In the previous post of the series titled, “Public Credit Registries: An International Comparison”, we discussed the evolution of a Public Credit Registry (PCR) across five jurisdictions and observed that they share three common features. In all five jurisdictions (Germany, Brazil, Philippines, European Union, and Ireland), PCRs were introduced through a legislative instrument. The more recent PCRs had a long gestation period between receiving legislative mandate and operationalisation. And finally, that in all the studied jurisdictions, PCRs coexist with private credit bureaus (PCBs). In this post, we investigate the mandates of the PCR as set out by the respective regulations and legislative instruments, associated reporting standards, and the operational features, including revenue models, if any.
Mandates of PCRs
PCRs are required to collect information on a regular basis to ensure reporting institutions’ updating of borrower information. The reporting threshold is set based on the objectives of the PCR, by the Central Bank. Thus, the reporting standards are shaped by the mandates of the PCR. For a supranational entity like the European Union, the PCR (AnaCredit) set up by the European Central Bank (ECB) must focus on removing jurisdiction-specific informational hurdles. To exemplify, a Spanish bank can only access a borrowers’ credit history in Spain (from the Spanish credit bureaus) but given the free movement of people and corporates in the eurozone, such information is unlikely to be exhaustive. Thus, the primary objective of Anacredit is to facilitate sharing of information for the entirety of the eurozone.
In contrast, Germany’s PCR, called the Central Credit Register (CCR), is intended more as a supervisory tool to allow the German Central Bank to monitor the credit markets[1]. Thus, in Germany, details of loans having a value of EUR 1 million or more are to be submitted[2]. In the case of the other studied jurisdictions (Ireland, Brazil, and Philippines), the objective of the PCR is to collect comprehensive loan information for all borrowers in the economy, and thus, they seldom exclude natural persons or other entities from coverage, and generally have no, or a very low threshold for loan amounts beyond which reporting must be done to the PCR.
Reporting Standards
In the initial stage, AnaCredit requires data to be furnished for loans from credit institutions to legal entities[3] (when the total exposure of the debtor (across a given observed agent[4]) at any point during the reporting reference period is equal to or greater than €25,000[5]). AnaCredit currently will not cover loans to private households, and reporting entities are explicitly barred from reporting details of natural persons even if they are jointly liable/ have claim over counter-party instrument[6]/ are jointly liable[7]/ share counter-party risk[8]/ is a party in the default[9] for a debt held by a corporate. This is, however, expected to be included in the AnaCredit database at a later stage[10]. AnaCredit recognises three types of reporting: (a) monthly; (b) quarterly; (c) on change (i.e., when a change takes place).
The Philippines, unlike its counterparts, has not enforced a threshold for reporting credit data. This means that the credit data of all borrowers would be stored in the database, irrespective of the size of the credit facility they have borrowed. The High Level Task Force appointed by the RBI in furtherance of setting up a PCR in India, in its report recommended a similar provision, to better understand and control the flow of credit in the economy. Reporting institutions[11] in the Philippines are to submit basic credit data and updates on a regular basis (not less than 15 working days but not more than 30 working days[12]) to the PCR.
The current reporting threshold in Germany is loans of EUR 1 million or more,[13] to be submitted every quarter. In Ireland, on the other hand, the PCR, called the CCR, requires credit reporting institutions to furnish information on consumer loans (credit cards, mortgages, overdrafts and personal loans) above EUR 500, monthly. It can also retain anonymised information for an indefinite period and sets the reporting requirements in terms of foreign credit. The Irish CCR also has the power to amend information in the register. This differs from that of other jurisdictions since no other PCR can edit the information by itself and it requires the reporting institutions to make edit requests to the PCR. Interestingly, the Irish CCR also allows credit information subjects (borrowers) to add a 200-word statement (in the CCR) to explain why they entered into a loan contract or were in default.[14],[15]
The minimum threshold of debt that must be reported in Brazil is BRL 200 (approximately EUR 30). The entities which must report to the Brazilian PCR (called the SCR) include all financial institutions in Brazil (commercial banks, development banks, public banks, credit unions) and some non-financial institutions like investment funds and, securities organizations[16]. The reporting must be done monthly. Table-1 presents the comparison between all the studied PCRs.
Operational Features
As discussed in Table-1, there are several operational differences between the various PCRs. Most PCRs allow borrowers to view their records, with the sole exception of AnaCredit. However, since the details of each loan captured in AnaCredit are also captured by the private credit bureau (PCB) or PCR in their national jurisdiction, this omission is not a concern. The Irish CCR represents the other end of the spectrum, as it not only allows a borrower to view her record, but also allows the borrower to submit a 200-word writeup explaining her credit decisions.
All the studied PCRs are accessible by regulators. Unlike private credit bureaus, whose data is often not accessible or accessed by the regulator, PCRs provide a unique opportunity to the regulators to monitor the credit markets. This is especially true in the case of India, where the Reserve Bank of India is not classified as a designated user of the data with credit bureaus, and thus is unable to access the data to monitor credit markets.
In conclusion, establishing a PCR in India would go a long way in reconciling the information asymmetry prevalent in the existing reporting system. It would also allow credit institutions to make decisions based on a clear understanding of a potential borrower’s credit history and would combat the problems of adverse selection and moral hazard. Migration of legacy data stored in the PCBs would allow the PCR to function more holistically and provide complete reports from its inception. The scope of the PCR should extend beyond just RBI regulated entities and instruments and include all formal sources of debt that a borrower may hold. Another important consideration is data access, privacy, and regulated use of data by institutions that access the data so that confidentiality of borrowers is guarded and maintained, and allied legislations need to be effected for this purpose. Access control should be ensured on a functional level using consent or event triggers so that a record can be maintained of what data was accessed and by whom.
