Banking (prudential standard) determination No. 4 of 2011
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 October 2011, APRA made Banking (prudential standard) determination No. 4 of 2011 under subsections 11AF(1) and (3) of the Act (the instrument).
The instrument revokes Prudential Standard APS 120 Securitisation (old APS 120) as determined on 30 November 2007 by Banking (prudential standard) determination No. 11 of 2007.
The instrument will take effect when it is registered on the Federal Register of Legislative Instruments.
- Background
The Banking Amendment (Covered Bonds) Act 2011 amends the Banking Act 1959 to permit ADIs to issue covered bonds. Accordingly, the prohibition in paragraph 7 of the old APS 120 against an ADI issuing covered bonds needs to be removed.
2. Purpose and operation of the instrument
The purpose of the instrument is to revoke old APS 120 and to make a new APS 120 which removes the prohibition on ADIs issuing covered bonds.
3. Consultation
APRA participated in consultation meetings convened by Treasury with ADIs, the Australian Bankers’ Association, the Australian Securitisation Forum and other parties on the Banking Amendment (Covered Bonds) Bill 2011 (the Bill). All parties acknowledged the need to remove the prohibition against covered bonds in old APS 120 once the Bill became law.
4. Regulation Impact Statement
The Office of Best Practice Regulation has advised that a Regulation Impact Statement is not required.
Overview
Banking (prudential standard) determination No. 4 of 2011 was introduced by the Australian Prudential Regulation Authority (APRA) to address a gap in the regulatory framework regarding the issuance of covered bonds by authorised deposit-taking institutions (ADIs). This determination was enacted under the Banking Act 1959, specifically section 11AF, which empowers APRA to set and modify prudential standards. The enactment of the Banking Amendment (Covered Bonds) Act 2011 necessitated the revision of Prudential Standard APS 120 Securitisation, previously determined in 2007, to permit ADIs to issue covered bonds, a practice previously prohibited. This change reflects the policy objective of adapting the regulatory environment to allow for the issuance of covered bonds, aligning with broader financial market developments and providing ADIs with additional financial instruments. The determination will become effective upon registration on the Federal Register of Legislative Instruments.
Scope and Application
The Banking (prudential standard) determination No. 4 of 2011, issued by the Australian Prudential Regulation Authority (APRA) under the Banking Act 1959, pertains specifically to authorised deposit-taking institutions (ADIs) and authorised non-operating holding companies (authorised NOHCs). This determination revokes the previous Prudential Standard APS 120 Securitisation and introduces a new APS 120 that removes the prohibition on ADIs issuing covered bonds, in line with the changes brought about by the Banking Amendment (Covered Bonds) Act 2011. This legislative instrument applies nationally across Australia, and its implementation is subject to its registration on the Federal Register of Legislative Instruments. The scope of the determination is confined to prudential standards governing financial conduct and does not extend to other industries or entities outside the banking sector. Additionally, APRA engaged in consultations with relevant stakeholders to ensure that the regulatory changes were well understood and accepted prior to the enactment of this determination.
Key Provisions
The Banking (prudential standard) determination No. 4 of 2011, made by the Australian Prudential Regulation Authority (APRA) under section 11AF(1) and (3) of the Banking Act 1959, revokes the Prudential Standard APS 120 Securitisation (old APS 120) determined on 30 November 2007. This determination takes effect upon its registration on the Federal Register of Legislative Instruments. The primary purpose of this determination is to update the prudential standards to align with the new legislative framework that permits authorised deposit-taking institutions (ADIs) to issue covered bonds, as introduced by the Banking Amendment (Covered Bonds) Act 2011.
This determination imposes an obligation on APRA to revise the prudential standards in order to reflect the changes brought about by the new legislative provisions. Specifically, it requires the removal of the prohibition on ADIs issuing covered bonds, which was present in the old APS 120. This change is essential to ensure that the prudential standards remain relevant and effective in the current regulatory environment. The determination also facilitates the transition of ADIs to the new legal framework, enabling them to issue covered bonds in compliance with the updated standards.
In terms of compliance, ADIs and authorised non-operating holding companies (authorised NOHCs) governed by this determination must adhere to the revised prudential standards. These standards are designed to maintain the stability and soundness of the banking sector. ADIs must ensure that their issuance of covered bonds aligns with the requirements set forth in the new APS 120. Failure to comply with these standards may result in regulatory scrutiny or enforcement actions by APRA.
The Banking (prudential standard) determination No. 4 of 2011 does not introduce new offences or penalties; however, breaches of the prudential standards could lead to regulatory consequences. Such consequences may include enforcement actions by APRA, which could range from requiring corrective actions to imposing more stringent oversight. Although the determination itself does not specify maximum penalties, breaches of the Banking Act 1959 or associated regulations could attract penalties as prescribed in those laws, which may include substantial fines or other regulatory sanctions.