Financial Sector (Collection of Data) (reporting standard) determination No. 16 of 2009 –Reporting standard ARS 117.1 – Interest Rate Risk in the Banking Book (IRRBB)
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Financial Sector (Collection of Data) Act 2001, (the Act) subsection 13(1)
Under subsection 13(1) of the Act APRA has the power to determine reporting standards that are required to be complied with by financial sector entities. When APRA has determined a reporting standard, it has the power at any time to revoke or vary the standard (refer subsection 33(3) of the Acts Interpretation Act 1901).
Financial Sector (Collection of Data) (reporting standard) determination No. 16 of 2009 determines Reporting standard ARS 117.1 Interest Rate Risk in the Banking Book (IRRBB) (the instrument). Reporting standard ARS 117.1 Interest Rate Risk in the Banking Book (IRRB) (ARS 117.1) is to take effect on the later of 1 August 2009 and the date of registration of this instrument on the Federal Register of Legislative Instruments.
- Background
Banking (prudential standard) determination No. 10 of 2007 determines Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced ADIs) (APS 117), which sets out the requirements that an authorised deposit-taking institution (ADI) that has approval to use an internal model for interest rate risk in the banking book must meet both at the time of initial implementation, and on an ongoing basis for regulatory capital purposes.
Reporting standard ARS 117.1 Interest Rate Risk in the Banking Book (IRRBB) captures the capital requirements for interest rate risk in the banking book in accordance with APS 117.
An error has been identified in the way one of the tables in the reporting form collates the data submitted by ADIs. The result is an incorrect calculation (resulting in an overstatement) in certain cases of the IRRBB requirement for ADIs. In order to correct this error amendments are required to the instructions to ARS 117.1.
2. Purpose of the instrument
The purpose of the instrument is to amend the reporting instructions to ARS 117.1. The proposed changes do not alter the underlying requirements of ARS 117.1. ADIs will still provide the same data as they currently do. Amending the instructions will ensure that an ADI’s capital requirement in relation to IRRBB will be calculated as originally consulted on with industry.
3. Operation of the Instrument
The purpose of determination No.16 of 2009 is to make the Reporting standard ARS 117.1 Interest Rate Risk in the Banking Book (IRRBB).
4. Consultation
APRA has not consulted with industry on these changes, as the original intention of the standard as previously consulted with industry has not changed.
Overview
The Financial Sector (Collection of Data) (reporting standard) determination No. 16 of 2009, also known as Reporting standard ARS 117.1 – Interest Rate Risk in the Banking Book (IRRBB), was enacted in 2009 under the Financial Sector (Collection of Data) Act 2001. This determination was introduced by the Australian Prudential Regulation Authority (APRA) to address a specific issue in the calculation of capital requirements for interest rate risk in the banking book as outlined in the Prudential Standard APS 117. The problem identified was an error in one of the reporting tables, which resulted in an overstatement of the IRRBB requirement for authorised deposit-taking institutions (ADIs) in certain cases. The policy objective was to correct this error by amending the reporting instructions without altering the underlying requirements of ARS 117.1, ensuring that the capital requirements for ADIs are calculated accurately as originally intended.
Scope and Application
The Financial Sector (Collection of Data) (reporting standard) determination No. 16 of 2009 applies to authorised deposit-taking institutions (ADIs) that have approval to use an internal model for interest rate risk in the banking book, as governed by Prudential Standard APS 117. This instrument, which amends the reporting instructions to ARS 117.1, ensures that ADIs will continue to provide the same data while correcting an error in the data collation that previously led to an overstatement of the interest rate risk in the banking book (IRRBB) requirement. The amendments do not alter the underlying requirements of ARS 117.1. The instrument is made under the Financial Sector (Collection of Data) Act 2001, which empowers the Australian Prudential Regulation Authority (APRA) to determine reporting standards for entities within the financial sector. This instrument is applicable nationally, as APRA operates under Commonwealth jurisdiction, and it does not exclude any specific entities or transactions within its scope. The instrument becomes effective on the later of 1 August 2009 and the date of its registration on the Federal Register of Legislative Instruments.
Key Provisions
The Financial Sector (Collection of Data) (reporting standard) determination No. 16 of 2009 (the instrument) amends the reporting instructions to ARS 117.1 Interest Rate Risk in the Banking Book (IRRBB). The operative sections of this determination include the amendment of the reporting instructions to ensure that the capital requirement for IRRBB is calculated as originally intended (section 2). This amendment is crucial as it corrects an error in the reporting form that previously led to an overstatement of the capital requirement in certain cases. Importantly, the underlying requirements of ARS 117.1 remain unchanged, and authorised deposit-taking institutions (ADIs) will continue to provide the same data as before.
The instrument imposes specific obligations on ADIs to comply with the amended reporting instructions under ARS 117.1. These obligations include ensuring that the data submitted accurately reflects the institution's interest rate risk in the banking book, in line with the corrected calculation methodology. ADIs must adhere to these instructions to maintain compliance with the capital adequacy requirements set out in APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced ADIs). Failure to comply with these reporting standards could potentially undermine the institution's capital adequacy and regulatory standing.
Breaching the requirements of the amended reporting instructions under ARS 117.1 could have significant consequences. While the instrument does not explicitly outline specific offences, penalties, or civil/criminal consequences, non-compliance with prudential standards and reporting requirements generally carries serious implications. APRA, as the regulatory authority, may take enforcement actions against ADIs that fail to comply, which could include fines, reprimands, or more stringent regulatory oversight. Additionally, persistent non-compliance could impact the institution's reputation and market standing, potentially leading to financial losses and diminished investor confidence.