AlphaChat: The importance of accurate and compliant reporting

AlphaCert Head of Product James Milne and Independent Consultant Stephen Huppert discuss regulatory reporting in the superannuation industry in Australia and New Zealand. They highlight the increasing demands and requirements placed on superannuation funds by regulators, leading to a significant burden on fund managers, and discuss the importance of data quality and the need for accurate and compliant reporting. Overall, their discussion highlights the evolving nature of regulatory reporting and the need for efficient and reliable solutions to meet these requirements.


 

James Milne: Hi everybody, and welcome to another AlphaCert, AlphaChat. I’m here with Stephen Huppert, an industry professional in the superannuation industry in Australia, and today our topic is regulatory reporting on both sides of the Tasman. Stephen, welcome. It’s great to have you here again.

Stephen Huppert: Thanks very much, James, and it’s an important topic to discuss.

James Milne: Yeah, I think let’s kick into it and discuss the recent developments in regulatory reporting in Australia. Do you want to give us a summary of some of the recent changes you’ve seen?

Stephen Huppert: Thanks. Yeah. So fund management superannuation funds are under increasing pressure, increasing demands by regulators here in Australia. What we are seeing is that the requirements keep on growing, and what it means is that funds need to spend a lot of time adapting and adjusting their reporting requirements for the new regulations that are coming along. Superannuation funds have the most significant reporting requirements, and many of these requirements also flow through to their third parties, which is also creating quite a bit of pressure on the fund managers that they’re investing in.

One of the things we see is superannuation funds have three or four different regulators that they need to report to, and that also creates a burden for them. There’s the Australian Prudential Regulator, APRA, there’s the Securities in Investments Commission, ASIC, the ATO, of course, the ABS, the Bureau of Statistics, and a number of others as well.

James Milne: And within part and parcel of that, are there new data quality standards that have been introduced as part of the recent changes?

Stephen Huppert: So APRA is driving some major changes in reporting requirements. They’ve started what they’ve called a superannuation data transformation project, and that’s increasing the breadth depth and frequency of superannuation reporting requirements. And APRA’s goal is to increase the transparency and insights into fund operations and looking at things like investments, cost, performance, and funds need to present at a much more granular level. And there’s also quite an increased focus on the data quality that’s coming through, to make sure that the data is accurate and compliant and complete.

This superannuation data transformation project started in 2020 and it’s still going on. And so it’s continually adding more and more requirements. Both APRA and ASIC are expecting superannuation funds to strengthen their data governance and ensure that they’ve got appropriate risk management controls around the data that’s reported to regulators. I mean, you’re seeing similar things in New Zealand.

James Milne: Yeah, I was just going to add and build upon what you said around, I guess the increasing requirements and therefore the increasing burden. And we are seeing that happen on this side of the ditch as well, in New Zealand in terms of the NZFMA and their requirements. And the NZFMA as well, looking forward, we can only see those requirements increasing, as well as increasing governance on any entity managing over a billion dollars worth of assets increases and gets more stringent over time. We tend to look at what Australia is doing and then that’s the model to look to, and we can potentially see some of that change coming our way as well.

Stephen Huppert: So what are you seeing from a superannuation fund and investment management perspective? How are they coping with the changes?

James Milne: Everybody has to do quarterly disclosures to the NZFMA. So those quarterly disclosures come in the form of QFUs, quarterly fund updates, which have to be published out to the market as well as regular disclosures to the NZFMA, and that’s one portion of the quarterly reporting. In terms of coping with that, it’s been in place for a reasonable time now, but what we’re seeing is that there’s increasingly, there’s a demand within large entities to do more with less. And so if we can, what we’re aiming to do with our product, and I guess our solution for that is make it more efficient, make it automated, make it something that you can do rather than taking a couple of weeks every quarter, you can do in a few days. Getting that data together, checking it, validating it, and getting it in the format that’s exactly required by the FMA.

So I guess, yeah, what does all that mean? It means that there’s not going to be, like in Australia, there’s not going to be, we’re not going backwards in terms of the requirements on investment operations teams. That is going to be increasing and at least staying level for many of these. Funds and the operations team are being tasked with not only the daily operations, but also all of the increasing reporting burden that’s coming from the regulatory authorities and having to do, as I said, more with less or more with the same resources over time.

Stephen Huppert: One of the things I’ve seen here in Australia is that unsurprisingly, many superannuation funds and fund managers use Excel spreadsheets to collect the data and report it. With APRA, they have quite a stringent reporting process, which has a lot of validations built into their portal. So superannuation funds, for example, have to upload the data into the portal and it’s very often rejected because of errors and it requires a lot of rework by the super fund and a lot of these validation checks, it’s all about formatting and double checking and reconciliations, and that’s leading to a lot of rework, as I said. And partly because of the spreadsheets. Is that something you’re seeing as well in New Zealand?

