Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2007 MRS 130.0 Off Balance Sheet Business Direct Credit Substitutes Provided (Cth)
Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2007
Reporting standard MRS 130.0 Off Balance Sheet Business – Direct Credit Substitutes Provided
Financial Sector (Collection of Data) Act 2001
I, Charles Watts Littrell, a delegate of APRA, under paragraph 13(1)(a) of the Financial Sector (Collection of Data) Act 2001 and subsection 33(3) of the Acts Interpretation Act 1901:
REVOKE the Reporting Standard MRS 130.0: Off Balance Sheet Business – Direct Credit Substitutes Provided; and
DETERMINE the Reporting Standard MRS 130.0 Off Balance Sheet Business – Direct Credit Substitutes Provided in the form set out in the Schedule, which applies to the financial sector entities referred to in paragraph 1 of the reporting standard.
Under section 15 of the Act, I DECLARE that the reporting standard shall begin to apply to those financial sector entities on the later of 30 June 2007 and the date of registration on the Federal Register of Legislative Instruments.
Dated 29 June 2007
[Signed]
Charles Littrell
Executive General Manager
Policy, Research and Statistics
Interpretation
In this Determination
APRA means the Australian Prudential Regulation Authority.
Schedule
Reporting Standard MRS 130.0 Off Balance Sheet Business – Direct Credit Substitutes Provided comprises 13 pages commencing on the following page.
Reporting Standard MRS 130.0
Off Balance Sheet Business – Direct Credit Substitutes Provided
| Objective of this reporting standard This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001. It requires medical defence organisations (‘MDOs’, as defined in paragraph 17) to report to APRA on a half-yearly basis in relation to their Off Balance Sheet Business – Direct Credit Substitutes Provided. This reporting standard outlines the overall requirements for the provision of this information to APRA. It should be read in conjunction with reporting form MRF 130.0 Off-Balance Sheet Business –Direct Credit Substitutes Provided and the instructions to that form (each of which is attached and forms part of this reporting standard). |
Application
1. This reporting standard applies to all MDOs.
Information required
2. An MDO must, after the end of each reporting period, and in accordance with the instructions, duly complete the form in respect of the reporting period, and provide the completed form (the ‘report’) to APRA by the due date.
Method of submission
3. Reports must be given to APRA either:
(a)in electronic form, using one of the electronic submission mechanisms provided by the ‘Direct to APRA’ (also known as ‘D2 A’) application;
(b)in Microsoft Excel format on a 3.5 inch diskette, which must be posted to APRA’s head office at Level 26, 400 George Street, Sydney, NSW 2000; or
(c)manually completed on paper, which must be faxed or mailed to APRA’s head office.
Note: the Direct to APRA application software and forms may be obtained from APRA but will not be available immediately upon commencement of this standard. Therefore, initially, only methods of submission (b) and (c) will be available.
Reporting periods
4. Subject to paragraphs 5 and 6, the reporting periods are the half-yearly period ending on 30 June 2007 and each successive half-yearly period (ending on 31 December or 30 June) after that.
5. APRA may, by notice in writing, change the reporting periods for a particular MDO so that it is required to report in respect of half-yearly reporting periods based upon the MDO’s own year of income.
Note: this will be relevant where the MDO’s year of income does not end on 30 June or 31 December.
6. APRA may, by notice in writing change the reporting periods for a particular MDO to require it to provide the information:
(a)more frequently (APRA may require this when, having regard to the particular circumstances of the MDO, APRA considers it necessary or desirable for the MDO to report more frequently for the purposes of monitoring the financial position of the MDO); or
(b)less frequently (APRA may do so when, having regard to the particular circumstances of the MDO and the extent to which its financial position requires monitoring, it is unnecessary to require it to report on a half-yearly basis).
Due dates
7. Reports under this standard must be provided to APRA no later than:
(a)in the case of a report in respect of a half-yearly period ending on the last day of the MDO’s year of income – 4 months after that day; and
(b)in the case of all other reports – 20 business days after the end of the reporting period.
8. APRA may, in writing, grant an MDO an extension of the due date for submission of a report, in which case the new due date will be the date on the notice of extension.
Audit and auditor’s certificate
9. Reports under this standard must be the product of processes and controls that have been reviewed and tested by a registered company aud itor. This will require the auditor to review and test the systems, processes, and controls supporting the reporting of the information to ensure that they produce accurate data and are otherwise reliable. This review and testing must be done on an annua l basis or more frequently if necessary to enable the approved auditor to form an opinion as to the accuracy and reliability of the data.
