International Transactions Reporting System

1. International Transactions Reporting System Malik Bani Hani • International Transactions reporting System Workshop • Amman – Jordan • April 7-9, 2014

2. Outlines What is an ITRS Simplified and model ITRS Main elements of an ITRS Advantages and weaknesses of ITRS as a data source

3. What is an ITRS ? The ITRSis 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) )

4. 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.

5. What ITRS Measures? • Individual cash transactions that pass through domestic banks and enterprise bank accounts abroad, • noncash transactions, • stock (balance sheet positions)

6. 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

7. ITRS by types • Aclosed ITRS accounts for all transactions and reconciles them with corresponding changes in stock positions (reported transactions are compared to changes in outstanding account balances) • Anopen 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)

8. ITRS Reporters 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.

9. 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.

10. 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.

11. Responsibility for Reporting 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

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

13. Reporting by Banks Within 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

14. Example of a “Simplified” 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

15. “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)

16. Reporting by Direct Reporters Within 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

18. Reporting Forms for Banks • 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

19. Reporting Forms for Direct Reporters 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)

20. Requirements to the Reporting Form • 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

21. Classification of Transactions 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

22. Transaction Code 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

23. 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

24. 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

25. Transaction Purpose 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

26. Reporting Threshold • 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

27. Transactions Below the 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

28. Validation procedure: • 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

29. Checks with other data sources: • 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.

30. Advantages of an ITRS: • 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,

31. ITRS: Disadvantages as a Data Source • 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

32. THANK YOU! QUESTIONS!