Banking (prudential standard) determination No. 10 of 2006 - Variation of various Prudential Standards and Guidance Notes

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Legislation au F2006L02609 Not in force Legislative Instrument

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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.
  1. 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.

Overview

The Banking (prudential standard) determination No. 10 of 2006 was enacted to address issues identified in the previous prudential standards set by the Australian Prudential Regulation Authority (APRA) under the Banking Act 1959. APRA identified certain errors and omissions in the newly revised prudential standards, necessitating a correction to ensure the standards operate effectively. The prudential standards affected by this determination include APS 111, APS 112, and APS 120, along with the guidance note AGN 112.1. These corrections aim to rectify typographical errors and ensure the accuracy of references without altering the intended meaning or interpretation of the standards. The policy objective of this determination is to maintain the integrity and effectiveness of the prudential standards that govern authorised deposit-taking institutions (ADIs) in Australia. By correcting these minor errors, APRA ensures that the standards continue to provide the necessary framework for the safe and sound operation of ADIs, aligning with the broader goal of financial stability in Australia. The changes introduced by this determination are of a routine nature and do not impose any new requirements on ADIs, thereby maintaining the continuity and reliability of the existing regulatory framework.

Scope and Application

The Banking (prudential standard) determination No. 10 of 2006, issued by the Australian Prudential Regulation Authority (APRA), applies to all authorised deposit-taking institutions (ADIs) across Australia, as mandated by subsection 11AF(3) of the Banking Act 1959. The primary purpose of this instrument is to correct inadvertent errors in the earlier determined prudential standards APS 111, APS 112, and APS 120, as well as in guidance note AGN 112.1, which were issued in May 2006 and took effect from 1 July 2006. These corrections are aimed at ensuring that the standards remain clear and consistent without introducing any new requirements or altering the original intent of the prudential measures. APRA did not engage in further industry consultation for these specific corrections, deeming them to be routine and mechanistic. However, extensive consultations had already been undertaken regarding the initial standards.

Key Provisions

The Banking (prudential standard) determination No. 10 of 2006 primarily focuses on correcting minor, inadvertent errors in previously established prudential standards and a guidance note. These corrections involve typographical errors and misreferences, as outlined in the instrument (sections 3 and 4). For instance, Prudential standard APS 111 corrects a typographical error in footnote 10 by reinstating the word 'and'. Similarly, Prudential standard APS 112 corrects a misreference to a guidance note, and Guidance Note AGN 112.1 corrects a duplication error in Attachment A. Furthermore, Prudential standard APS 120 corrects a footnote that was inadvertently omitted, ensuring clarity regarding the applicability of the standard to subsidiaries of authorised deposit-taking institutions (ADIs). The revised standards impose specific obligations on authorised deposit-taking institutions (ADIs) and their subsidiaries. The corrections in the standards ensure that the requirements and interpretations remain consistent with the original intent of the legislation. For example, the correction in APS 111 ensures that the footnote is accurately reflecting the intended meaning. The amendment in APS 112 ensures that the reference to the guidance note is correct, thereby maintaining the integrity of the regulatory framework. The deletion of the duplicate paragraph in AGN 112.1 and the renumbering of subsequent paragraphs ensures that the guidance is clear and free of redundancy. There are no specific offences, penalties, or consequences outlined in the Banking (prudential standard) determination No. 10 of 2006, as the variations are purely corrective in nature. The instrument does not introduce new requirements or alter existing obligations beyond correcting errors. The purpose is to ensure that the standards and guidance notes remain accurate and reflective of the intended regulatory framework. Any failure to comply with the corrected standards would still be subject to the penalties and consequences outlined in the original Banking Act 1959 and other related regulations. The determination emphasises the importance of adhering to the corrected standards to maintain the prudential oversight of ADIs.

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