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January 31, 2018

APRA released an information paper that outlines its policy priorities for 2018 in the areas of banking, insurance, and cross-industry initiatives. The paper mainly describes priorities of APRA for 2018 with respect to the prudential policy framework.

In the banking sector, APRA expects to

  • Consult on conceptual framework for Basel III capital and other changes, in the first half of 2018, in line with the final components of the BCBS-published revisions to the risk-based capital framework; this includes subsequent individual consultations on specific prudential standards over the course of 2018 and 2019.
  • Finalize counterparty credit risk framework and consult on leverage ratio requirements for authorized deposit-taking institutions in the first half of 2018
  • Consult on credit risk management (APS 220) in the second half of 2018
  • Consult and finalize by 2019 the standardized approach to credit risk capital (APS 112), advanced approach to credit risk capital (APS 113), measurement of capital (APS 111), and related part exposures (APS 222)
  • Introduce a minimum leverage ratio requirement for authorized deposit-taking institutions, consistent with the Basel III framework. APRA will commence consultation in early 2018, with a view to finalizing the prudential standard Prudential Standard APS 110 Capital Adequacy in late 2018 or early 2019. 

In the insurance sector, APRA intends to update aspects of the reinsurance framework for life insurers, including approval requirements for certain types of reinsurance arrangements under Prudential Standard LPS 230 on Reinsurance and the treatment of exposures to offshore reinsurers under Prudential Standards LPS 114 on Capital Adequacy in relation to Asset Risk Charge and Prudential Standard and LPS 117 on Capital Adequacy in relation to Asset Concentration Risk Charge.  APRA will also consider whether any policy changes are needed to address the upcoming implementation of the Australian Accounting Standards Board’s AASB 17 Insurance Contracts. Over the medium term, APRA expects that changes to the prudential framework for insurance may be needed to address issues with the provision of life insurance in superannuation as well as potential innovative post-retirement products. APRA does not anticipate consulting on these issues in 2018, unless Australian Government priorities necessitate.

 

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Keywords: Asia Pacific, Australia, Banking, Insurance, Basel III Finalization, Policy Priorities 2018, Capital Adequacy, APRA

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