10. In relation to each year of income of an MDO (including a year of income ending on 30 June 2007), the MDO must provide APRA with an annual certificate, signed by a registered company auditor, which must either:
(a)state that in the auditor’s opinion the information provided to APRA under this standard in respect of the year of income is accurate and reliable; or
(b) state that in the auditor’s opinion the information provided to APRA under this standard in respect of the year of income is not accurate or reliable and specify the ways in which the information is not accurate or reliable and the grounds upon which the auditor has come to this conclusion.
A certificate under this paragraph must be provided to APRA no later than four months after the last day of the year of income to which it relates. It may be combined with certificates under corresponding paragraphs of other reporting standards (made under section 13 of the Financial Sector (Collection of Data) Act 2001) applying to the MDO.
Authorisation
11. Reports under this standard must also be subject to processes and controls developed by the MDO for the internal review and authorisation of that information. It is the responsibility of the board and senior management of the MDO to ensure that an appropriate set of policies and procedures for the authorisation of data submitted to APRA is in place.
12. If an MDO submits a report under this standard using the ‘Direct to APRA’ software, it will be necessary for an officer of the MDO to digitally sign, authorise and encrypt the relevant data. For this purpose APRA’s certificate authority will issue ‘digital certificates’, for use with the software, to officers of the insurer who have authority from the insurer to transmit the data to APRA.
13. If a report under this standard is completed in Microsoft Excel format and provided on diskette, the diskette must be sent to APRA with a letter signed by either the Principal Executive Officer or Chief Financial Officer of the MDO.
14. If a report under this standard is completed and provided in paper form, it must be signed by either the Principal Executive Officer or Chief Financial Officer of the MDO.
Minor alterations to forms and instructions
15. APRA may make minor variations to:
(a)the form, and the instructions to the form, to correct technical, programming or logical errors, inconsistencies or anomalies; or
(b)the instructions, to clarify their application to the form
without changing any substantive requirement in the form or instructions.
16. If APRA makes such a variation it must notify affected MDOs in writing.
Interpretation
17. In this standard:
APRA means the Australian Prudential Regulation Authority established under the Australian Prudential Regulation Authority Act 1998.
business day means an ordinary business day, excluding weekends and public holidays.
Chief Financial Officer means the person having the function of chief financial officer of the MDO, by whatever name called, and whether or not he or she is a member of the governing board of the MDO, and if there is no such person means a person who performs similar functions to those commonly performed by a chief financial officer.
due date means the relevant date under paragraph 7 or 8.
form means the attached form.
instructions means the attached instructions.
MDO means a corporation to which section 5A of the Financial Sector (Collection of Data) Act 2001 applies (but, for the avoidance of doubt, does not include a general insurer within the meaning of the Insurance Act 1973).
Principal Executive Officer means the principal executive officer of the MDO for the time being, by whatever name called, and whether or not he or she is a member of the governing board of the MDO.
registered company auditor has the meaning in section 9 of the Corporations Act 2001.
Note: That section provides that registered company auditor:
(a) means a person registered as an auditor under Part 9.2 of the Corporations Act; and
(b) in relation to a body corporate that is not a company—includes a person qualified to act as the body's auditor under the law of the body's incorporation.
report has the meaning given in paragraph 2.
reporting period means the relevant period under paragraph 4, 5 or 6
year of income in relation to an MDO means the accounting period adopted by the MDO for the purposes of the Income Tax Assessment Act 1936 or for taxation purposes generally (whether or not that period is the same as the standard financial year beginning on 1 July and ending on 30 June).