The final blueprint for the Indian PCR is yet to be made public. Once the RBI or the Government of India releases the legislative instrument(s) which will form the bedrock of the PCR, we shall compare those proposed features with the studied jurisdictions, in a tentative third post.
[1] Christian Schmeider, The Deutsche Bundesbank’s Large Credit Database (BAKIS-M and MiMiK), 126 Schmollers Jahrbuch: Journal of Contextual Economics, Pg 654, 2006, accessible at https://www.ratswd.de/download/schmollers/2006_126/Schmollers_2006_4_S653.pdf
[2] The Statute accessed sets the minimum reporting threshold at 1.5 million euro, however given the lack of availability of an updated statute, public sources claiming a revision to 1 million euro was used to capture the present threshold. These sources include Monitoring lending business, particularly large exposures and loans of 1 million or more, Deutsche Bundesbank, available at https://www.bundesbank.de/en/tasks/banking-supervision/individual-aspects/lending-business/monitoring-lending-business-particularly-large-exposures-and-loans-of-1-0-million-or-more-622868 and Michael Ritter, Session 2: Utilization of credit reporting data for the financial and banking sector and banking supervision, Deutsche Bundesbank and World Bank- International Finance Corporation and BCEAO, June 2017, accessible at https://www.ifc.org/wps/wcm/connect/293d1635-0439-4007-af5a-efdd852f6bba/session_2_michael_ritter_bundesbank_heure_10h00.pdf?MOD=AJPERES&CVID=lNSU94r
[3] Defined in the Regulation as any entity which, under the national law to which it is subject, can acquire legal rights and obligations
[4] Observed agent is defined as an institutional unit whose activity as creditor or servicer is reported by the reporting agent under A1(9) of the Regulation
[5] Article 5 of Regulation (EU) 2016/867 of the ECB; accessible at https://www.ecb.europa.eu/stats/money_credit_banking/anacredit/html/index.en.html
[6] Article 4.3 of Template 1 in Annex 1 of Regulation (EU) 2016/867 of The European Central Bank in relation to counter party instrument data reads “In the case of natural persons being affiliated with instruments reported to AnaCredit, no record for the natural persons must be reported.” accessible at https://www.ecb.europa.eu/stats/money_credit_banking/anacredit/html/index.en.html
[7] Article 5.3 of Template 1 in Annex 1 of Regulation (EU) 2016/867 of The European Central Bank rregarding eads “In the case of natural persons being affiliated with instruments reported to AnaCredit, no record for the natural persons must be reported”, accessible at https://www.ecb.europa.eu/stats/money_credit_banking/anacredit/html/index.en.html
[8] Article 9.4 of Regulation (EU) 2016/867 of The European Central Bank reads “In the case of natural persons being affiliated with instruments reported to AnaCredit, no record for the natural persons must be reported.” regarding counter party risk data, accessible at https://www.ecb.europa.eu/stats/money_credit_banking/anacredit/html/index.en.html
[9] Article 10.4 of Regulation (EU) 2016/867 of The European Central Bank regarding counterparty default data reads “In the case of natural persons being affiliated with instruments reported to AnaCredit, no record for the natural persons must be reported.”, accessible at https://www.ecb.europa.eu/stats/money_credit_banking/anacredit/html/index.en.html
[10] Jean-Marc Israël, Violetta Damia, Riccardo Bonci and Gibran Watfe, The Analytical Credit Dataset- A magnifying glass for analysing credit in the euro area, 187 Occasional Paper Series-ECB, April 2019, accessible at https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op187.en.pdf
[11] banks, quasi-banks, their subsidiaries and affiliates, life insurance companies, credit card companies and other entities that provide credit facilities
[12] Section 4(c) of the Credit Information System Act
[13] The Statute accessed sets the minimum reporting threshold at 1.5 million euro, however given the lack of availability of an updated statute, public sources claiming a revision to 1 million euro was used to capture the present threshold. These sources include Monitoring lending business, particularly large exposures and loans of 1 million or more, Deutsche Bundesbank, accessible at https://www.bundesbank.de/en/tasks/banking-supervision/individual-aspects/lending-business/monitoring-lending-business-particularly-large-exposures-and-loans-of-1-0-million-or-more-622868 and Michael Ritter, Session 2: Utilization of credit reporting data for the financial and banking sector and banking supervision, Deutsche Bundesbank and World Bank- International Finance Corporation and BCEAO, June 2017, accessible at https://www.ifc.org/wps/wcm/connect/293d1635-0439-4007-af5a-efdd852f6bba/session_2_michael_ritter_bundesbank_heure_10h00.pdf?MOD=AJPERES&CVID=lNSU94r
[14] Section 13(1) of the Credit Reporting Act, 2013
[15] Section 13(2) of the Credit Reporting Act, 2013
[16] Webpage titled Scredit Information System (SCR) hosted by Banco Central Do Brasil; accessible at: https://www.bcb.gov.br/en/financialstability/creditinformationsystem
Cite this Item:
APA
Fernandez, M., & Bhattacharya, D. (2021). Features of Public Credit Registries: An International Comparison. Retrieved from Dvara Research.
MLA
Fernandez, Maria and Dwijaraj Bhattacharya. “Features of Public Credit Registries: An International Comparison.” 2021. Dvara Research.
Chicago
Fernandez, Maria, and Dwijaraj Bhattacharya. 2021. “Features of Public Credit Registries: An International Comparison.” Dvara Research.
