Banking (prudential standards) determination No. 9 of 2006 Variation of various Prudential Standards and Guidance Notes (Cth)
Banking (prudential standards) determination No. 9 of 2006
Variations to:
Prudential standard APS 111 – Capital Adequacy: Measurement of Capital
Guidance Note AGN 111.1 - Tier 1 Capital
Guidance Note AGN 111.2 - Tier 2 Capital
Guidance Note AGN 111.3 - Criteria for Capital Issues Involving Use of Special Purpose Vehicles (SPVs)
Guidance Note AGN 111.4 - Capital Deductions
Guidance Note AGN 112.1 – Risk-Weighted On-Balance Sheet Credit Exposures
Guidance Note AGN 120.4 - Liquidity, Underwriting and Lending Facilities
Prudential standard APS 220 - Credit Quality
Guidance Note AGN 220.1 - Impaired Facility Definitions
Guidance Note AGN 220.2 – Impairment, Provisioning and the General Reserve for Credit Losses
Guidance Note AGN 220.4 - Credit Risk Grading Systems
Prudential standard APS 221 – Large Exposures
Banking Act 1959
I, Charles Watts Littrell, a delegate of APRA, under subsection 11AF(3) of the Banking Act 1959 (the Act), VARY:
(a)Prudential standard APS 111 (determined on 30 May 2006 to take effect from 1 July 2006) in the manner set out in the Schedule;
(b)Guidance Notes AGN 111.1, 111.2, 111.3 and 111.4 (which form part of Prudential standard APS 111) in the manner set out in the Schedule;
(c)Guidance Note AGN 112.1 (which forms part of Prudential standard APS 112 determined on 30 May 2006 to take effect from 1 July 2006) in the manner set out in the Schedule;
(d) Guidance Note AGN 120.4 (which forms part of Prudential standard APS 120 determined on 30 May 2006 to take effect from 1 July 2006) in the manner set out in the Schedule;
(e) Prudential standard APS 220 (determined on 30 May 2006 to take effect from 1 July 2006) in the manner set out in the Schedule;
(f) Guidance Notes AGN 220.1, 220.2 and 220.4 (which form part of Prudential standard APS 220) in the manner set out in the Schedule; and
(g) Prudential standard APS 221 (determined on 30 May 2006 to take effect from 1 July 2006) in the manner set out in the Schedule.
This instrument takes effect on the later of 1 July 2006 (immediately after the principal instruments to be varied come into effect) and the date of registration on the Federal Register of Legislative Instruments.
Dated: 29 June 2006
[signed]
Charles Littrell
Executive General Manager
Policy, Research and Statistics Division
APRA
Interpretation
In this Determination
ADI has the meaning given in section 5 of the Act.
APRA means the Australian Prudential Regulation Authority.
Note 1 Banking (prudential standard) determination No. 4 of 2006 determined APS 111.
Note 2 Banking (prudential standard) determination No. 5 of 2006 determined APS 112.
Note 3 Banking (prudential standard) determination No. 6 of 2006 determined APS 120.
Note 4 Banking (prudential standard) determination No. 7 of 2006 determined APS 220.
Note 5 Banking (prudential standard) determination No. 8 of 2006 determined APS 221.
Schedule
Variations to Guidance Note AGN 120.4
After paragraph 22 add the following:
“Lending Facilities
Lending to SPVs
An ADI may provide a lending facility to a SPV for the purchase of assets to gear up investors’ interests. An ADI should treat such a facility as a commitment to provide finance (and as a loan once drawn), provided:
(a)the conditions set out in sub-paragraphs 3(a)-(e) of AGN 120.2 are met;
(b)any draw-down of the lending facility incorporates a specified maturity date[1];
The facility may take the form of an overdraft provided that it specifies the maximum amount which may be advanced and a maturity date by which time all drawings must be repaid (or the facility allows the ADI to require payment of all drawings at any time, following a period of reasonable notice).
(c)the lending facility is provided solely for the purpose of acquiring additional assets or for the refinancing of an existing loan (not securities issued by the scheme) used to fund the acquisition of assets by the SPV; and
(d)repayments of drawings under the facility are not subordinated to the interests of investors.
Where these requirements are not satisfied, the lending facility should be treated as a credit enhancement and assessed as a first or a second loss facility according to its characteristics.
An ADI may offer temporary funding to a SPV during a scheme’s establishment phase to facilitate the acquisition of assets pending the issue of securities[2], provided:
2 Such funding may be required to facilitate the costs of marketing, compliance with regulatory requirements and other start-up expenses.
(a)the ADI is only committed to fund the initial acquisition of assets;
(b)assets to be acquired are not impaired at the time the ADI is required to advance funding;
(c)the ADI is fully secured against any funding provided;
(d)drawings under the facility will be repaid within 6 months; and
(e)the ADI has in place adequate systems and controls to ensure that it does not accumulate disproportionate levels of aggregate exposure (relative to the ADI’s asset portfolio and capital) to assets held by SPVs[3].
For example, large exposures arising from lending to associated SPVs and/or vehicles holding similar or related assets.
A lending facility that does not meet these requirements should be treated as a credit enhancement and assessed as a first or a second loss facility according to its characteristics.
