APRA releases amendments to capital framework for ADIs

In November 2021, APRA released final prudential standards and guidance that accompany the ADI capital reforms, together with final prudential practice guides in July 2022. In the July 2022 release, APRA consulted on two proposals put forward for consequential amendments to be made to the capital frameworks. The proposals were encouraged to ensure consistency with APRA’s broader prudential framework and capital reforms. The subjects of these proposals were the treatment of exposures to New Zealand and the net stable funding ratio (NSFR) requirement.

As part of this consultation process, APRA received three industry submissions. Following consideration, APRA determined that the proposed amendments remain appropriate and do not require further adjustment, in light of the information contained within those submissions.

As previously foreshadowed by APRA, there were also various minor consequential amendments implemented. These new amendments have been made in relation to cross-referencing in the ADI prudential framework, rather than making modifications to the ‘unquestionably strong’ levels of capital that are compliant with the Basel III requirements.

Below is a list of the 11 prudential standards and two practice guides that have been amended by APRA:

• Prudential Standard APS 110 – Capital Adequacy;
• Prudential Standard APS 111 – Capital Adequacy: Measurement of Capital;
• Prudential Standard APS 116 – Capital Adequacy: Market Risk;
• Prudential Standard APS 120 – Securitisation;
• Prudential Standard APS 121 – Covered Bonds;
• Prudential Standard APS 180 – Capital Adequacy: Counterparty Credit Risk;
• Prudential Standard APS 210 – Liquidity;
• Prudential Standard APS 220 – Credit Risk Management;
• Prudential Standard APS 221 – Large Exposures;
• Prudential Standard CPS 226 – Margining and Risk Mitigation for Non-Centrally Cleared Derivatives;
• Prudential Standard APS 310 – Audit and Related Matters;
• Prudential Practice Guide APG 112 – Capital Adequacy: Standardised Approach to Credit Risk; and
• Prudential Practice Guide APG 223 – Residential Mortgage Lending.

In addition to the above amendments, APRA has modified the applicable reporting standards to reflect the consequential amendments. Below is a list of the six updated reporting standards:

• Reporting Standard ARS 110 – Capital Adequacy;
• Reporting Standard ARS 113.0 – Capital Adequacy: Internal Ratings-based Approach to Credit Risk;
• Reporting Standard ARS 120.1 – Securitisation – Regulatory Capital;
• Reporting Standard ARS 120.2 – Securitisation – Supplementary Items;
• Reporting Standard ARS 180 – Counterparty Credit Risk; and
• Reporting Standard ARS 210.0 – Liquidity.

From 1 January 2023, APRA’s amendments will take effect. APRA requests industry feedback on the new proposed revisions by 1 March 2023.

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Authored by:

Matthew Bode, Partner
Munkh-Erdene Saruul, Paralegal