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    APRA to Modernize Prudential Architecture, Reduces Liquidity Facility

    September 12, 2022

    The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022. APRA expects institutions subject to the Liquidity Coverage Ratio (LCR) requirements to reduce their CLF reliance to zero by the end of 2022 and will provide a further update on the size of the aggregate CLF after the final scheduled reduction on January 01, 2023. In another development, APRA set out plans for a multi-year program to modernize the architecture of prudential standards and guidance for banks, insurers, and superannuation funds.

    The program has been detailed in a recent information paper that sets out what banks, insurers, and superannuation licensees can expect from the program over coming years, which includes an upcoming new guide for directors on bank boards. APRA seeks initial feedback on the challenges and opportunities outlined in this paper by November 30, 2022. The paper also outlines the intention of APRA to shortly begin industry engagement on key initiatives in the program through workshops and surveys, commencing with the main industry associations. The program commenced last year and within this program APRA plans to achieve its objectives through a series of initiatives focused on:

    • Better regulation. This includes ensuring prudential standards and guidance are easier to navigate, understand, and implement. The initiative also implies transforming how the framework can be accessed, by presenting standards, guidance, and advice in a way that is more intuitive to users. As an initial step, APRA has developed and will pilot a new Guide for authorized deposit-taking institution directors to support them in understanding their current obligations, which are spread across various standards and Prudential Practice Guides. APRA expects that, as the framework simplifies over time, this compendium of Board obligations will also evolve.
    • Digital first. This involves exploring how to make use of suptech and regtech to support better regulation— for example by developing machine-readable regulation to automate compliance. In modernizing the architecture, APRA intends to explore how digital tools can be used to make it quicker and easier to access and navigate the framework, for both readers and coders. This will involve investigating how to draft standards in a way that facilitates regtech solutions and supports entities’ governance, risk, and compliance systems. As a first step, APRA is planning improvements to its existing website and is developing an internal prototype digital handbook, with functionality to search, navigate, and analyze standards and guidance. 
    • New risks, new rules. This entails developing new approaches to tackle emerging risks and new business models on the regulatory perimeter.  APRA intends to develop a more integrated approach: considering how to enhance existing requirements where possible, as opposed to bolting on new standards. APRA also plans to adopt a disciplined approach to guidance and advice, providing clarity on expectations while maintaining cohesion in the framework.

    Following on from this information paper, in 2023, APRA intends to publish more detailed plans for changes to the framework that will be implemented over the period ahead.

     

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    Keywords: Asia Pacific, Australia, Banking, Committed Liquidity Facility, LCR, Liquidity Risk, Basel, Suptech, Regtech, Reporting, Machine Readable Regulations, APRA

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