarterly publications that APRA intended to determine to be non-confidential. 

In its September 2020 consultation, APRA proposed that the key ADI metrics data on capital adequacy, liquidity, asset quality, financial statements and financial performance would be determined non-confidential and may be published after 40 business days. The data to be published at entity-level would be largely based on the definitions and calculations used in Quarterly ADI Performance Statistics (QADIP). This proposal received mixed feedback.

There was general industry support for the second proposal to re-publish certificates of deposit data, which commenced as an aggregated negotiable certificates of deposit series in Monthly ADI Statistics (MADIS) in January 2021.

Submissions to consultations

 

There were three non-confidential submissions from industry bodies and six confidential submissions in relation to the September 2020 key ADI metrics consultation. In response to the December 2019 consultation, there were six non-confidential submissions from industry bodies and academics and five confidential submissions. 

Key prudential metrics

 

In response to APRA’s key ADI metrics proposal, the ABA and COBA supported the publishing of the highest consolidation of capital, liquidity and asset quality items aligned with Pillar 3 on a quarterly basis, after all entities have first disclosed the information to market. There were some concerns raised in submissions about Pillar 3 coverage, and definitional and disclosure frequency differences including requests to exclude items not covered by Pillar 3. 

Key financial metrics - financial position

 

One submission suggested that balance sheet items, disclosed by ADIs on either a half-yearly or annual basis, could be published quarterly with a one quarter lag. Others opposed quarterly publication on the basis of of “short-termism”, suggesting that it will force ADIs to adopt a short-term focus at the expense of longer-term strategy. COBA requested balance sheet data to be published only on an annual basis for all ADIs less than $25 billion. Similar data are published monthly in MADIS.

Key financial metrics - financial performance

 

Significant concerns were raised in submissions about the publication of performance measures and shareholders’ equity, in particular, the risk of “back-solving” for profit, which raises market sensitivity and continuous disclosure issues. Concerns regarding potential financial instability were also raised. One submission suggested that lagging financial performance data by one quarter would be acceptable. COBA requested that the performance metrics to be only published on an annual basis, due to increased burden from governance, communication and review processes for ADIs less than $25 billion in size. AFMA has raised concerns that foreign ADI branches’ financial performance data would be difficult to interpret in the context of transfer pricing, and argued they should be excluded. 

In contrast, academic submissions supported the publication of more detailed ADI data, pointing to international precedents, such as the United States, where there is greater public disclosure and no specific evidence of adverse effects from this practice. 

Proposed key ADI metrics publication 

 

The key ADI metrics publication represents the first stage of the development of a centralised ADI entity-level publication of key prudential and financial data implementing Basel’s Pillar 3 requirements.2

For locally-incorporated ADIs, APRA intends to publish key prudential and financial metrics aligned with Pillar 3 requirements and other disclosures listed in Attachment 1, initially at ADIs’ current required disclosure frequency. 

The proposed key ADI metrics publication will improve data quality and increase the transparency of the ADI data APRA collects, providing the following benefits:

  1. Informing the public: providing entity-level key capital, liquidity and asset quality data will enable industry, government, investors and beneficiaries and the general public to more effectively assess the risk of Australian-incorporated ADIs. ADI financial performance and balance sheet data will also be available, which is in line with the content of APRA’s insurance and superannuation entity-level publications and will move Australia closer towards international best practice.3
  2. Influencing by comparison: the release of centralised key prudential and financial metrics data publication will promote better practices through comparability and peer review, facilitating analysis and understanding of observed trends and maintaining confidence in the Australian financial system. 
  3. Driving accountability: sharing of key prudential and financial metrics will encourage ADIs to act with self-discipline and encourage better, more efficient market behaviour.4

To address ADIs’ concerns about the potential risks of publishing entity-level financial position and performance data on a quarterly basis, APRA will initially publish only very similar or already disclosed data and match ADI’s disclosure frequency. This will also ensure that initially there is minimal increase in governance, communication and regulatory burdens for ADIs. Disclosure on this basis will not pose any potential stability risks. 

The non-alignment of balance dates within the ADI industry, overlaid with publishing data on a half-year or annual basis will mean that there will be significant gaps in the publication. These can only be remedied fairly by publishing quarterly data, and APRA plans to increase the frequency of disclosure to quarterly, with a transition period of two years. Market sensitive data will be lagged appropriately so as not to trigger any continuous disclosure obligations.

Foreign ADI branches are excluded from Prudential Standard APS 330 Public Disclosure (APS 330) requirements and will not be included in the publication.5

The new publication is planned for release for the first quarter reporting period of 2022. The publication will include the full history of all published metrics submitted by the ADI.

APRA will work with ADIs and industry associations to reconcile definitional issues prior to publication, with a view to disclosing meaningful comparable information across the industry, particularly for balance sheet data. A draft template of the new publication will be released after further liaison with industry associations.

