Unpacking APRA’s SME Guarantee Scheme data collection (ARS 920.0)
The Australian Government’s response to the coronavirus pandemic has been swift and wide sweeping. Recent policy announcements are targeted at supporting households and domestic businesses address the significant economic impact of the virus. Current forward estimates value the stimulus at $320B, with further announcements likely to follow once all Australians can go back to work.
Behind the scenes the Australian Government has been working closely with the Council of Financial Regulators to promote financial system stability and resilience. Most notably was the coordinated response from the RBA, Treasury and APRA to the $40B SME Guarantee Scheme, which allows domestic banks to take advantage of low cost funding provided by the RBA’s new term funding facilities.
APRA has been tasked with the SME Guarantee Scheme data collection. The collection will allow Treasury to more closely monitor lending to SME businesses. APRA will also use the data for prudential regulatory purposes. The new collection fits into a myriad of recent announcements by APRA which are designed to allow banks more time and resource to dedicate towards maintaining their operations and supporting customers.
Unpacking the SME Guarantee Scheme
The SME Guarantee Scheme came into effect on 8 April 2020 and is designed to enhance lenders’ willingness and ability to provide credit to SMEs. The flow funds are intended to cushion the economic effect of the coronavirus pandemic on domestic businesses. Unpacking the lending criteria in the SME Guarantee Scheme is important in helping understand the design of APRA’s new reporting standard and data collection.
The Australian Government will guarantee $40B worth of loans under the SME Guarantee Scheme. SMEs with an annual turnover of up to $50M can access loans of up to $250K per person for business purposes. The Australian Government will provide security to lenders by guaranteeing up to 50% of the risk associated with the loans. Borrowers are required to repay the principal within 3 years.
Similar to the Financial Claims Scheme, APRA will act as a data collection and exchange agency to facilitate SME Guarantee Scheme monitoring activities. Currently APRA does not collect lending data at the granularity or frequency required to support monitoring activities under their existing suite of reporting standards. This led to the development of ARS 920.0 Australian Government Small and Medium Enterprise (SME) Guarantee Scheme, which came into effect on 17 April 2020 for regulated ADIs and RFCs.
What is collected under ARS 920.0?
The new reporting standard is built on definitions introduced in the Economic and Financial Statistics (EFS) collection. Put another way, ARS 920.0 outlines new loan portfolio reporting requirements which extend on data treatments defined in ARS 701.0 ABS/RBA Definition for the EFS collection. Regulated ADIs and RFCs are required to submit data on SME Guarantee Scheme facilities at a portfolio and loan level to APRA.
Reporting at a loan level to APRA is a new requirement and brings a number of privacy considerations. Borrower name, ABN and guarantor names are all required under ARS 920.0 for SME Guarantee Scheme backed loans. APRA outlines data risks associated with sensitive and personally identifiable information in CPG 235 – Managing Data Risk. Data life cycle management guidance, as well as desensitisation and end-user computing controls, from CPG 235 applies to data collected under ARS 920.0.
ADIs and RFCs are required to report two forms under ARS 920.0. Data in these forms are subject to processes and controls developed by the reporting entities to assure the completeness and reliability of information. While APRA does not explicitly mention APS 310 or RRS 710.0 requirements, Treasury did outline audit requirements for lenders’ scheme data. The first ARS 920.0 collection is due on 1 May 2020 and is to be submitted via D2A.
Reporting treatments for ARF 920.0
ARF 920.0 collects entities’ SME Guarantee Scheme loans on a domestic book reporting basis. It is broken into two sections: portfolio to date and portfolio as at the end of the current period. Items reported in the first section should be treated as stock, entities need to report all scheme-backed loans from the commencement of the SME Guarantee Scheme to reporting period date. In contrast, items in section 2 should only be reported if they are active at the end of the reporting period.
