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    APRA Sets Out Roadmap for Implementation of Capital Framework Reforms

    June 02, 2021

    In a letter to the authorized deposit-taking institutions, APRA has set out roadmap for the implementation of the reformed capital framework. To provide a clear roadmap for consultation and industry engagement, APRA has set out an indicative timeline that covers key policy releases, reporting requirements, industry workshops, and the process for capital model approvals. This letter follows the December 2020 consultation on capital framework of authorized deposit-taking institutions. APRA is committed to meeting the January 01, 2023 implementation date, a date by when APRA expects authorized deposit-taking institutions to be fully compliant with the revised capital framework, including the determination and reporting of capital adequacy.

    The relevant prudential standards are APS 110 on capital adequacy, APS 112 on standardized approach to credit risk, APS 113 on internal ratings-based approach to credit risk, and APS 117 on interest rate risk in the banking book (IRRBB). APRA expects to release final prudential standards and draft Prudential Practice Guides and to notify authorized institutions on their eligibility for the simplified framework by November 2021 while the final Prudential Practice Guides are expected to be released by the second quarter of 2021. During 2021, APRA also intends to conduct a targeted data study to assess potential changes to the calibration of the prudential standards and to initiate regular workshops with industry as the standards and guidance are finalized, to provide a forum for updates and questions.

    During 2022, APRA intends to finalize the Prudential Practice Guides and reporting requirements. Revised reporting requirements will be phased in, to allow the industry time to adjust systems and ensure reliable data is provided. The reporting suite covered under these reforms will leverage the new requirements developed for ARS 220 Credit Risk Management. A number of related policy revisions will also be progressed next year, including the fundamental review of the trading book and public disclosure requirements. APRA intends to conduct a parallel run of capital reporting on the new framework in late 2022. The release of final reporting standards is expected in the second quarter of 2024 and the reporting requirements are expected to become effective in the second quarter of 2024 also. APRA also set out the timelines for approval of internal models. Authorized deposit-taking institutions using the internal ratings-based approach to credit risk will also need to seek APRA approval for relevant models, as part of the implementation of the reforms.

     

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    Keywords: Asia Pacific, Australia, Banking, Authorized Deposit Taking Institutions, APS 110,  APS 112, APS 113, APS 117, IRRBB, Regulatory Capital, Credit Risk, Internal Models, Reporting, Market Risk, Capital Framework, APRA

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