Commentary

 

There were a number of objections to the proposal in the December 2019 consultation, that an ADI provide an explanation of material revisions to, or large period-to-period movements in, its data, for inclusion in APRA’s statistical publications. In the September 2020 submissions, some ADIs have requested APRA publish commentary, as way of addressing data discrepancies, suggesting mechanisms to provide commentary similar to the RBNZ.6

APRA will work with the ADI industry using workshops to investigate mechanisms for ADIs to provide optional commentary. An optional link in the publication to each ADIs’ website could be a way to provide access to an ADI’s commentary.

Confidentiality of underlying data 

 

Submissions in both consultations requested APRA determine non-confidential published aggregates rather than individual items. APRA only intends to publish metrics at the highest consolidation available. 

Future consultation

 

APRA is proposing to continue to consult the ADI industry in manageable phased stages and in further depth in the future. This will include the proposal in the 2019 consultation to publish entity-level data for all reporting forms used in ADI quarterly publications with a three-year lag. 

APRA will also continue to consult on the confidentiality and frequency of disclosure for data to be included in an expanded centralised publication, in line with changes to APS 330.

Revised timeline for revisions to disclosure requirements

 

APRA will be delaying revisions to APS 330 by twelve months, to align better with the policy development timeline for the ADI capital reforms and proposed approach to non-confidentiality outlined above. The revised APS 330 timeline means that consultation will occur in 2022, the final standard will be released in late 2022 and the effective date will be 1 January 2024. This timeline will alleviate pressures on ADIs to simultaneously implementing multiple revised standards into their operations.

To further alleviate pressures on small, less complex ADIs, APRA is retaining the carve-out of eligible ADIs on the simplified capital framework from APS 330 requirements from 1 January 2023. APRA’s centralised publication on key ADI prudential metrics will be operational from Q1 2023, to ensure transparency of key prudential and financial ADI metrics. Revisions to APS 330 for other ADIs will apply from 1 January 2024, with the current APS 330 continuing to apply until this date. 

 

Yours sincerely,

Sean Carmody
Executive Director
Cross-Industry Insights and Data Division 

 

Attachment 1 – Publication of key ADI metrics: initial publication frequency

Table1: Key Prudential metrics

 

Capital framework

Amount ($bn)

Capital ratios as a percentage of RWA (%)

CET1

Tier 1

Total Capital

RWA

CET1

Tier 1

Total Capital

Quarterly

Quarterly

Quarterly

Quarterly

Quarterly

Quarterly

Quarterly

Liquidity framework

Liquidity Coverage Ratio (LCR)

Net Stable Funding Ratio

Minimum Liquidity Holding ratio (MLH)

LCR (%) (average over the quarter)

NSFR ratio (%)

Adjusted minimum liquidity holdings ($bn)

Adjusted liability base ($bn)

MLH ratio (%)

Quarterly

Annual

Annual

Annual

Annual

Risk profile ($bn)

Total credit risk RWA

Total operational risk RWA

Total market risk RWA

Of which:

Other risk charges

Total RWA

IRRBB

Traded market risk under Standard method

Traded market risk under Internal model approach

Quarterly

Quarterly

Quarterly

Quarterly

Half-yearly

Half-yearly

Quarterly

Quarterly

Table 2: Key financial metrics

Financial Position

Amount ($bn)

Total assets

Gross loans and advances

Total liabilities

Total deposits

Total shareholders' equity

Quarterly

Quarterly

Quarterly

Quarterly

Half-yearly/Annual*

Financial Performance

Amount ($bn)

Net interest income

Other operating income

Total operating income

Operating expenses

Charge for bad or doubtful debts

Net profit (loss) after tax

Half-yearly / Annual*

Half-yearly / Annual*

Half-yearly / Annual*

Half-yearly / Annual*

Half-yearly / Annual*

Half-yearly / Annual*

Financial Performance (Ratios)

Percentage (%)

Cost to income

Return on assets (after tax)

Return on equity (after tax)

Half-yearly /

Annual*

Half-yearly /

Annual*

Half-yearly /

Annual*

Asset Quality

Amount ($bn)

Percentage (%)

Total Impaired facilities

Past due items

Provisions held (or subcomponent)

Impaired facilities to loans and advances ratio

Past due to total loans and advances ratio

Quarterly

Quarterly

Quarterly

Quarterly

Quarterly

 * Publication frequency will be aligned with current disclosure requirements.

 


Footnotes:

1.   Consultation on the confidentiality of data used in ADI quarterly publications and additional historical data’ (Letter, 5 December 2019) and Consultation on confidentiality of key ADI metrics’ (Letter, 29 September 2020) can be found at : Confidentiality of data used in ADI quarterly publications and additional historical data.  
2. Basel Committee on Banking Supervision’s Pillar 3 disclosure requirements: DIS - Disclosure requirements (bis.org).
3. Internationally, New Zealand, the Netherlands and the United States make some financial performance data available for individual banks.
4. See also BCBS (2015) Revised Pillar 3 disclosure requirements, pg1.
5. See Prudential Standard APS 330 Public Disclosure: https://www.legislation.gov.au/Details/F2018L00509.
6. https://bankdashboard.rbnz.govt.nz/summary.

 

2021