APRA published an updated prudential standard APS 115 that sets out operational risk requirements for authorized deposit-taking institutions in Australia. In a letter to authorized deposit-taking institutions, APRA also outlined its response to submissions on the proposed changes to APS 115, which addresses the standardized measurement approach to operational risk and comes into effect from January 01, 2021. In addition to the final APS 115, APRA released, for consultation, the draft reporting standard ARS 115.0 on standardized measurement approach to operational risk. The consultation period on ARS 115.0 ends on February 21, 2020. ARS 115.0 will commence on January 01, 2021 for Advanced Measurement Approaches (AMA) authorized deposit-taking institutions and on January 01, 2022 for all other authorized deposit-taking institutions.
APS 115 requires an authorized deposit-taking institution to hold sufficient regulatory capital against its operational risk exposures. The key requirement of this prudential standard is that an authorized deposit-taking institution that is not subject to the simplified framework must calculate its capital requirement for operational risk based on its business indicator, which is a financial-statement-based proxy of its operational risk exposure. This prudential standard applies to authorized deposit-taking institutions, except: (a) foreign authorized deposit-taking institutions; purchased payment facility providers (PPF providers); and authorized deposit-taking institutions that satisfy the eligibility criteria for the simplified framework. An institution must calculate its operational risk capital charge as 12% of its business indicator (BI), plus:
(a) if the BI exceeds $1.5 billion, then 3% of the amount by which the BI exceeds $1.5 billion, plus
(b) if the BI exceeds $45 billion, then 3% of the amount by which the BI exceeds $45 billion.
The consultation on the APS 115 had resulted in six submissions with comments on the operational risk proposals set out in the June response to submissions paper and the draft APS 115. Respondents were supportive of the proposed approach to the determination of capital to be held for operational risk purposes. However, a number of submissions commented on the intention of APRA to issue a new prudential standard covering qualitative operational risk matters. Submissions argued that the absence of information on the content of the future standard creates uncertainty for authorized deposit-taking institutions, given that it is not clear how a qualitative standard will interact with APS 115 and the implementation of that standard. APRA is informing that its qualitative operational risk requirements are still undergoing development and, while the final draft content is yet to be settled, the new standard will not have implications for when and how authorized deposit-taking institutions implement and comply with the new APS 115.
The proposed ARS 115.0 has been designed to be aligned with relevant accounting standards. In most cases, entities will only be required to enter information for the current period, the system will automatically retrieve historic data points and include them in the form. Adjustment fields have been included to take account of events such as divestments and mergers. Authorized deposit-taking institutions will be required to submit the required data for historical periods in the first collection. This data will be used solely for calculating the first period’s capital requirement. The proposed implementation of ARS 115.0 is expected to coincide with the start of the new data collection solution (DCS), which replaces Direct to APRA (D2A), the current data collection tool of APRA. APRA intends for entities to submit ARS 115.0 data in the new DCS and expects that authorized deposit-taking institutions will be able to submit data via manual entry, upload of XBRL, or Microsoft Excel files.
Comment Due Date: February 21, 2020 (ARS)
Effective Date: January 01, 2021/January 01, 2022 (APS)
Keywords: Asia Pacific, Australia, Banking, Operational Risk, Basel III, Regulatory Capital, Reporting, APS 115, ARS 115, Business Indicator, APRA
Previous ArticleAPRA Publishes Approach to Regulating and Supervising GCRA Risks
The European Commission (EC) published three Delegated Regulations (2021/2153, 2021/2154, and 2021/2155) to supplement the Investment Firms Directive (IFD or Directive 2019/2034).
The Financial Stability Board (FSB) published a report that presents results of the sixth non-bank financial intermediation monitoring exercise in the Americas.
The Bank for International Settlements (BIS) published the December issue of the Quarterly Review, which analyzes the non-bank financial intermediation mechanisms that could undermine financial stability.
The Bank of England (BoE) opened the Alternative Liquidity Facility, or ALF, for deposits from the participating UK-based Islamic banks for the first time.
APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).
The European Banking Authority (EBA) launched three consultations on technical aspects of the revised framework capturing interest rate risks for banking book (IRRBB) positions, with the comment period ending on April 04, 2022.
The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).
The European Banking Authority (EBA) published the sample of banks for the mandatory Basel III monitoring exercise, which will refer to the December 2021 data.
The Board of Governors of the Federal Reserve System (FED) is adopting a proposal to revise and extend for three years the Complex Institution Liquidity Monitoring Report (FR 2052a) for banks.
The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.