Financial Sector (Collection of Data) (reporting standard) determination No. 15 of 2017
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Financial Sector (Collection of Data) Act 2001, sections 13 and 15
Acts Interpretation Act 1901, section 33
Under subsection 13(1) of the Financial Sector (Collection of Data) Act 2001 (the Act), APRA has the power to determine reporting standards, in writing, with which financial sector entities must comply. Such standards relate to reporting financial or accounting data and other information regarding the business or activities of the entities. Subsection 33(3) of the Acts Interpretation Act 1901 provides that where an Act confers a power to issue an instrument the power shall, unless the contrary intention appears, be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to revoke any such instrument.
On 4 October 2017, APRA made Financial Sector (Collection of Data) (reporting standard) determination No. 15 of 2017, which revokes Reporting Standard ARS 110.0 Capital Adequacy made under Financial Sector (Collection of Data) (reporting standard) determination No. 5 of 2012 and determines Reporting Standard ARS 110.0 Capital Adequacy (ARS 110.0) (the instrument).
The instrument commences on 1 January 2018.
- 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. APRA carries out this mandate through a multi-layered prudential framework and is empowered under the Banking Act 1959 to issue legally binding prudential standards that set out specific prudential requirements with which authorised deposit taking institutions (ADIs) must comply.
A key component of APRA’s prudential framework is the suite of prudential standards that impose regulatory capital requirements on ADIs for the purpose of ensuring ADIs hold sufficient capital to address the risks associated with their operations. APRA’s capital adequacy framework for ADIs is based on the framework agreed by the Basel Committee on Banking Supervision (Basel Committee).
As part of its response to address deficiencies identified during the global financial crisis, the Basel Committee reviewed the existing capital framework and released Basel III: A global regulatory framework for more resilient banks and banking systems (Basel III capital).[1] Included in this framework was a countercyclical capital buffer requirement that applied to ADIs in Australia from 1 January 2016 under Prudential Standard APS 110 Capital Adequacy (APS 110)[2]. Each ADI was also required to publish its countercyclical capital buffer rate. The amendment to ARS 110 captures this rate as part of APRA’s reporting framework.
In 2014, the Basel Committee released Revisions to the Securitisation Framework (Basel III securitisation). [3] This framework and other changes to provide flexibility for ADIs in their securitisation activities were incorporated into the revised Prudential Standard APS 120 Securitisation (APS 120).[4] ARS 110.0 is being amended to capture information about an ADI’s securitisation exposures in line with this prudential requirement.
2. Purpose and operation of the instrument
The purpose of the instrument is to revoke the existing ARS 110.0 and replace it with a revised version of ARS 110.0. ARS 110.0 collects information from ADIs and the non-operating holding company of an ADI in certain circumstances. This information is used by APRA for the purpose of prudential supervision, including assessing compliance with APS 110. This information may also be used by the Reserve Bank of Australia and the Australian Bureau of Statistics.
The changes to the revised ARS 110.0 are:
- consolidating two securitisation reporting items into one line item which now captures total risk-weighted assets for securitisation exposures;
- amendments to the reporting instructions to include those securitisation exposures which are required to be deducted from Common Equity Tier 1 capital under the revised APS 120;
- other consequential amendments to the reporting instructions to reflect the removal of the internal ratings-based approach for securitisation exposures from the capital framework;
- amendment of the securitisation deconsolidation principle to align with the revised APS 120 and clarify that securitised assets must be reported on the ADI’s balance sheet where they do not meet APRA’s operational requirements for regulatory capital relief under APS 120, or are a funding-only or synthetic securitisation; and
- the introduction of a reporting item on the ADI-specific countercyclical capital buffer requirement.
Where ARS 110.0 incorporates by reference the requirements of another Act, Prudential Standard, Reporting Standard or other legislative instrument,[5] this is a reference to these instruments as they exist from time to time, and are available on the Federal Register of Legislation at www.legislation.gov.au.
3. Consultation
APRA separately consulted on the proposed amendments to ARS 110.0 in relation to both the consequential changes for securitisation and introduction of reporting of the countercyclical capital buffer requirement. APRA consulted publicly on these amendments from February 2017 to March 2017. For each proposal, APRA received one submission. The submission in relation to the securitisation measures did not raise any issues and the submission about the countercyclical capital buffer reporting requirement was fully supportive of the proposed change.
4. Regulation Impact Statement
APRA undertook an independent review of revisions to the securitisation framework, including reporting, and has followed a process and analysis equivalent to a Regulatory Impact Statement (RIS). Regulatory costs associated with the revisions to the securitisation framework were agreed with the Office of Best Practice Regulation (OBPR).[6]
No RIS was required for the introduction of the reporting requirement on the countercyclical capital buffer as the OBPR confirmed it to be a minor change to existing reporting requirements.
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
Financial Sector (Collection of Data) (reporting standard) determination No. 15 of 2017
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 Instruments
The purpose of this instrument is to revoke Reporting Standard ARS 110.0 Capital Adequacy made under Financial Sector (Collection of Data) (reporting standard) determination No. 5 of 2012 and determine a new Reporting Standard ARS 110.0 Capital Adequacy (ARS 110.0). ARS 110.0 aims to align the reporting requirements of ADIs with the revised prudential framework for securitisation and allow APRA to assess compliance with Prudential Standard APS 120 Securitisation, as well as monitor ADIs’ reporting of the countercyclical capital buffer requirement.
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
The Legislative Instrument is compatible with human rights as it does not raise any human rights issues.
[1] The Basel Committee’s Basel III document Basel III: A global regulatory framework for more resilient banks and banking systems (revised version June 2011) is available at: http://www.bis.org/publ/bcbs189.pdf
[2] APS 110 is available at: https://www.legislation.gov.au/Details/F2015L02076
[3] The Basel Committee’s Basel III document Revisions to the Securitisation Framework (December 2014) is available at: http://www.bis.org/bcbs/publ/d303.pdf
[4] APS 120 is available at: https://www.legislation.gov.au/Details/F2017L00663
[5] Including Accounting Standards made by the Australian Accounting Standards Board (AASB) under section 334 of the Corporations Act 2001 and auditing standards issued by the Auditing and Assurance Standards Board (AUASB) under section 336 of the Corporations Act 2001, all of which are disallowable instruments.
[6] APRA’s independent review is available at: http://www.apra.gov.au/adi/PrudentialFramework/Documents/Response%20to%20Submissions.pdf