Lending to Investors
An ADI may advance funds directly to investors for the purpose of investing in securities issued by a SPV. Such a facility should be treated as a commitment to provide finance (and as a loan once drawn) for capital adequacy purposes, where:
(a)the conditions set out in sub-paragraphs 3(a)-(c) of AGN 120.2 are satisfied;
(b)any draw-down of the facility incorporates a specified maturity date;
(c)there is no implication that the facility acts other than as a stand-alone lending facility to the customer of the ADI; and
(d)the ADI has full recourse to the investor beyond any collateral for repayment of advances.
Where these conditions are not met, the advance should be treated as a credit enhancement and assessed either as a first or a second loss facility according to its characteristics.”
Variations to Prudential standard APS 111
a. Paragraph 16(g) – in lines 1 and 2 delete the words “(refer AGN 111.2)” and substitute the words “(subject to satisfying the conditions specified in AGN 111.2 relevant to each reserve)”.
b. Paragraph 16(g)(ii) – in line 1 delete the word “quoted”.
c. Footnote 9 – in line 2 insert the word “tangible” before the word “assets”.
d. Paragraphs 25(d) and 28(d) – in line 3 of each delete the words “, including joint ventures,”.
e. Paragraphs 25(h) and 28(h) – in line 1 of each insert the word “negative” before the word “movement”.
f. Paragraphs 25(h)(ii) and 28(h)(ii) – in each paragraph delete the word “quoted”.
g. Footnote 12 – in line 2 insert the word “tangible” before the word “assets”.
h. Paragraph 28(i) – in line 3 at the end of the first sentence delete the comma before the full-stop.
Paragraph 28(p) – delete the footnote reference 16 at the end of this paragraph as there is no footnote numbered 16.
Variations to Guidance Note AGN 111.1
a. Paragraph 4(d)(vi) – in line 5 delete “1(h)” and substitute “2”.
b. Paragraph 5(a)(iii) - in line 2 delete the words “subparagraph (ii)” and substitute the words “paragraph 5(a)(ii)”.
c. Paragraph 5(a)(iv) – in line 2 delete the words “sub-subparagraph (a)(i)” and substitute the words “paragraph 5(a)(i)”.
Variations to Guidance Note AGN 111.2
a. Paragraph 3 – in line 1 delete the word “quoted”.
b. Paragraph 3(a) – in line 2 delete the word “and” in the parentheses and substitute the word “or”.
c. Paragraph 3(d) - in line 2 delete the word “and” in the parentheses and substitute the word “or”.
d. Paragraph 7 – in line 3 delete “(h)” and replace with “(a)”. Delete all the subsequent sub-paragraph numbering “(i)” to “(u)” and substitute the numbering sequence “(b)” to “(n)” respectively.
e. Paragraph 7(o)(iii) – in line 2 delete the words “sub-subparagraph (h)(ii)” and substitute the words “paragraph 7(h)(ii)”.
f. Paragraph 7(o)(iv) – in line 2 delete the words “sub-subparagraph (h)(i)” and substitute the words ”paragraph 7(h)(i)”.
g. Paragraph 8(g)(iv) – in line 2 delete the words “sub-subparagraph (g)(i)” and substitute the words “paragraph 8(g)(i)”.
h. Paragraph 8(h) – in line 3 delete the words “subparagraph (g)” and substitute the words “paragraph 8(g)”.
Variations to Guidance Note AGN 111.3
a. Paragraph 1(b) – in line 1 delete the word “is” and substitute the word “are”.
Variations to Guidance Note AGN 111.4
a. Paragraph 1 – in line 2 delete the second occurrence of the words “the amount of its”.
b. In the heading above paragraph 10 on page 4 delete the words “Deficits and” and replace the first letter “s” in the word “surpluses” with “S”.
Variations to Guidance Note AGN 112.1
a. Paragraph 4 – in line 2 delete the words “(refer Attachment D)”.
Variations to Prudential Standard APS 220
a. Paragraph 36 – in line 1 delete the additional space before the word ”Board”.
Variations to Guidance Note AGN 220.1
a. Paragraph 4(d) – in line 2 insert the indefinite article “a” between the words ”to facility”.
b. Paragraph 4(g) – in line 1 remove one space between the words “including” and “derivatives”.
c. Paragraph 6 – in line 5 insert the word ”of” between the words “impact any”.
d. Footnote 2 – insert a full stop at the end of the footnote.
e. Paragraph 20(c) – in line 8 insert the word “that” between the words “estimates there”.
f. Paragraph 32(e) – in line 1 remove the extra space.
Variations to Guidance Note AGN 220.2
a. Paragraph 12 – in line 3 delete the word “lead” and substitute the word “led”.
b. Paragraph 40 – in line 5 delete the word “are” and substitute the word “is”.
Variations to Guidance Note AGN 220.4
a. Paragraph 2(g)(i) – in line 2 delete the word “persisted” and substitute the word “persist”.
Variations to Prudential Standard APS 221
a. Footnote 4 – in line 2 delete ‘7’ and substitute ‘9’.
b. Paragraph 14 – in line 1 delete “9” and substitute “11”.
c. Paragraph 15 – in line 2 delete “9” and substitute “11”.
d. Paragraph 15 – in line 3 delete “12” and substitute “14”.
e. Paragraph 16 – in line 2 delete “9” and substitute “11”.
f. Paragraph 16 – in line 3 delete “12” and substitute “14”.
g. Paragraph 20 – in line 2 delete ‘7’ and substitute ‘9’.
h. Footnote 9 – in line 2 delete ‘7’ and substitute ‘9’.
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