Banking (prudential standard) determination No. 1 of 2013
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Banking Act 1959, section 11AF
Under subsection 11AF(1) of the Banking Act 1959 (the Act), APRA has the power to determine standards (prudential standards), in writing, in relation to prudential matters to be complied with by authorised deposit-taking institutions (ADIs) and authorised non-operating holding companies (authorised NOHCs). Under subsection 11AF(3) of the Act, APRA may, in writing, vary or revoke a prudential standard.
On 26 June 2013, APRA made Banking (prudential standard) determination No. 1 of 2013 (the instrument), which revokes Prudential Standard APS 330 Capital Adequacy: Public Disclosure of Prudential Information made under Banking (prudential standard) determination No. 16 of 2012 (previous APS 330), and determines a new Prudential Standard APS 330 Public Disclosure (new APS 330).
The instrument commences on 30 June 2013.
- Background
In December 2010, in response to the global financial crisis, the Basel Committee on Banking Supervision (Basel Committee) released a package of reforms,[1] known as Basel III, to raise the level and quality of regulatory capital in the global banking system. Included in this package were expanded disclosure requirements that are intended to improve the transparency of regulatory capital and to enhance market discipline. Details of these requirements were released by the Basel Committee in June 2012.[2]
Also in response to the crisis, in July 2011,[3] the Basel Committee released measures to improve the transparency of remuneration policies and practices by institutions.
2. Purpose and operation of the instrument
The purpose of the instrument is to revoke the previous APS 330 and to replace it with the new APS 330.
The new APS 330 requires locally incorporated ADIs to meet additional minimum requirements for the public disclosure of information on their capital adequacy and introduces new disclosure requirements on remuneration so as to enhance transparency and market discipline in Australian financial markets.
The new APS 330 imposes composition of capital disclosure requirements and, as with the previous APS 330, applies to locally incorporated ADIs. It requires an ADI to complete a common disclosure template, reconcile regulatory capital with its balance sheet, disclose a summary of the main features of regulatory capital instruments and to make other incidental disclosures. These requirements are additional to the capital disclosure requirements introduced by APRA as part of its implementation of the Basel II capital framework that commenced in Australia in 2008. The new disclosures are to be referenced or included in full in an ADI’s published financial statements and on its website, unless APRA has agreed otherwise.
The new APS 330 introduces new requirements for a locally incorporated ADI to disclose information about its remuneration policy and procedures and aggregated data about the remuneration of its senior managers and material risk-takers.
2. Consultation
The capital and remuneration disclosures in new APS 330 have been foreshadowed for some time. In a letter to ADIs on 17 December 2010, APRA expressed its full support for the Basel III package of reforms and indicated its intention to consult on them.
Further, in a letter to ADIs on 7 October 2011, APRA indicated its intention to consult with industry on the Basel Committee’s remuneration disclosure requirements as part of ADI Pillar 3 reporting requirements. At the same time, APRA encouraged all locally incorporated ADIs to commence reporting on their remuneration practices in a manner consistent with the Basel Committee’s document as soon as practicable.
In its September 2012 Response Paper on Basel III Implementation in Australia, APRA once again advised the industry that the capital and remuneration disclosures would come into effect for reporting periods ending on or after 30 June 2013 and that APRA would consult in 2013 on these requirements.
Finally, APRA undertook consultation on the proposed implementation of the Basel III composition of capital and remuneration disclosure requirements in April 2013 and May 2013. This has involved formal consultation with industry as well as a meeting with a number of industry representatives. As set out in the Regulation Impact Statement, the consultation package included a discussion paper and draft APS 330.
3. Regulation Impact Statement
APRA has prepared a Regulation Impact Statement.
5. Statement of Compatibility with Human Rights Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
A Statement of Compatibility with Human Rights is Appendix A to this Explanatory Statement.
Appendix A
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Banking (prudential standard) determination No. 1 of 2013
This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (HRPS Act).
Overview of the Legislative Instrument
The purpose of the instrument is to revoke the previous Prudential Standard APS 330 Capital Adequacy: Public Disclosure of Prudential Information and replace it with a new Prudential Standard APS 330 Public Disclosure. The new APS 330 incorporates new Basel III disclosure requirements released by the Basel Committee on Banking Supervision. The disclosure requirements in the new APS 330 are aimed at improving the transparency of regulatory capital and enhancing market discipline by requiring locally incorporated authorised deposit-taking institutions (ADIs) to publicly disclose information regarding capital and remuneration.
Human rights implications
APRA has assessed the instrument against the international instruments listed in section 3 of the HRPS Act and determined that only Article 17 of the International Covenant on Civil and Political Rights (ICCPR) is potentially of relevance to the instrument. Article 17 of the ICCPR prohibits the arbitrary or unlawful interference with a person’s privacy, family, home and correspondence, and attacks on reputation. Article 17 is exclusively concerned with prohibiting interference with the privacy and/or reputation of individual persons. It does not extend to the privacy and/or reputation of corporate entities.
Under the new APS 330, some ADIs are required to publicly disclose information, including information regarding the ADI’s remuneration practices.
Under Attachment E of the new APS 330, an ADI is required to disclose certain quantitative information in relation to the remuneration of its senior management and other material risk-takers on an aggregate basis. ADIs are not required to disclose information directly relating to individual persons. Where disclosure of the aggregated information may result in the disclosure of information about an individual whose identity can reasonably be ascertained, an ADI may disclose more general information so that no personal information is disclosed. Consequently, the new APS 330 does not require ADIs to disclose personal information.
Conclusion
This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.
[1] http://www.bis.org/publ/bcbs189.htm
[2] http://www.bis.org/publ/bcbs221.htm
[3] http://www.bis.org/publ/bcbs197.htm