APRA today released a discussion paper on the Basel II reporting requirements to apply from January next year – with the first reports to go to APRA for 31 January 2008.
On a first detailed read the proposals look fairly non-controversial, with the changes to current forms largely down to the changes needed for Basel II compliance. A few interesting points, though:
- In a speech in March this year (see the top of page eight) Bernie Egan (APRA Basel II program director) indicated that banks having trouble meeting the advanced Basel II requirements may stay with Basel I calculations. There is no room for the “pragmatism” he indicated in that speech to be reflected here – these forms (and APS 330 for that matter) will apply. I am currently presuming that the flexibility will be reflected in the transition arrangements mooted in para 5.2.3 of this discussion paper.
- For the banks going advanced there are a lot of forms, at least 24 and possibly more if there are some portfolios going standardised. Fortunately these will all be electronically submitted and, in a way, this reduces the difficulty. A fault in one item of data or formatting will not invalidate the whole process, just one file. I am just glad (or is that praying) I will not be the poor sod who has to review all these forms prior to transmission.
- Para 4.3 asks for the banks to report actual operational risk losses – not just the modelled amounts and the resulting capital requirement. This seems sensible – it allows back-testing – but I wonder what happens when an operational risk loss event (such as a fraud) appears a fair way down the track? Do you re-submit an old form or add it into current period losses? Small point, but one that should be cleared up.
Other than that and as far as I can see “Nothing to see here, move on, move on.”