| Counterparty Grade of Obligation / Asset over which the Credit Substitute has been Written | ||||||
| Asset Grade 1 Cash or debt obligations | Counterparty with Grade 1 Rating / Asset with Grade 2 Rating | Counterparty with Grade 2 / Asset with Grade 3 Rating | Counterparty with Grade 3 Rating / Asset with Grade 4 Rating | Counterparty with Grade 4 Rating / Asset with Grade 5 Rating | Counterparty with Grade 5 rating / Asset with Grade 6 Rating | Free hold real estate, unlisted equity instruments or units in unlisted trusts |
| 1. Direct credit substitutes: | ||||||
| - Guarantees | ||||||
| - Credit derivatives | ||||||
| - Letters of credit | ||||||
| - Bill endorsements | ||||||
| 2. Trade-related contingencies | ||||||
| 3. Sale and repurchase agreements | ||||||
| 4. Assets sold with recourse | ||||||
| 5. Forward asset purchases | ||||||
| 6. Partly paid shares and securities | ||||||
| 7. Placements of forward deposits | ||||||
| 8. All other non-market-related off-balance sheet items | ||||||
| 9. Total Non-Market Related Off Balance Sheet Business | ||||||
| 10. Total Non-Market-Related Off Balance Sheet Business (total of item 9) which are provided to related parties: | ||||||
| 11. Parent Entity | ||||||
| 11.1. Controlled entities / controlled entities of parent entity | ||||||
| 12. Director related entities | ||||||
| 13. Joint Ventures / Associates | ||||||
| 14. Other related parties | ||||||
Reporting Form MRF 130.0
Off-Balance Sheet Business - Direct Credit Substitutes Provided
Instruction Guide
Introduction
This form requires Medical Defence Organisations (MDOs) to report information about their off-balance sheet exposures.
Reporting Obligations
MDOs are required to report on a half-yearly basis (that is, six-monthly intervals), based on their financial year.
For annual reporting, MDOs must lodge a form within four months of the end of their financial year. The information required on an annual basis must be reported as at the last day of the reporting period on a financial year-to-date basis of the MDO.
For half-yearly reporting (that is, the half-year that does not correspond with the MDO’s financial year end), MDOs must lodge a form within 20 business days of the end of that six month period.
Audit Requirements
This form must be subject to audit review and testing on an annual basis or more frequently, if necessary, to enable the auditor to form an opinion on the accuracy and reliability of the data. The auditor must provide a certificate to the MDO specifying whether, in their opinion, the data provided by the MDO are reliable. The MDO must submit this certificate to APRA on an annual basis.
The scope and nature of audit testing required is outlined in the applicable Auditing and Assurance Guidance Statement issued by the Auditing and Assurance Standards Board.
Definitions
Definitions for data reporting items required by this form have been provided, where possible, in the instructions under the section headed ‘Specific Instructions’.
Basis of Preparation
Unit of Measurement
This form is to be prepared in thousands of Australian dollars (AUD). Amounts denominated in a currency other than Australian currency are to be converted to AUD in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates (AASB 121)
Related party/entity
Related parties/entities are to be interpreted in accordance with AASB 124 Related Party Disclosures (AASB 124).
Parent
Parent entity is to be interpreted in accordance with AASB 127 Consolidated and Separate Financial Statements (AASB 127).
Subsidiaries
Subsidiaries are to be interpreted in accordance with AASB 127.
Associates
Associates are to be interpreted in accordance with AASB 128 Investments in Associates (AASB 128).
Joint ventures
Joint ventures are to be interpreted in accordance with AASB 131 Interests in Joint Ventures (AASB 131).
Specific Instructions
Non-market related derivative items
‘Non-market’ refers to items that are not transacted in financial markets, specifically financial market products such as derivative financial instruments. These types of transactions are not to be included in this form. Transactions and exposures to derivative financial instruments are recorded in MRF 160.0 Derivative Activity (MRF 160.0)
Principal amount
Report the principal amount in each column (refers to the face value or gross amount) for off-balance sheet transactions, which give rise to credit exposures.
Counterparty grade of Obligation/Asset over which the Credit Substitute has been written.
Report the off-balance sheet business on the basis of the Counterparty Grade of Obligation/Asset over which the Credit Substitute has been written.
The relevant asset grades are:
| Asset Grade | Assets to be included in the grade |
| 1 | Debt obligations of: • The security has a Grade 1 counterparty4 rating, or if not rated, • The long-term, foreign currency counterparty rating of that country is Grade 1. |
| 2 | Debt obligations maturing or redeemable in less than one year with a rating of Grade 1 or 2. |
| 3 | Debt obligation maturing or redeemable in one year or more with a rating of Grade 1 or 2. Reinsurance recoveries and other reinsurance assets due from reinsurers with a counterparty rating of Grade 1 or 2. |
| 4 | Debt obligation maturing or redeemable in one year or more with a rating of Grade 3. Reinsurance recoveries and other reinsurance assets due from reinsurers with a counterparty rating of Grade 3. |
| 5 | Debt obligation maturing or redeemable in one year or more with a rating of Grade 4. Reinsurance recoveries and other reinsurance assets due from reinsurers with a counterparty rating of Grade 4. |
| 6 | Debt obligation maturing or redeemable in one year or more with a rating of Grade 5. Reinsurance recoveries and other reinsurance assets due from reinsurers with a counterparty rating of Grade 5. Listed equity instruments. Units in listed trusts. |
| Free hold real estate, unlisted equity instruments or units in unlisted trusts | Direct holdings of real estate. Unlisted equity instruments. Units in unlisted trusts. |
Categories of off-balance sheet business
The categories of off-balance sheet transactions are as follows:
Direct credit substitutes
This includes any irrevocable off-balance sheet obligation, which carries the same credit risk as a direct extension of credit. The following are examples constituting a direct credit substitute (i.e. the risk of loss depends on the creditworthiness of the counterparty, or the party on which a potential claim is acquired):
an undertaking to make a payment to a third party in the event that a counterparty fails to meet a financial obligation; or
an undertaking to a counterparty to acquire a potential claim on another party in the event of default by that party.
