Financial Sector (Collection of Data) (reporting standard) determination Nos. 16 and 17 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 the following determinations (the instruments):
(1) Financial Sector (Collection of Data) (reporting standard) determination No. 16 of 2017 which:
(i) revokes Reporting Standard ARS 120.0 Standardised Approach - Securitisation made under Financial Sector (Collection of Data) (reporting standard) determination No. 12 of 2012;
(ii) revokes Reporting Standard ARS 120.1 Internal Ratings-based (IRB) Approach - Securitisation made under Financial Sector (Collection of Data) (reporting standard) determination No. 13 of 2012; and
(iii) determines Reporting Standard ARS 120.1 Securitisation – Regulatory Capital (ARS 120.1);
(2) Financial Sector (Collection of Data) (reporting standard) determination No. 17 of 2017 which:
(i) revokes Reporting Standard ARS 120.2 Securitisation – Supplementary Items made under Financial Sector (Collection of Data) (reporting standard) determination No. 3 of 2012; and
(ii) determines Reporting Standard ARS 120.2 Securitisation – Supplementary Items (ARS 120.2).
The instruments commence 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 beneficiaries 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.
APRA’s prudential framework for ADIs is based on the framework agreed by the Basel Committee on Banking Supervision (Basel Committee). As part of its strategic response to address weaknesses revealed by the global financial crisis, the Basel Committee undertook a review of its existing securitisation framework and, in December 2014, released Revisions to the Securitisation Framework (Basel III securitisation). [1] APRA incorporated the Basel III securitisation framework and other changes to provide flexibility for ADIs in their securitisation activities in the revised Prudential Standard APS 120 Securitisation (APS 120).[2]
ADIs are currently required to report their securitisation activities to APRA in order to calculate regulatory capital requirements for their securitisation exposures. The revised APS 120 necessitates changes to APRA’s reporting standards for securitisation in order to align reporting requirements with the revised prudential requirements. The revised ARS 120.1 and ARS 120.2 will allow APRA to monitor the updated capital requirements for securitisation as part of the adoption of the Basel III capital framework, as well as the other securitisation activities of ADIs.
2. Purpose and operation of the instrument
The purpose of these instruments is to revoke the existing securitisation reporting standards and replace them with the revised securitisation reporting standards ARS 120.1 and ARS 120.2, which align with the revised APS 120. APRA has also streamlined the prudential reporting requirements so that the volume and detail of reporting is reduced.
The revised version of ARS 120.1 contains a number of changes reflecting the adoption of the Basel III securitisation framework and revised APS 120. These include:
- the removal of reporting capital requirements for securitisation exposures calculated under the internal ratings-based approach and consolidation of Reporting Standard ARS 120.0 Standardised Approach – Securitisation and Reporting Standard ARS 120.1 Internal Ratings-based (IRB) Approach – Securitisation into one regulatory capital reporting standard, ARS 120.1;
- reporting of regulatory capital allocated for securitisation exposures calculated according to the external ratings-based approach, supervisory formula approach or risk-weight cap approach;
- more granular reporting items for securitisation exposures which are required to be deducted from Common Equity Tier 1 capital; and
- 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.
The revised version of ARS 120.2 contains a number of changes reflecting the adoption of the Basel III securitisation framework and revised APS 120. These include:
- new items to capture reporting of securitisation activities by securitisation structure type;
- reporting of holdings of own senior securities; and
- more granular reporting requirements for self-securitisation activities.
ARS 120.1 and ARS 120.2, collect 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 120. This information may also be used by the Reserve Bank of Australia and the Australian Bureau of Statistics.
Where ARS 120.1 and ARS 120.2 incorporate by reference the requirements of another Act, Prudential Standard, Reporting Standard or other legislative instrument[3], 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 consulted publicly on its proposed revisions to the securitisation reporting standards from February 2017 to March 2017. One submission was received from an ADI, which resulted in minor amendments being made to the reporting forms and instructions. In June 2017, APRA released a response letter ‘Reporting requirements for securitisation and the countercyclical capital buffer’ and final revised ARS 120.1 and ARS 120.2. [4]
4. Regulation Impact Statement
APRA undertook an independent review of revisions to the securitisation framework, which included amendments to the securitisation reporting standards, and 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.[5]
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 Nos. 16 and 17 of 2017
These Legislative Instruments are 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 the instruments is to:
(1) Revoke Reporting Standard ARS 120.0 Standardised Approach – Securitisation made under Financial Sector (Collection of Data) (reporting standard) determination No. 12 of 2012, and Reporting Standard ARS 120.1 Internal Ratings-based (IRB) Approach made under Financial Sector (Collection of Data) (reporting standard) determination No. 13 of 2012 and determine a new Reporting Standard ARS 120.1 Securitisation – Regulatory Capital (ARS 120.1). ARS 120.1 aims to align the reporting requirements of authorised deposit-taking institutions with the simplified prudential framework for securitisation.
(2) Revoke Reporting Standard ARS 120.2 Securitisation – Supplementary Items made under Financial Sector (Collection of Data) (reporting standard) determination No. 3 of 2012 and determine a new Reporting Standard ARS 120.2 Securitisation – Supplementary Items (ARS 120.2). ARS 120.2 aims to align the reporting requirements of ADIs with the simplified prudential framework for securitisation.
Human rights implications
APRA has assessed the instruments and is of the view that they do 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 instruments are compatible with human rights.
Conclusion
The Legislative Instruments are compatible with human rights as they do not raise any human rights issues.
[1] 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
[2] APS 120 is available at: https://www.legislation.gov.au/Details/F2017L00663
[3] 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.
[4] APRA’s response letter ‘Response to submissions - revised ADI reporting requirements for securitisation and the countercyclical capital buffer’ (June 2017) is available at: http://www.apra.gov.au/adi/PrudentialFramework/Documents/Response%20to%20submissions%20-%20securitisation%20and%20countercyclical%20capital%20buffer%20reporting.pdf
[5] APRA’s independent review is available at: http://www.apra.gov.au/adi/PrudentialFramework/Documents/Response%20to%20Submissions.pdf