Banking (prudential standard) determination No. 2 of 2011
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Banking Act 1959, section 11AF
Acts Interpretation Act 1901, section 33
Under subsection 11AF(1) of the Banking Act 1959 (the Banking 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 Banking Act, APRA may, in writing, vary or revoke a prudential standard.
On 21 April 2011 APRA made Banking (prudential standard) determination No. 2 of 2011 (the instrument) under subsection 11AF(3) of the Banking Act and under subsection 33(3) of the Acts Interpretation Act 1901.
The instrument varies paragraph 11 of Prudential Standard APS 210 – Liquidity (APS 210) by deleting the words “medium term” from the following sentence:
“However, an ADI may, subject to APRA’s prior written approval, exclude from its “liabilities” any medium term notes issued under securitisations that do not comply with all requirements under Prudential Standard APS 120 Securitisation (APS 120)”.
APRA has determined that the instrument will come into force on 2 May or the date of its registration on the Federal Register of Legislative Instruments, whichever last occurs.
- Background
The instrument varies APS 210 as most recently varied by Banking (prudential standard) determination No. 1 of 2011 (determination No. 1).
Following APRA’s decision to allow an alternative capital and liquidity treatments for originating ADIs retaining any subordinated tranches(s) of a securitisation (as more fully explained in the Explanatory Statement accompanying determination No.1), APRA has received industry requests for further clarification on the status of warehouse securitisations. Upon careful consideration, APRA has decided to extend the alternative capital treatment to include warehouse securitisations where the criteria allowed under the original approval for use of the alternative capital treatment are met.
2. Purpose and operation of the instruments
The purpose of the instrument is to vary paragraph 11 of APS 210 to allow an ADI, subject to APRA’s approval, to exclude from its “liabilities” any notes issued under securitisations that do not comply with all requirements under Prudential Standard APS 120 Securitisation (APS 120). Removal of “medium term” is intended to extend the alternative capital treatment to other non-medium term notes in warehouse securitisations.
3. Consultation
No formal consultation was undertaken due to the minor nature of this amendment. APRA believes that there will not have any adverse impact on ADIs.
The OBPR has agreed (OBPR ID: 2011/12286) that the proposed changes are of a minor nature and no further analysis (in the form of a Regulation Impact Statement) is required.
Overview
The Banking (prudential standard) determination No. 2 of 2011, made by the Australian Prudential Regulation Authority (APRA), amends Prudential Standard APS 210 – Liquidity (APS 210) to remove the restriction on excluding medium term notes issued under securitisations that do not comply with all requirements under Prudential Standard APS 120 Securitisation (APS 120). This determination was made under the Banking Act 1959, specifically section 11AF, which empowers APRA to set prudential standards for authorised deposit-taking institutions and authorised non-operating holding companies. The instrument aims to address the need for further clarification on the status of warehouse securitisations, extending the alternative capital treatment to include such securitisations where the specified criteria are met. APRA determined that no formal consultation was necessary due to the minor nature of the amendment and the expectation that it would not adversely impact authorised deposit-taking institutions.
Scope and Application
The Banking (prudential standard) determination No. 2 of 2011, made by the Australian Prudential Regulation Authority (APRA) under the Banking Act 1959, applies to authorised deposit-taking institutions (ADIs) and authorised non-operating holding companies (authorised NOHCs). This determination modifies a specific aspect of the Prudential Standard APS 210 – Liquidity (APS 210), particularly concerning the exclusion of certain liabilities from the "liabilities" category, subject to APRA’s prior written approval. This alteration is intended to accommodate notes issued under securitisations that do not fully comply with Prudential Standard APS 120 Securitisation (APS 120), thereby extending the alternative capital treatment to include notes from warehouse securitisations where certain conditions are met. The amendment became effective on 2 May 2011 or the date of its registration on the Federal Register of Legislative Instruments, whichever is later. The decision to implement this change was based on industry feedback and aimed at providing further clarity regarding the status of warehouse securitisations, without any anticipated adverse effects on ADIs.
Key Provisions
The Banking (prudential standard) determination No. 2 of 2011 primarily affects the Prudential Standard APS 210 – Liquidity (APS 210), specifically altering the requirements for authorised deposit-taking institutions (ADIs) regarding their liabilities under securitisations. Section 11 of APS 210, as amended, now allows an ADI to exclude certain notes from its "liabilities" if these notes do not comply with the requirements under Prudential Standard APS 120 Securitisation (APS 120). This amendment was made by removing the term "medium term" from the relevant sentence, thereby extending the applicability of the alternative capital treatment to all non-medium term notes in warehouse securitisations, provided they meet specific criteria.
The determination imposes specific obligations on ADIs. They must ensure that any notes issued under securitisations that do not comply with APS 120 are excluded from their "liabilities" subject to APRA’s prior written approval. This requirement necessitates that ADIs maintain proper documentation and justification for such exclusions and seek timely approval from APRA. Compliance with these provisions is essential to ensure that ADIs maintain adequate liquidity levels as per the standards set by APRA.
Failure to comply with the prudential standards set out in the Banking (prudential standard) determination No. 2 of 2011 may result in significant consequences. While the instrument does not explicitly outline specific offences or penalties, non-compliance with APRA's prudential standards generally can lead to enforcement actions. Such actions may include directions to rectify non-compliance, public reprimands, or more severe measures such as fines or sanctions under the Banking Act 1959. Additionally, persistent non-compliance may harm an institution's reputation and potentially lead to financial instability, which is closely monitored by APRA.