API-Based Submissions Transformation Program to Go Live in June 2023
As regulators strive to keep pace with technological advancements, the data transmission process between financial institutions and regulatory bodies is evolving to become more seamless. This shift toward data-driven regulation is gradually replacing traditional form-based reporting and is expected to continue in the coming years.
In 2021, the Bangko Sentral ng Pilipinas (BSP) announced the adoption of initiatives to gather and process reporting information more efficiently. These initiatives will finally be implemented in 2023, ushering in a new era of streamlined FRP reporting.
Financial Institutions in the Philippines currently submit their Financial Reporting Package (FRP) reports individually using either an Excel-based submission mechanism or by email. The adoption of an API (XML) based submission for prudential reports is one of the primary and initial changes in the BSP’s initiative to enhance the reporting process. Starting with the June 2023 quarter-end and July 2023 month-end reports, the live submission of the FRP v15 will begin.
As part of this API-based transformation program, BSP will be implementing:
- Connectivity to BSP systems from financial institutions
- Submission of reports with a Digital Identity of the sender
- Changes to BSP reporting formats for FRP and FRP-related reports (FRP v15)
- XML submission that includes adherence to XML Schema design provided by BSP
- Inter and Intra report data validations.
What does this change mean for financial institutions in the Philippines?
The current operating model in financial institutions in the Philippines is designed to prepare reports individually and submit them separately. However, with the upcoming changes in the regulatory reporting process, all the reports, including 245 templates, will have to be compiled, reconciled, and submitted simultaneously. As a result, the workflow, adjustments, reconciliation, validations, and sign-off processes become crucial requirements. Furthermore, all Risk reports, such as CAR, BLR, LCR, NSFR, will now be part of the FRP v15 changes. Implementing a strong, integrated BASEL calculation engine that uses the same data as the financial reports will be another key requirement.
In the Philippines, financial institutions mostly have an in-house regulatory reporting process where data is consolidated by individual business lines or departments, reports are prepared, and then provided to the Finance Control team at the report level. However, the changes in data collection by the BSP indicate a move towards more synergy and data quality across all departments of the bank. Therefore, it is essential for banks to have a strategic regulatory reporting platform to manage future changes from the BSP, based on regulatory transformation programs across multiple other jurisdictions.
This revolutionary change will have an impact on the way that all universal, commercial and digital banks in the Philippines report information, as this is the first time that several reporting requirements have been consolidated. This initiative will also have a big impact on granularity and operating models within the banks.
Five Milestones to Watch For
- The FRP v15 live submission shall start with the June 2023 quarter-end and July 2023 month-end reports.
- A parallel run using XML (API) submission, and submission using XML converter provided by BSP, will start in April and will be completed by the end of June 2023.
- Version 14.5 FRP reports, and FRP-related reports, will be decommissioned as of June 2023 Quarter end, and only FRP v15 reports will be submitted
- BSP will also switch off the XML converter capability for Universal, Commercial and Digital Banks. Thrift, rural and cooperative banks will continue to use the XML converter provided by BSP until further notice
- The report submission deadline for quarter-end reports and subsequent month-end reports is yet to be communicated by BSP
Reports covered in this transformation program
- Financial Reporting Package (FRP)
- Basel 1.5 Capital Adequacy Ratio (CAR) Report (for stand-alone TBs and RCBs)
- Basel III Capital Adequacy Report
- Basel III Leverage Ratio (BLR) Report
- Basel III Liquidity Coverage Ratio (LCR) Report
- Basel III Report on Net Stable Funding Ratio (NSFR)
- Expanded Report on Real Estate Exposures
- Financial Reporting Package for Trust Institutions (FRPTI)
- Income Statement on Retail Microfinance Operations (MIS) and Report on Microfinance Products (MBS)
- Minimum Liquidity Ratio (MLR) for stand-alone TBs, RCBs and NBQBs
- Published Balance Sheet (PBS)
- Report of Selected Branch Accounts (BRANCH)
- Report on Compliance with Mandatory Credit Allocation Required Under RA 6977 (as Amended by RA Nos. 8289 and 9501) (MSME)
- Report on Cross-Border Financial Positions (RCBP)
- Report on Electronic Money Transactions (applicable to Electronic Money Issuers) (E-Money)
- Report on Project Finance Exposures (RPFE)
- Report on Repurchase Agreements of Banks/ Quasi-Banks (REPO Report)
- Stress Testing Reports Covering Credit and Market Risks (STRESS TEST)
Challenges posed by this regulation
To ensure a smooth transition to the new reporting system, banks are strongly encouraged to meet all the necessary requirements.
- Financial institutions will require a reliable XML/API submission platform that includes essential features such as data controls, security, and encryption. Additionally, they will require a regulatory platform that can address BSP’s immediate and future requirements.
- The platform should have a robust workflow and user access management system that caters to multiple departments.
- To streamline their reporting process, the banks and financial institutions will need to consolidate reports from various departments while ensuring that the data and reports are validated and signed off by the appropriate departments. Centralizing adjustments is also necessary to maintain the integrity of validation rules.
- The new regulation also demands strong data management capabilities with an audit trail and end-to-end data lineage governance.
Banks should take immediate action to ensure that they are adhering to all requirements and guidelines set forth by BSP
Banks can use this opportunity to put together a strategic future proof regulatory ecosystem. The recommended 2 step approach to BSP Compliance is to adopt both an immediate and a strategic approach which gives a significant advantage over deploying a tactical solution.
Immediate approach: Phase 0 – To comply with immediate BSP requirements
- Continue to prepare the reporting numbers using the existing mechanism feeding into the final reports.
- Automate the validation and XML submission generation without compromising on the core requirements
- Report Validations (including Cross report validations) – Regulatory and User-Defined Validation Rules
- Adjustments – Fully auditable report-level adjustments
- Governance – Multi-level configurable Report Sign-Off
- Variance & Trend Analysis
- Workflow – Deploying the bank’s operating model
- XML Submission – Generation & Submission of XML files
Strategic Approach: Reduce the regulatory burden through extension of automation to the end-to-end reporting and submission process.
- Leverage the work done and investment made for Phase 0
- Implement end-to-end automated solution progressively for different sets of reports that will help bank achieve,
- All Phase 0 functionalities
- Unified data model
- Regulatory classifications, Calculations and Aggregation
- Integrated Risk Calculation Engines
- Business Analytics – Chart and Graph, Slice-Dice, etc.
- Internal and MIS Reports
- Implement end-to-end automated solution progressively for different sets of reports that will help bank achieve,
Timely readiness for the live implementation of the API-based prudential reports submission is essential. However, it is imperative for banks to be ready for all future BSP requirements around data granularity, data quality, integration of financial and risk reporting. Additionally, transparency regarding data usage is crucial to ensure banks are confident in the data they submit.
BSP’s new API-based submission model and potential future changes poses technical and architectural challenges for financial institutions in the Philippines in the months to come. They must remain vigilant and adapt to these changes in order to comply with the new reporting model. This important transformation is BSP’s first step, and more changes in reporting are expected in the market.