This includes potential credit exposures arising from the issue/provision of the following:
guarantees;
credit derivatives (i.e. selling credit protection);
standby letters of credit serving as financial guarantees for loans, securities and any other financial liabilities; or
bill endorsements.
Trade-related contingencies
Contingent liabilities arise from trade-related obligations which are secured against an underlying shipment of goods. This includes documentary letters of credit issued, acceptances on trade bills, shipping guarantees issued and any other trade-related contingencies.
Sale and repurchase agreements (“Repos”)
This relates to arrangements whereby a MDO sells a loan, security or other asset to another party with a commitment to repurchase the asset at an agreed price on an agreed future date. Any assets acquired by a MDO under reverse repossession (i.e. purchase and resale agreements) are to be treated as collateralised loans to the counterparty.
Assets sold with recourse
This includes any asset sales (to the extent that such assets are not included in on-balance sheet) by a MDO where the holder of the asset is entitled to “put” the asset back to the MDO within an agreed period or under certain prescribed circumstances, e.g. deterioration in the value or credit quality of the asset concerned.
Forward asset purchases
This includes commitments to purchase at a specified future date and on pre-arranged terms, an asset from another party, including written put options on specified assets with the character of a credit enhancement.
Written put options expressed in terms of market rates for currencies or financial instruments bearing no credit risk are excluded from risk assets.
For the purposes of this form, do not include market related securities that are recorded on a trade date basis and transacted in accordance with accepted financial market settlements periods. Such securities are to be included in the MRF 140 series forms.
Partly paid shares and securities
This includes any amounts owing on the uncalled portion of partly paid shares and securities held by a MDO, which represent commitments with certain drawdown by the issuer at a future date.
Placements of forward deposits
This relates to any agreement between a MDO and another party whereby the MDO will place a deposit at an agreed rate of interest with that party at a predetermined future date.
All other non-market related off-balance sheet items
Record all other off balance sheet non-market related items that are not specifically covered elsewhere in the form.
9. Total non-market related off-balance sheet business
This is the total of all values disclosed for items listed in the form. The figure will be automatically calculated by the form.
10. Total Non-Market-Related Off-Balance Sheet Business (total of item 9) which are provided to related parties:
Of the total non-market off balance sheet business/exposure disclosed in the table (i.e. total of items disclosed in item 9), report that amount which has been provided to related parties or in relation to related parties. Refer to the definition of related parties as defined in the general section of this instruction guide.
11. Parent entity
Of the total off-balance sheet business that is reported in this form, disclose amounts that are with/from the parent entity.
11.1. Controlled entities/Controlled entities of the parent entity
For branches, the line item “Controlled entities/Controlled entities of the parent entity” is to be interpreted as amounts in relation to “Controlled entities of the parent entity”, and for licensed insurance entities amounts are in relation to “Controlled entities” of the reporting MDO.
Of the total off-balance sheet business that is reported in this form, disclose amounts that are with/from these entities.
12. Director related entities
Disclose amount that are with Director related entities.
13. Joint Ventures/Associates
Of the total off-balance sheet business that is reported in this form, disclose amounts that are with/from Associates or Joint Ventures of the licensed insurer. Associates and Joint Ventures are defined in accordance with AASB 131 and AASB 128.
14. Other related parties
Of the total premium revenue and reinsurance expense that is reported as required by this form, disclose amounts that are with/from any other related entity of the licensed Insurer that is not specifically identified above. Refer to the definition of related parties as defined in the general section of this instruction guide.
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