The Australian Prudential Regulation Authority (APRA) today released a Policy Discussion Paper finalising its comprehensive framework for the prudential supervision of conglomerate groups that include an authorised deposit-taking institution (ADI).

Previous papers (issued in April 2000 and November 1999) set out details on various other aspects of APRAs proposed supervisory approach (eg on organisational structures, board composition, risk management and group relations such as common badging, distribution of products and shared premises).

However, two important issues remained outstanding: intra-group exposures and capital adequacy. The development of proposals in these areas has been a difficult task, complicated by the need to balance prudential objectives with a wide variety of existing commercial practices. It has involved discussions with a number of institutions with a view to ensuring that the proposals meet this objective.

The Policy Discussion Paper released today outlines APRAs conclusions on these issues. It will be followed by the release of draft Prudential Standards over the next month or two for industry comment. All ADIs and other interested parties will have the opportunity to comment on these draft Standards before they are finalised.

APRA also intends that, where the new requirements cut across existing commercial arrangements, ADIs will be given an adequate transitional period within which to make necessary adjustments. To this end, it is envisaged that full implementation of the new requirements will not occur until 2005, so as to coincide with the introduction of the new Basel Capital Accord. (See APRAs media release of 1 June 2001 for further detail on this.)