Featured Product

    APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness

    December 02, 2021

    The Australian Prudential Regulation Authority (APRA) issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900). The discussion paper sets out rationale for the proposed standards, which are intended to strengthen crisis preparedness across banks, insurers, and superannuation trustees. The consultation period on these prudential standards ends on April 29, 2022, with APRA proposing for the new prudential standards to come into force from January 01, 2024. APRA also plans to consult on supporting guidance material for these standards in 2022.

    The following are the key highlights of the proposals:

    • CPS 190 on financial contingency planning. This proposed standard introduces requirements for the regulated entities to develop contingency plans to respond to financial stress by either recovering their financial resilience or exiting regulated activities in an orderly manner. The key elements of the proposed standard include developing a financial contingency plan, maintaining capabilities to execute the financial contingency plan, and regularly reviewing the contingency plans. Under the proposed CPS 190, larger or more complex entities would be subject to heightened requirements, whereas smaller, less complex entities will have fewer and simpler requirements. Smaller or less complex entities will likely focus their efforts on a smaller range of credible contingency options, which reduces the planning required to achieve a prudent level of crisis preparedness.
    • CPS 900 on resolution planning. This proposed standard requires large or complex entities, or those that provide critical functions to the economy, to be prepared for resolution to minimize the impact on the community and the financial system. The proposed standard has been designed to embed the APRA approach to loss-absorbing capacity within the prudential framework for resolution planning and is thus being published along with the letter conveying the loss-absorbing capacity requirements. The key elements of the proposed CPS 900 include assessing feasibility of resolution options, implementing pre-positioning steps necessary for the execution of the resolution plan, and maintaining capabilities to support the plan. The proposed CPS 900 will only apply to the significant financial institutions or entities that are involved in the critical functions to the economy. As part of the proposal, APRA may impose obligations on these entities to support resolution planning, including requirements to maintain additional loss-absorbing capacity. APRA would determine such obligations as part of its resolution planning for individual entities.

    In its letter on the finalized loss-absorbing capacity requirement for D-SIBs, APRA informs the D-SIBs that this requirement will be set as an increase to minimum total capital requirements of 4.5 percentage points of risk-weighted assets on a Basel III basis. The requirements are for the four major banks that have been designated as D-SIBS and will come into effect from January 01, 2026. APRA also specified the minimum total capital requirement that will apply to a D-SIB from 2026: the minimum total capital requirement, including regulatory buffers, will be 18.25%, inclusive of the additional loss-absorbing capacity and other changes from the broader capital reforms for authorized deposit-taking institutions. APRA does not expect the increase in capital requirement that is applicable from 2026 to have a material impact on market capacity for Tier 2 capital instruments. D-SIBs have already met the bulk of the required increase, given their progress in meeting the interim requirement. The interim setting was an increase in the minimum total capital requirement for the D-SIBs of three percentage points of risk-weighted assets, to be met by January 2024. D-SIBs have already met this level and issued more than AUD 50 billion of Tier 2 capital in recent years. APRA anticipates that D-SIBs may issue a further AUD 20 billion of Tier 2 capital, in aggregate, to meet their final requirement.

     

    Related Links

    Comment Due Date: April 29, 2022 (Proposed Standards)

    Effective Date: January 01, 2024 (Proposed Date for Standards)

    Keywords: Asia Pacific, Australia, Banking, Contingency Planning, Resolution Planning, CPS 190, CPS 900, Resolution Framework, D-SIB, Loss Absorbing Capacity, Regulatory Capital, Basel, Tier 2 Capital, TLAC, Crisis Management Framework, APRA

    Featured Experts
    Related Articles
    News

    EC Regulation Sets Out Methods for Measuring K-Factors Under IFR

    The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.

    January 11, 2022 WebPage Regulatory News
    News

    BIS Studies How Platform Models Impact Financial Stability & Inclusion

    The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.

    January 10, 2022 WebPage Regulatory News
    News

    ESAs Publish List of Financial Conglomerates for 2021

    The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.

    January 07, 2022 WebPage Regulatory News
    News

    APRA Licenses Two More Banks, Reduces Committed Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) granted license to Barclays Bank PLC and Crédit Agricole Corporate and Investment Bank to operate as foreign authorized deposit-taking institutions under the Banking Act 1959.

    January 06, 2022 WebPage Regulatory News
    News

    EU Issues SII Corrigendum; EIOPA Assesses SII Reporting Exemptions

    EU published, in the Official Journal of the European Union, a corrigendum to the Delegated Regulation 2015/35, which supplements Solvency II Directive (2009/138/EC).

    January 06, 2022 WebPage Regulatory News
    News

    EBA Opines on Impact of De-Risking and Associated AML/CFT Challenges

    The European Banking Authority (EBA) published an Opinion on the scale and impact of de-risking in European Union and the steps that competent authorities should take to tackle unwarranted de-risking.

    January 05, 2022 WebPage Regulatory News
    News

    French Financial Markets Authority Sets Out Priorities for 2022

    The French Financial Markets Authority (AMF) published its 2022 work priorities, along with the supervisory priorities for 2022.

    January 05, 2022 WebPage Regulatory News
    News

    US Agencies Issue Statement on Community Bank Leverage Ratio Framework

    The U.S. Department of the Treasury issued a determination on a request for an exemption, by RBC US Group Holdings LLC, from certain requirements of the rule implementing the qualified financial contracts (QFC) recordkeeping requirements under the Dodd-Frank Act.

    January 04, 2022 WebPage Regulatory News
    News

    FCA Informs About Changes to LIBOR Settings From End-2021

    The Financial Conduct Authority (FCA) announced that publication of 24 LIBOR settings has ended and that, going forward, the 6 most widely used sterling and Japanese yen settings will be published using a changed methodology.

    January 04, 2022 WebPage Regulatory News
    News

    PBC Sets Out Fintech Development Plan for 2022 to 2025

    The People’s Bank of China (PBC) formulated the recently issued Fintech Development Plan (2022 to 2025) under the Outline of the 14th Five-Year Plan (2021-2025) for National Economic and Social Development and the Long-Range Objectives through the Year 2035.

    January 04, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 7854