APRA is writing to all authorised deposit-taking institutions (ADIs) with an update on policy priorities for the banking industry. Given the overseas banking stress events earlier this year, APRA has reviewed its policy initiatives to prioritise some immediate actions to strengthen standards for bank financial stability issues and will slow down timelines on less pressing policy reforms.
Updated policy priorities
APRA published its annual update on policy priorities for all regulated industries, including banking, in February 2023.1 Since then, APRA has finalised several key policy priorities as planned, including Prudential Standard CPS 230 Operational Risk Management and Prudential Standard CPS 900 Resolution.
Key ADI policy priorities for the remainder of 2023 are:
Liquidity: APRA will consult on targeted changes to Prudential Standard APS 210 Liquidity (APS 210), focused on the treatment of liquid assets for ADIs on the minimum liquidity holdings approach. Consequently, APRA will move the comprehensive review of APS 210 to 2024.
Interest rate risk: To further consider consultation feedback from industry and lessons learned from banking stress events overseas, APRA will take additional time to finalise Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (APS 117). The revised standard will be released in late 2023 and its effective date will be moved back to ensure sufficient implementation time for ADIs. APRA will also extend the scope of the review of APS 117 to consider the treatment of smaller ADIs (non-significant financial institutions).
Additional Tier 1 (AT1): The Council of Financial Regulators (CFR) discussed the challenges faced by policy makers in responding to bank stress, as highlighted during the recent bank crisis events in the United States and Switzerland. The CFR noted the importance that crisis management tools, including AT1, should operate as intended.2 APRA will issue a Discussion Paper to explore options for, and seek feedback from stakeholders on, improving the effectiveness of AT1 capital in Australia, ahead of potential consultation in 2024.
Capital framework updates: Industry have raised a number of issues for consideration by APRA during the implementation of the capital reforms earlier this year. APRA will consult on minor updates to the bank capital framework in relation to these issues.
A full refreshed schedule of policy priorities for 2023 is outlined in Annex A. APRA will provide a further comprehensive update on the policy agenda in 2024.
Therese McCarthy Hockey
APRA Executive Board Member
ANNEX A. POLICY TIMELINES
APRA’s policy priorities for the banking industry for the next 6-12 months are set out below. In addition to these priorities, APRA will continue to progress policy development on cross-industry standards that apply to all APRA-regulated industries.
3 Liquidity: APRA will consult on targeted changes to APS 210 in H2 2023 (which are planned to come into effect in 2024), and will conduct a more comprehensive review in 2024 (with a planned effective date of 2026).
4 IRRBB: APRA is considering IRRBB requirements for Non-SFIs, which may be on a different timeline. Further details will be provided during consultation on IRRBB in H2 2023.
5 FCS: APRA will shortly be consulting on remaking Prudential Standard APS 910 Financial Claims Scheme (APS 910) with no material changes, ahead of a more comprehensive review in 2024.
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