The Australian Prudential Regulation Authority (APRA) today released a discussion paper and accompanying draft prudential standard and prudential practice guide on securitisation.

Since the release of the 1988 Basel Capital Accord, securitisation markets – globally and in Australia - and the participation of financial institutions in these markets have grown significantly and individual regulators, including APRA, have developed their own prudential framework for such activities.

The Basel II capital adequacy regime, known as the Basel II Framework, now includes internationally agreed guidance on securitisation. APRA is proposing to amend its securitisation framework to reflect this guidance and to take account of market developments.

In April 2005, APRA released its draft proposals for the standardised approach to credit risk. At that time, APS 112 Capital Adequacy: Standardised Approach to Credit Risk did not include capital adequacy requirements for credit derivatives in the banking book. In view of the use of credit derivatives in synthetic securitisations, APRA is also releasing proposed requirements for credit derivatives with the draft prudential standard on securitisation.

The proposals form part of the Basel II capital adequacy regime for authorised deposit-taking institutions that will come into force on 1 January 2008. The full suite of Basel II prudential standards is expected to be finalised in late 2007 after a further round of consultation in the first half of 2007.

Comments on the discussion paper and draft Prudential Standard APS 120 Securitisation (APS 120), Prudential Practice Guide APG 120 Securitisation and the proposals for the standardised approach to credit derivatives are invited by 19 January 2007 and can be emailed to basel2@apra.gov.au. The documents are available on APRA’s web site http://www.apra.gov.au at http://www.apra.gov.au/ADI/Basel-II-implementation-in-Australia.cfm.

The requirements for funds management included in the current funds management and securitisation prudential standard are not included in the draft APS 120. These requirements will be included in a separate funds management prudential standard that will be released for consultation at a future date.

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. APRA currently supervises institutions holding approximately $2.5 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.

Media and industry inquiries only:
Stuart Snell, Head of Public Affairs
Australian Prudential Regulation Authority
Telephone: 02 9210 3384
Mobile: 0407 250 276

All other inquiries:
APRA Contact Centre
1300 131 060