International Transactions Reporting System

International Transactions

Reporting System

International Transactions reporting System WorkshopAmman – JordanApril 7-9, 2014

Malik Bani Hani

Outlines

What is an ITRS

Simplified and model ITRS

Main elements of an ITRS

Advantages and weaknesses of ITRS

as a data source

The ITRS is part of the broader institutional data collection framework of many countries. It differs from country to country drawing from countries’ legal framework, accounting systems, and foreign exchange regulations; however, virtually all such systems have certain features in common.

(reference: Balance of Payments and International Investment Position Compilation Guide (BPM6CG) )

What is an ITRS ?

As a general rule, an ITRS is a data collection system that obtains data from banks and enterprises at the level of individual transactions.

The banking sector is central to the ITRS. Banks report all operations which are carried out between residents and nonresidents through their books on their own account and on the account of their clients.

What is an ITRS ?

◦Individual cash transactions that pass through domestic banks and enterprise bank accounts abroad,

◦noncash transactions,

◦stock (balance sheet positions)

What ITRS Measures?

ITRS by types Most ITRSs started as foreign exchange record systems and

evolved as by-products of these systems

Effective exchange control and enforceable reporting

obligation are foundations of comprehensive ITRS

The comprehensiveness of the ITRS may vary depending on

type of implemented ITRS

Types of ITRS : Closed

Open

Partial

A closed ITRS accounts for all transactions and reconciles them with corresponding changes in stock positions (reported transactions are compared to changes in outstanding account balances)

An open ITRS does not allow a complete accounting and reconciliation between the reported transactions and changes in bank’s foreign exchange position

In a partial ITRS, certain BOP transactions are not recorded (e.g., it may not include exports of goods and short term financial transactions, but it provides for reconciliation of data on certain flows and/or stocks)

ITRS by types

An ITRS typically collects data from reporters in: the banking sector the central bank, and selected enterprises, called direct reporters

that report directly to the balance of payments unit.

ITRS Reporters

Full direct reporters (FDR) are enterprises with a high degree of cross-border transactions that conduct their transactions through accounts with domestic banks and, in some cases, through accounts with banks abroad and intercompany accounts.

FDR report to balance of payments compilers all

transactions and positions with nonresidents conducted through all mentioned accounts.

In a closed system, domestic banks will also report FDR

transactions conducted through domestic accounts; however they will classify these transactions as neutral, to avoid duplication.

ITRS REPORTERS

Partial direct reporters (PDR) are enterprises that have accounts with nonresident banks and are not FDR. PDR report directly to compilers only transactions through accounts abroad.

ITRS REPORTERS

Primary responsibility for reporting within the ITRS:

resident banks and enterprises are required to report their foreign payments to the Central Bank

the obligation applies to payments to and from non-residents

Responsibility for Reporting

Assets LiabilitiesResident Nonresident Resident Nonresident

Banks’ correspondent accounts (so-called NOSTRO and LORO or VOSTRO)

NOSTRO NOSTRO LORO LORO

Bank clients’ account Foreign currency accounts (banknotes and coins) Other accounts, including time deposits, loans, and securities accounts

“Philosophy” of Bank Accounting -Targeted Accounts within the ITRS

Domestic banking system, including the central bank reports: their own payments payments effected for their customers

So, all transactions which involve a resident and a nonresident account should be reported

Reporting by Banks Within ITRS

Assumptions: no payments are allowed in foreign exchange (FX)

within the domestic payment system; residents can hold FX accounts with domestic banks (FX

can be used only for savings or for payments abroad) residents (except banks) are not allowed to have

accounts with banks abroad nonresidents are allowed to have accounts with

domestic banks (in both FX and domestic currency but domestic payments can be done only from the accounts in domestic currency)

resident legal entities are allowed to withdraw FX in cash (banknotes) only for travel abroad

Example of a “Simplified” ITRS

Under this assumptions, we will discuss four types of FX transactions which may be recorded in Country A:

Bank’s client paid 40 FX for imported goods Nostro 40 (credit); client account 40 (debit)

For travel abroad, residents withdraw 30 FX in cash from their FX accounts FX cash 30 (credit); client account 30 (debit)

A nonresident received 50 in domestic currency for goods exported to residents and paid 20 in domestic currency for services imported from residents. Transactions are made through nonresident’s account with domestic bank Nonresident client account 50 (credit) 20 (debit); resident client account 50 (debit) 20 (credit)

Resident banks undertake FX transactions with correspondent banks abroad (exchange 70 USD for EURO) Nostro USD 70 (credit); Nostro EURO 70 (debit)

