Banking (prudential standards) determination No. 9 of 2006
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Issued by the authority of APRA
Banking Act 1959 (the Act), subsection 11AF(3)
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. Those prudential standards incorporate guidance notes (AGNs) which include further detail regarding the prudential matters to be complied with under those standards.
The new prudential standards and guidance notes determined in May 2006 revised and replaced earlier standards and guidance notes to take into account (a) a number of changes to APRA’s Tier 1 capital requirements as a result of the adoption of the Basel II framework and (b) changes reflecting the adoption in Australia of new international accounting standards (IFRS). Specifically:
(a) Prudential standard APS 111 was determined by Banking (prudential standard) determination No. 4 of 2006, dated 30 May 2006, to take effect from 1 July 2006;
(b) guidance notes AGN 111.1, 111.2, 111.3 and 111.4 form part of Prudential standard APS 111;
(c) guidance note AGN 112.1 forms part of Prudential standard APS 112 which was determined by Banking (prudential standard) determination No. 5 of 2006, dated 30 May 2006, to take effect from 1 July 2006;
(d) guidance note AGN 120.4 forms part of Prudential standard APS 120 which was determined by Banking (prudential standard) determination No. 6 of 2006, dated 30 May 2006, to take effect from 1 July 2006;
(e) Prudential standard APS 220 was determined by Banking (prudential standard) determination No. 7 of 2006, dated 30 May 2006, to take effect from 1 July 2006;
(f) guidance notes AGN 220.1, 220.2 and 220.4 form part of Prudential standard APS 220; and
(g) Prudential standard APS 221 was determined by Banking (prudential standard) determination No. 8 of 2006, dated 30 May 2006, to take effect from 1 July 2006.
- Background
Subsequent to 30 May 2006, APRA identified that the new Prudential standards and guidance notes contained a range of errors and omissions which needed to be corrected as soon as possible. This Explanatory Statement explains the changes.
2. Purpose of the instrument
Banking (prudential standards) determination No. 9 of 2006 (the instrument) varies Prudential standards APS 111, 220 and 221 and guidance notes AGN 111.1 – 111.4, 112.1, 120.4, 220.1, 220.2 and 220.4 in order to correct several errors and omissions.
3. Operation of the instrument
Prudential standard APS 111 and associated guidance notes
Changes are required to rectify a number of minor errors and inconsistencies in the prudential standard and associated guidance notes. These include deletion of a reference to ‘joint ventures’, that is already covered by a footnote, deletion of duplicated wording in a guidance note, insertion of or changes to words (i.e. changing the word ‘is’ to ‘are’) for the purposes of clarity and changing the way cross-references are referred to for the purposes of clarity. None of these changes impact on the meaning or interpretation of the prudential standard or associated guidance notes.
Also the use of the word “quoted” has been removed when referring to “readily marketable securities” as APRA also allows debt securities to be included in Available for Sale Revaluation Reserves and debt securities are not typically quoted on any exchange.
Footnote 9 in APS 111 has been amended by insertion of the word tangible in relation to investments in subsidiaries for consistency with APRA’s approach to Excess of Market Value over Net Assets (EMVONA). This is to clarify that intangible assets on the books of the subsidiary should also be deducted from Tier 1 capital.
Guidance Note AGN 112.1
The only change to this guidance is in paragraph 4 where the words ‘(refer Attachment D) have been deleted. There is no Attachment D to this guidance note.
Guidance Note AGN 120.4
Subsequent to this guidance notes being determined on 30 May 2006 it was identified that the section entitled ‘Lending Facilities’ had been inadvertently omitted. It was not intended that this section be omitted, the requirements exist in the existing version of the guidance note and it was intended that they continue to apply as part of the guidance note that has effect from 1 July 2006.
Prudential Standard APS 220 and associated guidance notes
Changes are required to rectify a number of minor errors and inconsistencies in the prudential standard and associated guidance notes. These include a number of minor wording changes for the purposes of clarity. None of these changes impacts on the meaning or interpretation of the prudential standard or associated guidance notes.
Prudential Standard APS 221
The existing cross-references in paragraphs 14, 15 and 16 are incorrect and need to be changed so that they refer to the correct paragraphs. These changes are for the purposes of ensuring that the reader is directed to the correct paragraphs.
4. Consultation
APRA did not consider industry consultation to be necessary for the purposes of the instrument. The variations detailed in the instrument are mechanistic and routine in nature. The largest variation was to add three new paragraphs (numbered 23 – 25) inadvertently omitted from the end of AGN 120.4. However, those paragraphs were also contained in the prior version of AGN 120.4 and no new requirements were imposed by APRA.
APRA consulted with industry extensively in relation to the prudential standards and related guidance notes varied by the instrument.