Banking (prudential standard) determination No. 10 of 2006
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
subsection 11AF(3) of the Banking Act 1959 (the Act)
Under subsection 11AF(1) of the Act, APRA may, in writing, determine standards (prudential standards) in relation to prudential matters to be complied with by all authorised deposit-taking institutions (ADIs). Under subsection 11AF(3) of the Act, APRA may, in writing, vary a prudential standard.
In May 2006, APRA determined a number of prudential standards to take effect from 1 July 2006. The new prudential standards revised and replaced earlier standards to take into account changes reflecting the adoption in Australia of new international financial reporting standards (IFRS). The new prudential standards included:
- Prudential standard APS 111, which was determined by Banking (prudential standard) determination No. 4 of 2006, dated 30 May 2006 and took effect from 1 July 2006;
- Prudential standard APS 112, which was determined by Banking (prudential standard) determination No. 5 of 2006, dated 30 May 2006, and took effect from 1 July 2006;
- Guidance note AGN 112.1, which forms part of Prudential standard APS 112; and
- Prudential standard APS 120, which was determined by Banking (prudential standard) determination No. 6 of 2006, dated 30 May 2006, and took effect from 1 July 2006.
- Background
APRA has identified that the new prudential standards and guidance note listed above contain some errors and omissions. It is desirable to correct these errors as soon as possible. This Explanatory Statement explains the changes.
2. Purpose of the instrument
Banking (prudential standard) determination No. 10 of 2006 (the instrument) varies Prudential standards APS 111, APS 112 and APS 120 and guidance note AGN 112.1 to correct these minor, inadvertent errors.
3. Operation of the instrument
Prudential standard APS 111
The instrument corrects a typographical error in footnote 10 by reinstating the word ‘and’ into the footnote. This error does not impact on the interpretation of the prudential standard.
Prudential standard APS 112
The instrument corrects the reference to Guidance Note AGN 112.2 in paragraph 1 of the standard. The accurate title of the guidance note is “Risk-weighted Off-balance Sheet Credit Exposures”, whereas the current APS 112 refers to the guidance note as “Risk-weighted On-Balance Sheet Credit Exposures. This is a typographical error that does not impact on the meaning or interpretation of the prudential standard.
Guidance Note AGN 112.1
Paragraph 30 of Attachment A is a duplicate of paragraph 29 of the same attachment. The instrument deletes paragraph 30 and renumbers the subsequent three paragraphs in Attachment A accordingly. This is a typographical error that does not impact on the meaning or interpretation of the prudential standard.
Prudential standard APS 120
The instrument reinstates and slightly re-words footnote 2. The old APS 120 stated “For the purposes of this standard and the associated guidance notes, reference to “ADI” or “ADIs” includes an ADI and its subsidiaries (as defined in the Australian Accounting Standards as they applied in relation to reporting periods that began immediately before 1 January 2005) unless otherwise stated”. The purpose of the footnote is to make it clear that relevant parts of the standard apply not only to an ADI, but to an ADI and its subsidiaries as a group.
It was not intended that this footnote be omitted from the new APS 120 as the applicable requirements still apply; rather the footnote should have been amended to remove the reference to the Australian Accounting Standards. The footnote now states “For the purposes of this Prudential Standard and the related guidance notes, unless otherwise stated, a reference to ‘ADI’ or ‘ADIs’ includes an ADI or ADIs and its or their subsidiaries”.
Existing footnote references “2” and “3” are renumbered “3” and “4” respectively.
4. Consultation
APRA did not consider industry consultation to be necessary for the purposes of the instrument. The variations are mechanistic and routine in nature, and no new requirements (that were not imposed by the old version of APS 120) have been imposed by APRA. The amendment merely brings this aspect of the new APS 120 (which came into effect on 1 July 2006) into line with the old version.
APRA consulted with industry extensively in relation to the new versions of APS 111, APS 112, APS 120 and AGN 112.1 which are varied by the instrument.