APRA is introducing minor changes to the large exposures framework for authorized deposit-taking institutions. Along with the amendments to prudential (APS 221) and reporting (ARS 221.0) standards on large exposures, APRA is releasing a second set of frequently asked questions (FAQ) to help institutions implement this framework. The large exposures framework sets out prudential and reporting requirements for authorized deposit-taking institutions with respect to their large exposures and risk concentrations. The revised standards will apply from January 01, 2020, with most aspects having come into effect on January 01, 2019.
The key changes to the large exposures framework include extending the exemption for connecting counterparties involving government-related entities to economic interdependence relationships as well as control relationships, removing references to transition arrangements allowed until December 31, 2019, and updating references and website links. These revisions to APS 221 and ARS 221.0 will ensure the standards are up-to-date when they are fully in force. The second set of FAQ, which have been released with these revised versions, cover requirements for collateral exposures, the treatment of government and government-related exposures, connected counterparties, and reporting of large exposures.
ARS 221.0 sets out the requirements for the provision of information on large exposures of an authorized deposit-taking institution. It includes the Reporting Form ARF 221.0 Large Exposures and Reporting Form ARF 221.1 Large Exposures (for foreign foreign deposit-taking institutions) and associated specific instructions. ARS 221.0 must be read in conjunction with the prudential standard APS 221. APS 221 requires authorized deposit-taking institutions to implement prudent measures and to set prudent limits to monitor and control their large exposures and risk concentrations. The key requirements of APS 221 are that an authorized deposit-taking institution must:
- Have a Board-approved policy that governs its large exposures and risk concentrations
- Have adequate systems and controls to identify, measure, monitor and report large exposures and risk concentrations
- Identify connected counterparties
- Ensure its large exposures meet the large exposure limits
- Measure exposure values for large exposure purposes using specified treatments
Effective Date: January 01, 2020
Keywords: Asia Pacific, Australia, Banking, Large Exposures, APS 221, ARS 221, FAQ, Concentration Risk, Credit Risk, Basel III, Reporting, APRA
Previous ArticleEU Reaches Political Agreement on Sustainable Investment Taxonomy
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
The European Securities and Markets Authority (ESMA) has responded to the IFRS consultation on targeted amendments to the IFRS Foundation constitution to accommodate an International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards.