APRA Proposes Updates to Related Parties Framework for Banks

The prospective changes seek to update and, where possible, streamline long-standing requirements and ensure that APS 222 aligns with last year’s changes to the Prudential Standard APS 221 Large Exposures (for exposures to unrelated parties of an authorized deposit-taking institution) and the changed operating environment. Deficiencies in governance and internal controls in relation to related party dealings can lead to financial or reputational damage in one business affecting other parts of the business. The APRA proposals to modernize the framework include:

• Broadening the definition of related entities to include substantial shareholders, individual board directors, and other related individuals
• Explicitly addressing "step-in risk" by incorporating guidance from BCBS
• Tightening certain limits on exposure to related entities, in line with limits on exposures to unrelated entities in the revised APS 221 
• Removing the ability for certain overseas subsidiaries to be consolidated with the standalone authorized deposit-taking institutions for prudential purposes
• Updating the existing reporting requirements to align with the changes to the framework

Related Links

• Media Release
• Consultation Paper (PDF)
• Draft APS 222 (PDF)
• Draft ARS 222.0 (PDF)

Comment Due Date: September 28, 2018

Effective Date (expected): January 01, 2020

Keywords: Asia Pacific, Australia, Banking, Related Party Framework, APS 222, ARS 222, APRA