APRA Issues FAQ on Capital Standard, Closes Westpac Investigation
APRA published a frequently asked question (FAQ) on its expectations for historical rate rollovers on non-foreign exchange contracts in the context of APS 180, which is the prudential standard on capital adequacy for counterparty credit risk exposures. Under paragraph 17 of APS 180, the historical rate rollovers are permitted only on foreign exchange contracts and not on non-foreign-exchange transactions. APRA is currently considering this position, including potentially some limited flexibility for authorized deposit taking institutions in certain circumstances to transact historical rate rollovers on non-foreign exchange contracts where APRA is comfortable with the oversight, limits, risk assessment, and controls. This could include cases where the underlying transaction has been delayed and there is a clear expectation of delivery in the short term. APRA will assess the transactions and consider an adjustment to APS 180 on a case-by-case basis, for individual institutions.
In another development, APRA closed its investigation into the possible breaches of the Banking Act 1959, including Banking Executive Accountability Regime (BEAR), by Westpac Banking Corporation. However, Westpac remains subject to a court enforceable undertaking to implement an integrated risk governance remediation plan to uplift risk governance across its business, with ongoing independent review over its progress. The $1 billion operational risk capital add-on, which reflects the heightened operational risk profile of the bank, will also remain in place until Westpac completes remediation, under the court enforceable undertaking, to the satisfaction of APRA.
Keywords: Asia Pacific, Australia, Banking, FAQ, BEAR, Westpac, Historical Rate Rollovers, APS 180, Regulatory Capital, Basel, Derivatives, APRA
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