APRA published draft revisions to the prudential standard on capital adequacy measures (APS 111) for authorized deposit-taking institutions, along with its response to the submissions received for the 2019 consultation on the standard. APS 111 sets out the characteristics that an instrument must have to qualify as regulatory capital for an authorized deposit-taking institution and the various regulatory adjustments to be made to determine the total regulatory capital. The response paper sets out further revisions to the standard, the consultation period for which will end on June 10, 2021. APRA expects to finalize changes to APS 111 in July 2021, with the revised standard coming into force from January 01, 2022.
The most material change to APS 111 relates to the revised capital treatment of authorized deposit-taking institutions’ equity investments in their subsidiaries. This revision will, in effect, increase the amount of capital required to support equity investments in large subsidiaries and reduce the amount required for small subsidiaries. This change is not expected to increase system capital requirements, though the impact will differ across individual institutions. This proposed revision was consulted on in 2019 and is now being finalized. The revised draft standard contains additional minor revisions that were not included as part of the 2019 consultation. These revisions include measures to clarify that Common Equity Tier 1 (CET1) capital is not permitted to have any unusual features that could undermine its role as the highest quality loss-absorbing capital. APRA response paper also notes that, ahead of the implementation of the final revised APS 111, authorized deposit-taking institutions must continue to meet the interim expectations of APRA on the capital treatment of new or additional equity investments in banking and insurance subsidiaries; this was announced in November 2020 to ensure that any new or additional investments in subsidiaries align with the intended future state of APS 111.
Comment Due Date: June 10, 2021
Effective Date: January 01, 2022
Keywords: Asia Pacific, Australia, Banking, APS 111, Capital Adequacy, Regulatory Capital, Basel, RBNZ, APRA
Previous ArticleECB Working Group Publishes Recommendations on EURIBOR Fallbacks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards
The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.