ADI capital reforms: Roadmap to 2023
In December 2020, APRA released a consultation package on revisions to the capital framework for authorised deposit-taking institutions (ADIs).1 These are significant policy reforms, and the consultation and implementation phase is an important part of the process.
This letter sets out a roadmap of next steps to 2023, when the new framework comes into effect.
The ADI capital reforms will embed the industry’s ‘unquestionably strong’ capital position, and improve the flexibility of the framework to respond during periods of stress. APRA is committed to meeting the 1 January 2023 implementation date, to complete the reforms and provide certainty for the industry in capital planning.
The current round of consultation closed on 1 April 2021. Industry responses have been broadly supportive of the reforms, and have provided useful feedback on the impact of specific proposals. APRA is currently reviewing this feedback, including in particular analysis of the proposed capital requirements for higher risk residential mortgages. To ensure the reforms are in line with the objectives and meet the ‘unquestionably strong’ level of capital at a system level, APRA is continuing the consultation process this year.2
To provide a clear roadmap for consultation and industry engagement, APRA has set out an indicative timeline in Attachment A. The timeline covers key policy releases, reporting requirements, industry workshops and the process for capital model approvals. Over the course of 2021, APRA intends to:
- Conduct a targeted data study, to assess potential changes to the calibration of the prudential standards;
- Initiate regular workshops with industry as the standards and guidance are finalised, to provide a forum for updates and FAQs; and
- Release final prudential standards, draft prudential practice guides (PPGs) and initial details of reporting requirements by the end of the year.
Over the course of 2022, APRA intends to finalise the PPGs and reporting requirements. There are a number of related policy revisions that will also be progressed next year, including the fundamental review of the trading book and public disclosure requirements. APRA intends to conduct a parallel run of capital reporting on the new framework in late 2022.
How industry can prepare
APRA expects ADIs to be fully compliant with the revised capital framework from 1 January 2023, including the determination and reporting of capital adequacy. APRA will seek assurance from the relevant accountable person at each ADI on the accuracy of capital ratios. ADIs using the internal ratings-based (IRB) approach to credit risk will also need to seek APRA approval for relevant models, as part of the implementation of the reforms.
APRA notes the constructive engagement with industry during the consultation period to date, and looks forward to this continuing as the reforms are finalised. APRA will liaise with ADIs directly and via industry associations on the industry workshops. If you have questions on the roadmap or reforms more broadly, please contact your supervision team.
Policy and Advice
Attachment A - Consultation and implementation timelines
This attachment sets out key milestones and timelines to assist ADIs in the implementation of revisions to the ADI capital framework. The dates listed are indicative. The relevant standards are APS 110, 112, 113 and 117.
Released July, due August 2021
Release of final Prudential Standards
Release of draft Prudential Practice Guides (PPG)
APRA to notify ADIs on their eligibility for the simplified framework
Release of final PPGs
Consequential amendments to related standards
Attestation from accountable person that the ADI will be compliant with the updated standards
Capital standards effective
1 January 2023
Initial details on reporting requirements provided to ADIs
Release of interim reporting standards (draft)
Release of interim reporting standards (final)
Parallel run of September 2022 quarter end
Parallel run of December 2022 quarter end
Attestation from accountable person that the ADI will report accurate regulatory capital data
Interim reporting requirements effective
Release of final reporting standards
Reporting requirements effective
Note: APRA intends to discuss the implementation of revised reporting requirements in more detail during the upcoming industry workshops. Revised reporting requirements will be phased in, to allow the industry time to adjust systems and ensure reliable data is provided. The reporting suite covered under these reforms will leverage the new requirements developed for ARS 220 Credit Risk Management.
Workshop on implementation
Workshop on targeted QIS
Workshop on reporting
Ongoing workshops (every two months)
October 2021 – December 2022
IRB model approvals – Residential mortgage LGD
Model submissions to APRA
Template released: October 2021
Template due: December 2021
Model assessment and approval
Monitoring and validation
Other model approvals
ADIs to discuss with APRA potential changes in the scope of IRB models (such as SME retail models)
Accreditation process for IPRE portfolio and benchmarking exercise
Template released: May 2021
Template due: June 2021
ADIs to submit any other relevant IRB model approvals
Ongoing until Q3 2022
ADIs to submit IRRBB model change requests
March 2022 – June 2022
IRRBB model approvals
June 2022 – September 2022
1 See APRA seeks to enhance flexibility and resilience of ADI capital framework. The reforms comprise revisions to APS 110 Capital Adequacy, APS 112 Capital Adequacy: Standardised Approach to Credit Risk, APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk and APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book.
2 The reforms will be calibrated to meet the unquestionably strong level of capital at a system level. The impact on specific ADIs will vary, depending on portfolio composition and risk profile.
For more information
- If you are from an APRA supervised institution, contact your APRA Responsible Supervisor.
- All other users should contact APRA on 1300 558 849 or complete our enquiries form.