The Australian Prudential Regulation Authority (APRA) today released a paper that sets out its responses to submissions on its proposals to implement the standardised approaches under the new Basel II capital adequacy regime, known as the Basel II Framework.

APRA's response paper addresses issues raised in submissions and is accompanied by two final draft prudential standards that incorporate a number of amendments suggested in the consultation process.

The final draft prudential standards cover:

• the standardised approach to credit risk [first release in April 2005]; and
• the standardised approach to operational risk [first release in July 2005].

APRA Chairman Dr John Laker said the standardised Basel II approaches are the least complex that will be available to an authorised deposit‑taking institution (ADI) for determining its regulatory capital requirements.

"Compared to current arrangements, these approaches better align the regulatory capital requirements for credit and operational risk with the risk profile of an ADI, while minimising complexity for the less diversified or globally active ADIs that will be adopting the approaches," he said.

The proposals form part of the Basel II capital adequacy regime for ADIs 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.

The vast majority of ADIs - banks, building societies and credit unions - will use the standardised approaches in determining their regulatory capital requirements.

Comments on the response paper and the final draft prudential standards APS 112 Capital Adequacy:Standardised Approach to Credit Risk and APS 114 Capital Adequacy: Standardised Approach to Operational Risk are invited by 3 September 2007 and can be emailed to basel2@apra.gov.au.

These documents are available on APRA's website at www.apra.gov.au/ADI/Basel-II-implementation-in-Australia.cfm.

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:
Andrew McCutcheon, Public Affairs Manager
Australian Prudential Regulation Authority
Telephone: 02 9210 3143
Mobile: 0417 528 660

All other inquiries:
APRA Contact Centre 1300 131 060