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    APRA Amends Reporting Schedule for ARS 115, Issues Priorities for 2022

    The Australian Prudential Regulation Authority (APRA) updated the reporting schedule for ARS 115.0, the reporting standard on capital adequacy; the amendments are with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia. The update extends the reporting frequency for submissions on ARS 115.0 from quarterly to annually. APRA also updated the reporting standard to clarify that that the first submission for each authorized deposit-taking institution should include data for the current and two preceding financial years. Additionally, APRA has set out the policy and supervisory priorities for financial sector for 2022 and released the 2021 Year in Review, which outlines the APRA view on the broader financial environment and how APRA delivered on the priorities and objectives set out in its Corporate Plan. The Year in Review report also presents metrics for APRA-regulated industries, including analysis of industry composition, profitability, and financial strength.

    With respect to the policy and supervisory priorities for 2022, the key focus areas in terms of banking sector policies include implementing the bank capital reforms that were largely finalized in 2021, to embed capital ratios and the Basel III reforms, as well as work related to macro-prudential policy, disclosure requirements, and liquidity review. The key supervisory priorities focus on cyber risk preparedness and responsiveness across all industries; upgrading of contingency and continuity frameworks, particularly in the banking sector; and focus on credit quality, capital stress testing, and liquidity sufficiency. APRA also plans to focus on the implications of banking-like service innovation for cryptocurrency, Banking as a Service (BaaS), and non-bank payment provider segments. APRA has set out the following the key policy priorities for the banking sector:

    • Over the course of 2022, APRA plans to finalize the prudential practice guides for capital adequacy, the standardized approach to credit risk, and the internal ratings-based approach to credit risk. APRA will also progress revisions to capital reporting requirements. In the second half of 2022, APRA intends to finalize Prudential Standard APS 117 on interest rate risk in the banking book and consult on revisions to the market risk capital standards to implement the fundamental review of the trading book of Basel Committee.
    • APRA expects to finalize its response to the current consultation on the proposed attachment to APS 220 on credit risk management in the first half of 2022. As set out in the macro-prudential policy framework, APRA continues to closely monitor the outlook for systemic risks, in consultation with the other agencies on the Council of Financial Regulators.
    • APRA intends to consult on draft APS 330 on public disclosure in the first half of 2022. APRA will also consult with industry on disclosure requirements for remuneration in the first half of 2022 and plans to finalize the requirements by the end of the year. Transition time will be provided before the requirements come into effect.
    • APRA plans to consult with industry as part of the post-implementation review of the core requirements of APS 210 on liquidity in early 2022. The aim of the review will be to understand the costs and benefits of liquidity coverage ratio and net stable funding ratio and evaluate the need to update and revise APS 210 in 2023.

    As part of the supervisory activities that APRA will undertake over the coming year to address cross-industry risks, APRA will be seeking to develop additional tools to evaluate climate-related financial risks and increasing its scrutiny of entities’ progress in addressing the impact of climate risk. APRA’s near-term activities will be to:

    • complete the Climate Vulnerability Assessment that is underway, with the aim of exploring the potential financial exposure and macroeconomic risks to large authorized deposit-taking institutions, the financial system, and economy from both physical and transition climate risks.
    • undertake a cross-industry, entity-level self-assessment survey among approximately 90 entities. The survey is expected to commence in the first half of 2022 and results will help APRA to understand the alignment between entities’ management of climate-related financial risks, the guidance set out in CPG 229 (the Prudential Practice Guide on climate change financial risks), and the recommendations of the Task Force on Climate-related Financial Disclosures.

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    Keywords: Asia Pacific, Australia, Banking, ARS 115, Reporting, Operational Risk, Regulatory Capital, Basel, Disclosures, Cyber Risk, Credit Risk, Interest Rate Risk, FRTB, Market Risk, Liquidity Risk, Work Priorities, ESG, Climate Change Risk, Headline, APRA

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