The Australian Prudential Regulation Authority (APRA) issued the final guidance on contingent liquidity for locally incorporated authorized deposit-taking institutions, the final prudential standard on recovery and exit planning, and a response paper to the consultation setting out a five-year roadmap for transforming the collection of financial industry data from the over-2000 entities it regulates.
The response paper on transformation of data collection includes more detailed roadmaps for data collections and accompanies the non-confidential submissions APRA received to its March 2022 consultation on the five-year roadmap. The APRA communication notes that the data collections roadmap is ambitious and will require significant investment from industry to achieve this transformation over the next five years. The proposed shift to more granular collections will enable APRA and all other stakeholders to benefit from deeper insights, while ultimately reducing the burden for industry. APRA intends to complete the transition to APRA Connect, its new data collection system, by 2027, which allow APRA to fully decommission the Direct to APRA (D2A) data collection tool. The paper also sets out the APRA response to issues raised during these consultations, including a commitment to:
- provide more detailed roadmaps for the intended design and implementation of new collections for each industry
- work with industry to develop a targeted framework that supports data quality outcomes for more granular collections
- continue working with all industries through strategic and technical working groups to support planning, design, and implementation of the future collection roadmaps while taking a co-design approach to the design of collections
The final prudential standard on recovery and exit planning (CPS 190) is applicable to banks, insurers, and superannuation entities and will come into effect from January 01, 2024 for banks. The standard aims to ensure that all APRA-regulated entities are adequately prepared for scenarios that may impact the financial viability of their business. The prudential standard requires APRA-regulated entities to develop and maintain a recovery and exit plan and to develop capabilities to be able to anticipate, manage, and respond to periods of stress. The plan must be appropriate to the size, business mix, and complexity of the entity and must be approved by the Board. In letter that accompanies the published final standard and the non-confidential submissions for the proposal on this standard,, APRA notes that is planning to finalize the prudential standard on resolution planning (CPS 900) in the first half of 2023. CPS 900 reinforces the objectives of CPS 190 by seeking to ensure that, in the unlikely event of failure, barriers to achieving an orderly resolution have been removed. Entities can continue to provide feedback on CPS 900 until December 06. 2022. The consultation on the draft prudential practice guides to accompany CPS 190 and CPS 900 closed on December 06, 2022, with APRA planning to finalize this guidance in the first half of 2023.
The final guidance on contingent liquidity (APG 210) addresses the level of self-securitized assets expected to be maintained by locally incorporated Minimum Liquidity Holdings (MLH) authorized deposit-taking institutions on an ongoing basis. As per the updated guidance, for institutions with more than $1 billion in liabilities, a prudent approach would be to hold self-securitized assets equivalent to at least 10% of their total deposits and short-term wholesale liabilities as contingency for periods of stress. APRA would expect the self-securitized assets to be unencumbered and not held as collateral for any other purpose. APRA expects institutions to ensure they have the capacity, including the operational capability to increase their self-securitizations to at least 20% within one month, with this capability tested on a regular basis. APRA may also require an entity to maintain higher minimum liquidity holdings under APS 210 (paragraph 58) where there are certain liquidity risk concerns. In addition to operational capability testing by the MLH institution, APRA may conduct periodic and random "fire drill" exercises to test an institution's capability to increase their self-securitized assets to the 20% level within one month and the sufficiency of eligible mortgages that would be used for this purpose.
Keywords: Asia Pacific, Australia, Banking, Basel, Reporting, Data Collection, APRA Connect, CPS 190, Recovery and Exit Planning, Contingent Liquidity, Liquidity Risk, ALM, APRA
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