“Simplified” ITRS

With the abolition of exchange controls, a growing and more direct role is devoted to so-called direct reporters – resident enterprises having accounts with banks abroad

A direct reporter must submit information on transactions on their: accounts with banks abroad intercompany accounts international clearing accounts

Reporting principles for direct reporters are basically the same as for banks

Reporting by Direct Reporters Within ITRS

Reporting forms for banks in a close ITRS: could include forms for:

transactions (payments/receipts) on behalf of bank’ clients.

bank’s own transactions

reporting requirements (accounts to be reported) should be identified for each bank

Reporting Forms for Banks

Reporting forms for direct reporters (with have accounts with nonresident banks) in a close ITRS (ex.: BPCG, Appendix II, model form 5): could be similar with the form for banks for

reporting their clients’ transactions should include opening and closing positions and

flows during the period

Transactions should be classified using the same codes as in banks’ reports (for consistency)

Reporting Forms for Direct Reporters

Reporting form should: be well designed provide sufficient information to ensure correct coding provide sufficient information for verification and

validation (e.g., explicit description of transaction purpose, insertion of position data, etc.)

include reference information and instructions for completing

Requirements to the Reporting Form

The information must be submitted to the Central Bank using an approved classification scheme (to facilitate the processing and to increase its usefulness)

The main classification categories: payment purpose currency nonresident party's country

Balance of payments transactions are coded for statistical recording: at the time of transaction (complete information is readily available

at that time) by beneficiaries or remitters in a way that enables statisticians to compile all standard

components of the BOP statement; nevertheless the codes description could be modified for aligning it with the terms used by reporters

Classification of Transactions

Codes should cover: standard components of balance of

payments (i.e., current, capital, and financial transactions between residents and nonresidents)

specific codes (more details) when required by specific needs of users (ex., additional breakdown by type of commodity)

codes for ‘neutral’ transactions codes for settlement transactions

Transaction Code

Settlement transactions might be reported but they are not included in the BOP if:

misclassified they could weaken the quality

of balance of payments statistics

identified by codes they can be easily

checked to avoid reporting errors

Transaction Code

A too short list of transaction codes: does not permit compilation of all standard BOP

components data could be misclassified

A too long list of transaction codes:impairs reporters’ understanding may increase the number of errors results in more work for compilers worsen the quality of balance of payments

statement

Transaction Code

To achieve better results, the information on the transaction purpose should be: part of the payment order available also for amounts bellow the threshold

The difficulty of obtaining such data depends on existing legislation

Clients may not be willing to disclose the necessary information to the reporting bank

Bank might not be familiar with the purpose of receipts from abroad for clients ― data must be obtained from beneficiaries

Transaction Purpose

A reporting threshold may be introduced in both closed or open ITRS to reduce the reporting burden and processing costs

It could be set as follows: small-value transactions may be reported individually, but

without transaction codes small-value transactions may be reported in aggregate

without transaction codes some additional details on small transactions may be

reported, such as a breakdown by sector of resident small-value transactions are not reported at all

It is important that judgment be applied in adopting thresholds so that overall data quality remains acceptable

Reporting Threshold

For classification purposes, it may be necessary to have information on types of transactions that fall below the threshold

This information may be gathered from: periodic sample survey that could be small, ad-hoc

surveys curried out via special arrangements with one or more commercial banks

an analysis of small transactions, which could be undertaken before thresholds were raised

Transactions Below the Reporting Threshold

Reconciliation of stocks and flows

The results should be balanced by bank and by currency

Offsetting settlement entries

High value transactions should be double checked with payment documents

Validation procedure:

reported positions with balance sheets of the banks,

withdrawals of loans and repayments of debt with debt statistics,

income on debt with information from debt statistics,

income on equity with information from DI surveys, transfers to/from companies accounts abroad with

reports on accounts abroad, netting payments with reports on intercompany

accounts or clearing accounts.

Checks with other data sources:

data are available with short time lag, capability to deliver information to compilers in a very timely and frequent manner

it is a cost-effective source of data

provide quality data, Well structured ITRS in an exchange control regime tend to be accurate

very adequate for compilation of transactions of small amounts, such as income, services, and personal transfers.

all cash settlements are reported for statistics,

compilers can intervene in case of new type of transactions,

Advantages of an ITRS:

Omissions Misclassification Loss of information due to reporting thresholds Settlements of net amounts Lack of bilateral data Purpose of incoming transactions usually

unknown and can be confidently classified

ITRS: Disadvantages as a Data Source

THANK YOU!

QUESTIONS!