Banking (prudential standards) determination No. 2 of 2004
References to accounting standards
Banking Act 1959
I, John Francis Laker, Chair of APRA, under subsection 11AF(3) of the Banking Act 1959 (the “Act”), VARY the prudential standards and guidance notes referred to in the Schedule as provided for in the Schedule.
This variation comes into force on 1 January 2005.
Dated 15 December 2004
[Signed]
John Francis Laker
Chair
Note An ADI that does not comply with a standard may be issued with directions by APRA under paragraph 11CA(1)(a) of the Act. Non-compliance with a direction is an offence attracting a penalty of up to $27,500 for each day that the offence continues. Officers of the ADI may also be criminally liable (see section 11CG).
Interpretation
In this Notice
ADI has the meaning given in section 5 of the Act.
APRA means the Australian Prudential Regulation Authority.
Schedule
[1] Guidance Note AGN 110.2 – Non-consolidated Subsidiaries, paragraph 2, after ‘Australian accounting standards’
insert
‘as they applied in relation to reporting periods that began immediately before 1 January 2005’
[2] Guidance Note AGN 111.1 – Tier 1 Capital, subparagraph 1(a), after ‘Australian Accounting Standards’
insert
‘(as they applied in relation to reporting periods that began immediately before 1 January 2005)’
[3] Guidance Note AGN 111.2 – Tier 2 Capital, subparagraph 1(c)
substitute
‘the revaluations must be conducted regularly and subject to audit review consistent with Australian Accounting Standards AASB 1010 and AASB 1041 (as they applied in relation to reporting periods that began immediately before 1 January 2005) and auditing practice; and’
[4] Prudential Standard APS 120 – Funds Management & Securitisation, footnote 1 on page 1
omit
‘(as defined in Australian Accounting Standards)’
substitute
‘(as defined in the Australian Accounting Standards as they applied in relation to reporting periods that began immediately before 1 January 2005)’
[5] Guidance Note AGN 120.1 – Disclosure and Separation, subparagraph 11(d), after ‘Australian Accounting Standards’
insert
‘(as they applied in relation to reporting periods that began immediately before 1 January 2005)’
[6] Prudential Standard APS 221 – Large Exposures, subparagraph 8(c), after ‘Australian accounting standards’
insert
‘as they applied in relation to reporting periods that began immediately before 1 January 2005’
Overview
The Banking (Prudential Standards) Determination No. 2 of 2004 was enacted to address the need for prudential standards and guidance notes within the Banking Act 1959 to be aligned with Australian accounting standards as they applied to reporting periods beginning immediately before 1 January 2005. This determination was made by John Francis Laker, the Chair of the Australian Prudential Regulation Authority (APRA), under subsection 11AF(3) of the Act, to ensure that Australian Deposit-taking Institutions (ADIs) adhere to consistent accounting practices when reporting their financials. The legislative instrument came into force on 1 January 2005, and it underscores the importance of regulatory compliance by stipulating that non-compliance with these standards may lead to directions from APRA, with potential criminal liability for officers of the ADI in cases of persistent non-compliance. This determination is a part of the ongoing efforts to maintain the stability and integrity of Australia's banking sector.
Scope and Application
The Banking (prudential standards) determination No. 2 of 2004 pertains to Australian Deposit-taking Institutions (ADIs) as defined under section 5 of the Banking Act 1959. The legislation, overseen by the Australian Prudential Regulation Authority (APRA), aims to modify certain prudential standards and guidance notes. These changes came into effect on 1 January 2005 and include updates to specific accounting standards and practices relevant to ADIs, ensuring consistency with Australian Accounting Standards as they applied to reporting periods beginning immediately before this date. Non-compliance with these standards can result in APRA issuing directions to the ADI, with potential penalties and criminal liability for officers involved in the non-compliance. The application of this legislation extends nationally within Australia, governing the financial conduct and reporting of ADIs under the jurisdiction of the Commonwealth.
Key Provisions
The Banking (prudential standards) determination No. 2 of 2004 (the “Determination”) varies the prudential standards and guidance notes specified in the Schedule, coming into effect on 1 January 2005. These variations include modifications to references in several guidance notes and prudential standards to align them with Australian accounting standards as they applied to reporting periods that began immediately before 1 January 2005. Specifically, references to Australian accounting standards in Guidance Note AGN 110.2 – Non-consolidated Subsidiaries, Guidance Note AGN 111.1 – Tier 1 Capital, Guidance Note AGN 111.2 – Tier 2 Capital, Prudential Standard APS 120 – Funds Management & Securitisation, Guidance Note AGN 120.1 – Disclosure and Separation, and Prudential Standard APS 221 – Large Exposures have been updated to reflect these earlier standards. This ensures consistency and continuity in the application of accounting principles relevant to the banking sector.
The Determination imposes clear obligations on authorised deposit-taking institutions (ADIs) to comply with the amended standards and guidance notes. Failure to adhere to these updated standards may result in regulatory action from the Australian Prudential Regulation Authority (APRA). Under the Banking Act 1959, APRA can issue directions to ADIs that do not comply with these prudential standards. Non-compliance with such directions is considered an offence, which can lead to severe penalties. The Act specifies that the penalty for each day the offence continues is up to $27,500, and officers of the ADI may also face criminal liability.
In addition to the financial penalties, the Determination underscores the seriousness of non-compliance by highlighting the potential criminal liability of officers within ADIs. This serves as a deterrent against negligence or willful disregard of the prudential standards. The specified offences and associated penalties underscore the regulatory authority's commitment to maintaining financial stability and protecting the interests of depositors and the broader financial system. The maximum penalty for continuing non-compliance acts as a strong incentive for ADIs to ensure adherence to the stipulated standards and guidance notes.