APRA Consults on Definition of Significant Financial Institution
The Australian Prudential Regulation Authority (APRA) released a new set of frequently asked questions (FAQs) on APS 222, the prudential standard on associations with related entities. APRA also proposed minor amendments to centralize the definition of significant financial institution within the prudential framework, with the comment period open until May 02, 2022.
Under the proposed approach, all prudential standards would use the same definition of a significant financial institution. Centralizing this definition would not result in any changes to the quantitative criteria (asset thresholds) that have been used to determine the significant financial institutions in existing prudential standards, but it would lead to some small changes to the qualitative criteria. A significant financial institution means an APRA-regulated entity that is either
- not a foreign authorized deposit-taking institution, a Category C insurer or an EFLIC and has total assets in excess of AUD 20 billion in the case of an authorized deposit-taking institution; AUD 10 billion in the case of a general insurer or life company; AUD 3 billion in the case of a private health insurer; or AUD 30 billion in the case of a single register superannuation entity (RSE) operated by an RSE licensee, or if the RSE licensee operates more than one RSE where the combined total assets of all RSEs exceeds this amount; or
- determined as such by APRA, having regard to matters such as the complexity in its operations or its membership of a group.
This aligned definition would be located in the central definitions prudential standards for banking and insurance, as set out in Attachment A to the consultation letter. Prudential standards that differentiate requirements for significant and non-significant financial institutions would then be edited to reference this common definition. Amendments would be made to the Prudential Standards CPS 511 Remuneration, APS 110 Capital Adequacy, APS 112 Capital Adequacy: Standardized Approach to Credit Risk, and APS 115 Capital Adequacy: Standardized Measurement Approach to Operational Risk. APRA does not expect the proposed changes to qualitative criteria to materially alter the intended application of the significant financial institution regime. The main impact relates to foreign-owned authorized deposit-taking institutions. Following the finalization of the proposed amendments, APRA plans to make public the list of significant financial institutions for all industries.
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Keywords: Asia Pacific, Australia, Banking, APS 222, Reporting, APS 221, ARF 222, Significant Financial Institutions, Regulatory Capital, Basel, Proportionality, Related Party Transactions, APS 110, APS 112, APS 115, Securitization Framework, APRA
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