The Australian Prudential Regulation Authority (APRA) today released policy guidance for the capital adequacy treatment of credit derivatives transacted by Australian authorised deposit-taking institutions (ADIs). The policies follow extensive consultation with industry over the past 12 months.
While the Australian credit derivatives market is relatively young, it is growing in size and complexity. At present there are no internationally agreed rules relating specifically to credit derivatives; it is hoped that the new policy guidance will address any regulatory uncertainty that currently exists in Australia.
The policy guidance is in the form of Guidance Notes to Prudential Statement C1 (Capital Adequacy of Banks) and Prudential Statement C3 (Capital Adequacy of Banks: Market Risk). The Guidance Notes have evolved from a Policy Discussion Paper issued by APRA in April 1999 and Draft Guidance Notes issued last December. Discussions with industry have resulted in revisions to the proposed regulatory treatment in a number of key areas, including:
improved alignment between regulatory policy and market practice; and broadening the range of assets that can be hedged by credit derivatives. The Guidance Notes apply only to the most commonly traded credit derivatives. It is APRAs intention to revise these Guidance Notes over time to take into account developments in the Australian credit derivatives market and in the international supervisory regime.
The Guidance Notes are available on APRAs website (www.apra.gov.au).
For further information contact:
Wayne Byres
General Manager
Capital Risk and Analysis
(02) 9210 3146
