APRA is introducing minor changes to the large exposures framework for authorized deposit-taking institutions. Along with the amendments to prudential (APS 221) and reporting (ARS 221.0) standards on large exposures, APRA is releasing a second set of frequently asked questions (FAQ) to help institutions implement this framework. The large exposures framework sets out prudential and reporting requirements for authorized deposit-taking institutions with respect to their large exposures and risk concentrations. The revised standards will apply from January 01, 2020, with most aspects having come into effect on January 01, 2019.
The key changes to the large exposures framework include extending the exemption for connecting counterparties involving government-related entities to economic interdependence relationships as well as control relationships, removing references to transition arrangements allowed until December 31, 2019, and updating references and website links. These revisions to APS 221 and ARS 221.0 will ensure the standards are up-to-date when they are fully in force. The second set of FAQ, which have been released with these revised versions, cover requirements for collateral exposures, the treatment of government and government-related exposures, connected counterparties, and reporting of large exposures.
ARS 221.0 sets out the requirements for the provision of information on large exposures of an authorized deposit-taking institution. It includes the Reporting Form ARF 221.0 Large Exposures and Reporting Form ARF 221.1 Large Exposures (for foreign foreign deposit-taking institutions) and associated specific instructions. ARS 221.0 must be read in conjunction with the prudential standard APS 221. APS 221 requires authorized deposit-taking institutions to implement prudent measures and to set prudent limits to monitor and control their large exposures and risk concentrations. The key requirements of APS 221 are that an authorized deposit-taking institution must:
- Have a Board-approved policy that governs its large exposures and risk concentrations
- Have adequate systems and controls to identify, measure, monitor and report large exposures and risk concentrations
- Identify connected counterparties
- Ensure its large exposures meet the large exposure limits
- Measure exposure values for large exposure purposes using specified treatments
Effective Date: January 01, 2020
Keywords: Asia Pacific, Australia, Banking, Large Exposures, APS 221, ARS 221, FAQ, Concentration Risk, Credit Risk, Basel III, Reporting, APRA
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