3 June 2013
To all locally incorporated Authorised Deposit-taking institutions (ADIs)
Implementation of APRA’s Basel III capital and remuneration disclosure requirements.
In April 2013, APRA released a discussion paper Basel III disclosure requirements: composition of capital and remuneration and draft Prudential Standard APS 330 Public Disclosure (APS 330).1 Following consideration of submissions received, APRA will finalise APS 330 in June 2013.
Submissions and discussions with industry have indicated concerns about the implementation date, the timing of remuneration disclosures and potential audit implications of these disclosures. In advance of the publication of the response paper and release of the final APS 330, APRA is clarifying its position on these issues.
The capital and remuneration disclosures in draft APS 330 have been foreshadowed for some time. In December 2010, the Basel Committee released a package of reforms (Basel III) 2 to raise the level and quality of regulatory capital in the global banking system. Included in this package were expanded disclosure requirements that are intended to improve the transparency of regulatory capital and to enhance market discipline. Full details of these requirements were released in June 2012. 3 In a letter to ADIs on 17 December 2010, APRA expressed its full support for the Basel III reforms. The draft APS 330 released in April 2013 closely mirrors the Basel rules text of June 2012 and the outstanding clarifications are matters of detail, rather than fundamental.
The Basel Committee released its disclosure requirements for remuneration in July 2011.4 In a letter to ADIs on 7 October 2011, APRA indicated its intention to implement these remuneration disclosures as part of ADI Pillar 3 requirements. At the same time, APRA encouraged all locally-incorporated ADIs to commence reporting on their remuneration practices in a manner consistent with the Basel Committee’s document as soon as practicable.
APRA is committed to implementing all elements of the Basel III reforms in accordance with internationally agreed timeframes.
APRA appreciates that, for entities with balance sheet dates or half-year periods ending on 30 June 2013, the timelines to implement the new disclosure requirements are tight. However, as draft APS 330 closely mirrors the June 2012 Basel release, APRA does not propose to change the 30 June 2013 effective date of the disclosure requirements.
APRA will accept entities reporting the new Pillar 3 disclosures on capital and remuneration on a ‘best endeavours’ basis for the June 2013 reporting period. For this purpose, ‘best endeavours’ will, at a minimum, require reporting consistent with draft APS 330 released in April 2013. APRA will expect disclosures for subsequent reporting periods to fully comply with the new APS 330.
Timing of remuneration disclosures
Several submissions asked APRA to relax the proposed requirement that an ADI publish its remuneration disclosures concurrent with the publication of its financial statements. It was submitted that remuneration, particularly for non-key management personnel that might be captured under APS 330, was often not finalised prior to the release of financial statements. In view of these submissions, APRA now proposes to allow the publication of remuneration disclosures no later than three months from the release of an ADI’s financial statements.
APRA’s discussion paper proposed that the disclosures required in Attachment A to draft APS 330 and the regulatory capital reconciliation must be included in an ADI’s financial statements or, at a minimum, the financial statements must include a direct link to the completed disclosures placed in the Regulatory Disclosures section on the ADI’s website. Several submissions sought clarification on the potential audit implications of including the APS 330 capital disclosures in the financial statements.
Unless specifically required by APRA, it is not intended that disclosures under APS 330 would be subject to external audit. APRA only requires that such disclosures are consistent with information that has been subject to review by an external auditor and that is published elsewhere, or has already been supplied to APRA. Consequently, APRA proposes that the relevant prudential disclosures (or link thereto) need not be included in an ADI’s financial statements but can be in an ADI’s directors’ report or other information accompanying an ADI’s financial statements (e.g. the Management Discussion and Analysis (MD&A)).
APRA considers that this proposal provides sufficient flexibility for ADIs to meet the disclosure requirements without triggering a need for the external auditor to consider the disclosures as part of their statutory audit.
Please contact Jane O’Doherty on 9210 3175 if you have any further queries.