The Australian Prudential Regulation Authority (APRA) today released an information paper on its approach to the supervisory review process under the new Basel II capital adequacy regime, known as the Basel II Framework. This follows the release, on 30 November 2007, of the full suite of prudential standards that will give effect to the implementation of Basel II in Australia.
The supervisory review process, or Pillar 2, is one of three mutually reinforcing pillars on which the Framework is based. The review process is intended to ensure that locally incorporated authorised deposit‑taking institutions (ADIs) have adequate capital to support all the risks in their business and to encourage ADIs to develop and use better risk management techniques in monitoring and managing their risks. APRA outlined its proposed approach in a discussion paper, Implementation of the Basel II Capital Framework 10. Supervisory Review Process, in September 2007.
APRA Chairman Dr John Laker said that this discussion paper had been well received by industry and no significant changes were required in finalising the information paper.
“In anticipation of the information paper, a number of ADIs have already submitted documents on their internal capital adequacy assessment process (ICAAP). During 2008, APRA will be discussing with ADIs how they develop, document and maintain a comprehensive ICAAP, proportional to their operations and consistent with prudential requirements. In conjunction with that process, APRA will set a prudential capital ratio for each ADI, which must be met at all times.”
There is no separate Pillar 2 prudential standard since ADIs’ obligations and APRA’s powers in this area are already addressed in Prudential Standard APS 110 Capital Adequacy.
The Basel II Framework will come into force in Australia on 1 January 2008.
The information paper is 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 $3 trillion in assets for 21 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 558 160
All other inquiries:
APRA Contact Centre 1300 131 060.