Loan counts and amounts in ARF 920.0 build on borrower-accepted commitment reporting logic as defined in ARS 701.0 and used in the EFS collection. As such, split scheme-backed loan facilities should only be counted once and reported accordingly throughout the whole return. Some other reporting treatments to pay attention to include:
Loans approved with a director/personal guarantee (item 1.2), which is defined as a new item but we think it should be treated as an of which of Loans approved (item 1.1)
Unused credit available (item 2.2), which is defined as the current “credit limit” less “credit outstanding” as per the respective definitions in ARS 701.0
Weighted average interest rate of new originations (item 2.4), which is defined as weighted average customer rate for borrower-accepted commitments during the current reporting period
The reporting taxonomy for ARF 920.0 has not been released yet, nor has APRA published any supporting data validation rules. ARF 920.0 reporting treatments are built on EFS definitions, so reporting entities will need to leverage off their existing EFS reporting processes and controls to complete this form. We expect some entities will have issues reporting on a weekly period instead of monthly, especially with regards to system integration and data quality activities.
Reporting treatments for ARF 920.1
ARF 920.1 collects loan level information about the SME Guarantee Scheme. Similar to ARF 920.0, it is collected on a domestic book basis and has a weekly reporting period. Unlike the section structure of ARF 920.0, the table format of ARF 920.1 is more straight forward to report. Put simply, ARF 920.1 requires details on each loan approved in the reporting period.
Each row in ARF 920.1 represents an individual scheme-backed loan. The reporting logic is the same as ARF 920.0, it uses borrower-accepted commitments and split scheme-backed loan facilities should only be reported once. Starting with a unique loan identifier, entities are required to fill out 9 columns for each loan. Other ARF 920.1 reporting treatments to pay attention to include:
The first submission due on 1 May 2020 needs to include all loans originated from the start of the SME Guarantee Scheme until on and including 17 April 2020
Primary borrower ABN (column 3) refers to the unique 11 digit ABN registered at the Australian Business Register for the primary borrower of the scheme-backed loan
Guarantors (column 5) requires a complete list of all the guarantors for the scheme-backed loan and guarantor names should be separated with semicolons
Approval date (column 6) refers to the date when the borrower has accepted the commitment for the scheme-backed loan
Entities with robust EFS reporting processes should be well equipped to prepare ARF 920.1. As with ARF 920.0, the reporting taxonomy and data validation rules for ARF 920.1 are yet to be released by APRA. It would also be prudent for entities to refer to CPG 235 when managing data risks associated with reporting personally identifiable information.
APRA developed ARS 920.0 at an accelerated rate to support SME Guarantee Scheme monitoring activities. The new collection did not go through the usual public consultation process and as such reporting entities are likely to encounter some initial preparation and reporting issues. Listed below are some key considerations for ARF 920.0 and ARF 920.1 ahead of the first collection:
The first submission is due on 1 May 2020 for the period ending 17 April 2020 and should include SME Guarantee Scheme backed loans from on or after 23 March 2020 i.e. 4 weeks of data
The collection is based on a weekly reporting period (not a monthly snapshot) and is required to be submitted within 10 business days to APRA via D2A
Automate as much of your reporting solution as possible to avoid significant overhead because by design of the SME Guarantee Scheme the collection is likely to be in place for 3 years or longer
Reporting treatments in the new forms (ARF 920.0 & ARF 920.1) are built on EFS definitions and should align with ARS 701.0, RPG 701.0 and give consideration to RPG 702.0
Individual banks’ COVID-19 support packages will affect multiple existing APRA reporting forms and require different reporting treatments to SME Guarantee Scheme back loans
Loan level reporting (ARF 920.1) has information handling and privacy considerations. Reporting entities processes should appropriately mitigate data risks e.g. following CPG 235
Ensure accuracy and completeness in your APRA reporting by implementing fit-for-purpose governance and controls frameworks around any new reporting processes
The taxonomy and any supporting validation rules for ARF 920.0 and ARF 920.1 have not yet been published by APRA
In the weeks to come expect further communication from APRA as monitoring activities begin and further questions are asked of the ARS 920.0 collection. This could lead to amendments to the scheme, standard or even the data collection itself. Nonetheless reporting entities will have to quickly get into a weekly rhythm of preparing, validating, reconciling and submitted these forms to APRA – taking into consideration that this collection will be out of sync from existing month end reporting processes.
To learn more about how RegCentric can help your firm meet its regulatory and compliance obligations, contact us here