APRA published a strengthened prudential standard APS 222 on associations with related entities, with the aim to mitigate contagion risk within banking groups. The revised version of the reporting standard on exposures to related entities (ARS 222.0) and the new reporting standard on exposures to related entities for step-in risk (ARS 222.2) were also published. APRA had launched a consultation for the revision of APS 222 and ARS 222 in July 2018 and has now published its response to the submissions received on this consultation. The revised APS 222 will come into effect from January 01, 2021.
The objective of APS 222 is that authorized deposit-taking institutions identify, monitor, and control contagion risks arising from their associations and dealings with related entities and those creating step-in risk. APS 222 applies to all authorized deposit-taking institutions, on a level 1 basis, except purchased payment facility providers. APRA had received submissions from 10 stakeholders to the July 2018 consultation. Most responses supported updating the requirements while some raised concerns about the complexity of implementing certain proposed changes. APRA has made a number of adjustments to the proposals to address many of these concerns and has maintained other aspects of the original proposals where it has concluded these are warranted based on prudential considerations. The changes in APS 222 aim to update and streamline requirements to account for lessons learned from the global financial crisis on mitigating the flow of contagion risk to an authorized deposit-taking institution, particularly from related entities. The changes also aim to ensure general alignment with the revised authorized deposit-taking institution large exposures framework, which came into effect on January 01, 2019. APS 222 will be updated to include:
- Broader definition of related entities that includes board directors and substantial shareholders
- Revised limits on the extent to which authorized deposit-taking institutions can be exposed to related entities
- Minimum requirements for authorized deposit-taking institutions to assess contagion risk
- Removing the eligibility of authorized deposit-taking institutions' overseas subsidiaries to be regulated under APRA’s Extended Licensed Entity framework
The accompanying reporting standard ARS 222 sets out requirements for the provision of information to APRA related to an authorized deposit-taking institution’s exposures to related entities. It includes reporting forms ARF 222.0 (Exposures to related entities) and ARF 222.1 (Exposures to related entities – foreign ADI), along with the associated specific instructions. ARS 222.2 sets out requirements for the provision of information to APRA related to an authorized deposit-taking institution’s exposures to step-in risk entities. APRA will require authorized deposit-taking institutions to regularly assess and report on their exposure to step-in risk, which is the likelihood that they may need to “step in” to support an entity to which they are not directly related. ARS 222 and ARS 222.0 apply to reporting periods ending on or after January 01, 2021.
- Press Release
- APS 222 (PDF)
- ARS 222.0 (PDF)
- ARS 222.2 (PDF)
- Responses to Submissions (PDF)
- Consultation on APS 222
Effective Date: January 01, 2021
Keywords: Asia Pacific, Australia, Banking, Related Parties Framework, APS 222, ARS 222, Reporting, ARF 222, Contagion Risk, APRA
Previous ArticleSBV Amends Circulars Related to Operation of Credit Institutions
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED released hypothetical scenarios for a second round of stress tests for banks.
PRA published updates in relation to the 2021 Supervisory Benchmarking Portfolio exercise.
FED adopted a proposal to extend for three years, with revision, the capital assessments and stress testing reports (FR Y-14A/Q/M; OMB No. 7100-0341).
HKMA revised the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions.
EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.
EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).
NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.