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    APRA Connect to Go Live; APRA to Reduce Reliance on CLF

    September 10, 2021

    The Australian Prudential Regulation Authority (APRA) confirmed that its new data collection solution APRA Connect will go live on September 13, 2021. In response to the feedback on APRA Connect’s auto-submission functionality for data returns, APRA has introduced an optional approval step in the form of a validation rule (a warning) prior to submission of a completed data return. Entities may elect to activate the rule for all data returns. APRA also published Version 2.0 of the APRA Connect guide, which provides comprehensive information to assist users accessing, navigating, and using the data collection solution. Additionally, APRA issued a letter noting that the locally incorporated authorized deposit-taking institutions subject to the Liquidity Coverage Ratio (LCR) are expected to reduce their reliance on the Committed Liquidity Facility (CLF) to zero by the end of 202,2 subject to financial market conditions.

    The LCR is a minimum requirement that aims to ensure authorized deposit-taking institutions maintain sufficient unencumbered high-quality liquid assets (HQLA) to survive a severe liquidity stress scenario lasting for 30 calendar days. The CLF, which was established with the Reserve Bank of Australia (RBA) in 2015, is intended to be sufficient in size to compensate for the lack of sufficient HQLA, which in Australia consist of notes and coin, Exchange Settlement Account (ESA) balances held with the RBA, Australian Government Securities (AGS), and semi-government securities (semis). APRA annually assesses the size of the CLF that an authorized deposit-taking institution may recognize in its LCR. APRA and the RBA consider there to be sufficient HQLA for locally incorporated LCR authorized deposit-taking institutions to meet LCR requirements now and for some time without the need to utilize the CLF, and therefore use of the CLF should no longer be required beyond 2022. The combined AGS and semis and ESA balances as projected by the RBA exceed the required HQLA to meet authorized deposit-taking institutions’ combined LCR plus buffer, in particular:

    • thee amount of outstanding AGS and semis is expected to continue to increase in 2022. The RBA has assessed that the AGS and semis that can be reasonably held by locally-incorporated LCR authorized deposit-taking institutions at the end of 2022 will be around USD 560 billion. 
    • surplus Exchange Settlement Account (ESA) balances with the RBA have increased significantly to be USD 361 billion as at August 31, 2021. Further, RBA expects ESA balances to remain elevated for some years given the package of policy measures it has implemented. 

    APRA, therefore, expects authorized deposit-taking institutions to purchase the HQLA necessary to eliminate the need for the CLF. The authority stipulates that no authorized deposit-taking institution should rely on the CLF to meet its minimum 100% LCR requirement from the beginning of 2022 (although authorized deposit-taking institutions may continue to count any remaining CLF as part of their liquidity buffer) while the institutions should reduce their use of the CLF to zero by the end of 2022. An authorized deposit-taking institution’s current CLF allocation will decrease to zero through equal reductions on January 01, 2022; April 30, 2022; August 31, 2022; and December 31, 2022. An authorized deposit-taking institution may opt to reduce its CLF early if it considers itself to have sufficient surplus funding and liquidity.

    If an authorized deposit-taking institution wishes to reduce its CLF before the above dates, the institution must inform APRA by September 30, 2021. If an authorized deposit-taking institution needs more time to transition to a zero CLF, the institution should provide a funding strategy to APRA to incorporate the proposed transition. The strategy will need to satisfy APRA that the authorized deposit-taking institution is meeting the "every reasonable effort" requirement. The funding strategy should be submitted by October 31, 2021. If a longer transition period is warranted, APRA will notify the authorized deposit-taking institution by December 03, 2021. APRA will continue to review financial market conditions and adjust these expectations, if circumstances change materially. 

     

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    Keywords: Asia Pacific, Australia, Banking, Reporting, APRA Connect, Data Collection, D2A, LCR, CLF, HQLA, Committed Liquidity Facility, Liquidity Risk, Basel, RBA, APRA

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