APRA on Interim Capital Treatment of Equity Investment in Subsidiaries
APRA issued a letter to all authorized deposit-taking institutions to advise of an interim change to the capital treatment of new or additional equity investments in banking and insurance subsidiaries. The planned finalization and implementation of the prudential standard APS 111 on "Capital Adequacy: Measurement of Capital" are now likely to be in 2021 and 2022, respectively; however, it is important that any new or additional equity investments made before then are undertaken with the proposed policy in mind. In the interim period, authorized deposit-taking institutions will be expected to notify APRA ahead of any new or additional equity investments in banking and insurance subsidiaries, which would result in the aggregate value of any investment exceeding 10% of the Common Equity Tier (CET)1 capital of an authorized deposit-taking institution.
In October 2019, APRA had launched a consultation outlining planned revisions to the prudential standard APS 111. The most significant proposal in this set of revisions was an adjustment to the capital treatment of authorized deposit-taking institutions’ equity investments in banking and insurance subsidiaries. In the interim period, there will be no change to the capital treatment of any existing equity investments in the banking and insurance subsidiaries, with these exposures continued to be risk-weighted at 300% if listed or 400% if unlisted. However, until the new APS 111 is finalized and implemented, APRA will require any new or additional equity investments in banking and insurance subsidiaries, where the amount of that new or additional investments takes the aggregate value of the investment above 10% of an authorized deposit-taking institutions CET1 capital, to be fully funded by equity capital at the authorized deposit-taking institution parent company level.
This interim measure reflects the direction of the proposed APS 111, but does not impact existing investments. It also does not restrict or prohibit authorized deposit-taking institutions from making new investments or increasing their existing investments in banking and insurance subsidiaries in the period ahead. However, it will ensure that any new or additional equity investments, particularly where the aggregate value of the investment is large relative to the authorized deposit-taking institutions' CET1 capital, are backed by appropriate capital to reduce the risk to Australian depositors.
Related Links
Keywords: Asia Pacific, Australia, Banking, Insurance, APS 111, Capital Adequacy, Equity Investment, Basel, Regulatory Capital, APRA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
BoE Seeks Information Before Migrating Statistical Reporting to BEEDS
The Bank of England (BoE) published the Statistical Notice 2021/09 requiring additional information from firms and software vendors to assist in the onboarding and testing phases for migrating statistical reporting to the BEEDS portal.
CFRF Publishes Guides to Manage Financial Risks from Climate Change
The working groups of the Climate Financial Risk Forum (CFRF) published a second round of guides (or Session 2 guides), written by the industry for the industry, to help financial firms manage climate-related financial risks.
EBA Updates Filing Rules for Supervisory Reporting
The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.
ECB Amends Guideline on Procedures for Collection of AnaCredit Data
The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.
ECB Amends Guideline on Procedures for Collection of AnaCredit Data
The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.
EBA Publishes Standards on Disclosure of Investment Policy Under IFR
The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).
EC Sets Out Work Program for 2022
The European Commission (EC) adopted the work program for 2022.
APRA Finalizes Guidance for New Prudential Standard on Remuneration
The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration.
ESAs Report on Supervisory Independence of Competent Authorities
The European Supervisory Authorities (ESAs) published individual reports on the supervisory independence of competent authorities in their respective sectors.
FED Updates FR Y-9C Form and Instructions, Proposes to Extend FR 2510
The Board of Governors of the Federal Reserve System (FED) updated reporting form and instructions, along with the associated supplemental instructions, for the information collection on consolidated financial statements for holding companies (FR Y-9C).
