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    APRA Proposes Amendments to APS 610, Issues Other Updates

    November 14, 2022

    The Australian Prudential Regulation Authority (APRA) is seeking comments, until February 14, 2023, on proposed amendments to the prudential requirements for providers of purchased payment facilities (APS 610) to align the current minimum capital adequacy requirement for purchased payment facilities (PPF) providers with the broader capital framework for other APRA-regulated entities. Additionally, APRA published the results of its risk culture survey and granted new restricted authorized deposit-taking institutions license to International Bank of Australia Pty Limited, under the Banking Act 1959.

    The proposal on APS 610 sets out capital requirements for PPF providers, including the requirement for PPF providers to identify, measure, monitor and manage the risks arising from their activities to ensure that adequate capital is held at a level consistent with their risk profile. The current minimum capital adequacy requirement, as set out in APS 610, requires a PPF provider to maintain Tier 1 Capital equal to 5% of total outstanding stored value liabilities (or minimum start-up capital as determined by APRA, if higher). APRA has defined a purchased payment facility (PPF) as a facility under which a holder of stored value makes payment to another person on behalf of the user of the facility. In this consultation, APRA proposed amendments to:

    • move the capital measurement basis to Common Equity Tier 1 Capital (CET1) rather than Tier 1 Capital, which will simplify the approach and focus on the highest quality of capital.
    • reduce the minimum capital requirement from 5% to 4% of total outstanding stored value liabilities, to reflect better a PPF provider’s risk profile (this may be varied further as part of to the subsequent broader review of APS 610).
    • minimum capital adequacy requirements for individual PPF providers as a proportion of total outstanding stored value liabilities or set minimum capital requirements as a dollar amount, consistent with the approach for other APRA-regulated entities.

    Going forward, APRA will provide an update on the planned broader review of APS 610 as part of its annual policy priorities update in early 2023.

    The results of the survey on risk culture show that executives are overconfident regarding risk management capabilities of their entity, risk management practices vary across entities, further clarity is needed on risk management roles and responsibilities, and consideration of risk management in decision making varies with respect to executives and individual contributors. The survey, held between October and December 2021, provides views of employees of 18 authorized deposit-taking institutions, 33 insurers and superannuation funds, in addition to the 10 pilot entities on their organization's risk management practices. The survey results reflect the responses of entities’ employees and do not represent APRA’s assessment of an entity’s risk culture. APRA will continue to share risk culture survey insights to help uplift risk management practices in a meaningful and targeted way, while reinforcing its prudential expectations with respect to risk culture. The survey results highlight the work undertaken to improve the communication and escalation of risk issues as well as to establish and monitor desired risk cultures. 

     

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    Keywords: Asia Pacific, Australia, Banking, APS 610, Basel, Regulatory Capital, Risk Culture, International Bank Australia, Bank Licenses, Governance, Operational Risk, Purchased Payment Facilities, APRA

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