Banking (prudential standard) determination No. 3 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 20 December, 2013, APRA made Banking (prudential standard) determination No. 3 of 2013 (the instrument) which revokes Prudential Standard APS 210 Liquidity made under Banking (prudential standard) determination No. 13 of 2007 and determines Prudential Standard APS 210 Liquidity (APS 210).
The instrument commences on 1 January 2014.
- Background
APRA’s mandate is to ensure the safety and soundness of prudentially regulated financial institutions so that they can meet their financial promises to depositors, policyholders and fund members within a stable, efficient and competitive financial system. In response to the global financial crisis, the Basel Committee on Banking Supervision developed and released global liquidity measures for internationally active banks, known as Basel III liquidity. This prudential standard is APRA’s implementation of one of the two Basel Committee global liquidity standards, the Liquidity Coverage Ratio. It additionally incorporates the Principles for Sound Liquidity Risk Management and Supervision, which are qualitative liquidity risk management guidelines released by the Basel Committee in 2008.
2. Purpose and operation of the instrument
Banking (prudential standard) determination No. 3 of 2013.
The purpose of the instrument is to revoke the existing APS 210 and to replace it with a new version of APS 210.
APS 210 aims to ensure that an ADI adopts prudent practices in managing its liquidity risks and maintains an adequate level of liquidity to meet its obligations as they fall due across a wide range of operating circumstances. The key changes to APS 210 are:
- enhanced qualitative requirements for all ADIs that ensure that an ADI’s risk management framework is commensurate with the nature, scale and complexity of the institution;
- a revised minimum liquid assets holding requirement for larger and more complex ADIs. The new requirement, the Liquidity Coverage Ratio (LCR), requires an ADI to run a 30-day stress test that incorporates both market wide and idiosyncratic stress components and hold high-quality liquid assets (HQLA) in sufficient quantity to enable the ADI to withstand a severe liquidity stress; and
- minor revisions to the Minimum Liquidity Holdings approach for ADIs with smaller, retail-based operations.
3. Consultation
APRA undertook extensive consultation on the proposed implementation of the Basel III liquidity reforms in Australia, beginning with a September 2009 consultation on ADI liquidity risk. APRA’s formal public consultation packages consisted of the following:
- September 2009: APRA’s prudential approach to ADI liquidity risk (discussion paper);
- November 2011: Implementing Basel III Liquidity Reforms in Australia (discussion paper and draft prudential standard);
- November 2012: Liquidity reporting requirements for authorised deposit-taking institutions (discussion paper and draft reporting standards);
- May 2013: Implementing Basel III Liquidity Reforms in Australia(discussion paper including response to submissions, draft prudential standard and prudential practice guide); and
- December 2013: Implementing Basel III Liquidity Reforms in Australia (second response to submissions paper, prudential standard, prudential practice guide and reporting standards).
In addition, since the end of 2010, APRA has been collecting data on bank LCR positions as a part of the Basel Committee’s Quantitative Impact Study. Initially, APRA collected semi-annual data from six larger ADIs, since March 2012, it has been collecting data on a quarterly basis from all LCR ADIs.
4. Regulation Impact Statement
APRA prepared a Regulation Impact Statement that has been lodged as supporting material.
5. Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
A Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 is provided at Attachment A to this Explanatory Statement.
Attachment 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. 3 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 instrument revokes Prudential Standard APS 210 Liquidity made under Banking (prudential standard) determination No. 13 of 2007 and determines Prudential Standard APS 210 Liquidity (APS 210). APS 210 aims to ensure that an ADI adopts prudent practices in managing its liquidity risks and maintains an adequate level of liquidity to meet its obligations as they fall due across a wide range of operating circumstances.
Human rights implications
APRA has assessed the instrument and is of the view that it does not engage any of
the applicable rights or freedoms recognised or declared in the international
instruments listed in section 3 of the HRPS Act. Accordingly, in APRA’s assessment,
the instrument is compatible with human rights.
Conclusion
This Legislative Instrument is compatible with human rights as it does not raise any
human rights issues.