James Milne: Yeah, absolutely. I think any customer, regardless of Australia and New Zealand that we’ve dealt with, those Excel spreadsheets and Excel models are pervasive within funds. And that’s I guess a portion of, or a large portion of what we try to address with our solutions, which is to take out that manual effort to take out those potential missed keys, potential fat fingering on spreadsheets, something which might get you rejected at the last hurdle when you’re going to submit on the last day, at the last hour, which sometimes these regulatory filings come down to. So what we aim to do is take out all of that end of the process and make sure that whatever you are submitting or producing is in the exact format required. It’s had all the checks and balances go through and it’s producing you the exact artefact that you need to then take an upload to the regulator. 

So I think within the process, if you look at it end-to-end getting data into the fund or into a system and then giving it to the regulator, a lot of that work within that process, a lot of that time will be exactly as you said due to formatting, small errors, small issues around is it a number column or a text column or something has changed in the formatting. And what we are aiming to do is just take out all that time, make the process much more automated, much more efficient. Regardless, I think New Zealand or Australia, we see that across the board in terms of region or country.

Stephen Huppert: And I understand you’ve been doing this for a couple of organisations on both sides of the ditch. Have you got a couple of case studies you can talk to and talk about the benefits?

James Milne: Yeah, sure. I’ll start with Australia. So within Australia we’re looking at the APRA reporting framework, quarterly reporting framework. And within that specifically, we’re working with a smaller fund, roughly $3 billion under management. And their specific pain point is around the SRS 550.0 report. So we’re working through the requirements with them again to bring in all that data, make sense of it, and rolling it up, aggregating that data in exactly the way the APRA needs to receive that data, and then generating the outputs so that they can be uploaded and added to that quarterly set of data that APRA receives in exactly the right format, at exactly the right time and taking out a whole lot of overhead, which is due to the manual collection, the manual formatting, and the manual filing of that data. So that’s on the Australian side, looking at SRS 550.0 at the moment, but also looking at what other APRA reporting quarterly disclosure filings we can look at. 

And then on the New Zealand side of things, as I mentioned earlier, we’ve got a customer that we’re working with at the moment that’s just going through the final stages of the parallel run in terms of a quarterly fund update and quarterly disclose register filing. And again, working with them to take out a lot of the manual burden from that process. They estimate that it’s a large proportion of hours in terms of a month, but it’s also taking, not only the hours to tie all that data together manually, but also taking out some of the risk associated with copy and pasting of data manually around using large Excel spreadsheets and models to aggregate, take data from one format into another and classify in exact ways that the regulator wants to see that data across all of the asset classes. So yeah, we’re bringing solutions to market on both sides of the Tasman there and keen to help more funds.

Stephen Huppert: And I guess it’s interesting, it’s not just the time taken, it’s the risk as well. And that’s certainly one of the things I’m seeing in terms of the auditability, the repeatability, and you talked a bit before about changes of formats or change of structures. That’s certainly one of the things we are seeing as APRA change the way they want data formatted or the depth or the breadth of the data. If you using spreadsheets, there’s a lot of work to be done to have to modify that, whereas if it’s in a standard system, it’s much easier then to make the changes that you need to make. And then the fund doesn’t really need to think too much about it as long as they can access their data and then feed it through.

James Milne: Yeah, absolutely. And from a risk perspective, I think as well, probably just looking at the direction of travel for APRA, I think the days in which spreadsheet models will hold up for this type of thing, taking a risk-based view on things, they’re probably numbered. The ability to audit what you are bringing into the fund, the processes that you’re going through to prepare the data, and  then to generate the data in the formats out to APRA. They want to see how you’re doing that in terms of a governance perspective, what systems you’ve got in place to assist that, what controls you’ve got in place around the process, and making sure that all of the data is tracked, auditable, and there are no risk processes within that larger process of filing submissions, risky processes, sorry. Within that larger process of filing the submissions.

Stephen Huppert: And one of the things I often see with superannuation frontier in Australia is when they’re reporting to different entities, whether internal or external, one of the key challenges that they have is reconciling the numbers on different reports. I guess one of the advantages of using some sort of solution like you’ve got is you have that single source of truth, so you know that all the reporting, whether it’s to APRA or ASIC or to an internal management report or other statutory reports, that the numbers that consistent. And I think that’s also a key feature, isn’t it?

James Milne: Absolutely. Yeah. And it all comes down to confidence at the end of the day. Having confidence that what you’re doing and the process that you’ve got in place is robust, you can trust those numbers. You’ve got consistency and validating all of the data that comes through the validation processes that you’re going through. Everything is leading towards giving you trust and confidence in that data that you’re submitting. 

Stephen Huppert: And that you can keep adapting as the requirements evolve.

James Milne: Absolutely. Yeah. And they will continue to evolve, as we’ve seen with APRA and also as we’ve seen with the NZFMA on the side of the ditch. Thanks Stephen for joining us and we’ll sign off there.

Stephen Huppert: Pleasure. Thank you. Talk next time.

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