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APRA releases changes to the capital framework for mutual ADIs

Thursday 30 November 2017

The Australian Prudential Regulation Authority (APRA) has released its final revisions to the capital framework for mutually owned authorised deposit-taking institutions (ADIs) in relation to changes that provide these ADIs with more flexibility in their capital management.

In 2014, APRA developed the Mutual Equity Interest (MEI) framework for mutually owned ADIs. The advent of MEIs enabled mutuals to issue capital instruments that met the criteria for Additional Tier 1 and Tier 2 capital under APRA’s capital adequacy framework. In July this year, APRA proposed extending the MEI framework to allow mutually owned ADIs to issue CET1-eligible capital instruments directly without jeopardising their mutual status. 

APRA has today released its response paper on the consultation as well as the final Prudential Standard APS 111 Capital Adequacy: Measurement of Capital (APS 111). APRA received a number of submissions in response to its proposals. While submissions sought clarification of, and raised issues with, particular aspects of the proposed framework, submissions were supportive of the direction of the proposed changes, which improve the capital management flexibility available to mutually owned ADIs. 

Facilitating the ability of mutually owned ADIs to directly issue CET1 instruments was also the first recommendation of the recent Independent Facilitator Review (Hammond Review) into the mutual ADI sector1.

The revised prudential standard APS111 will come into effect from 1 January 2018. 

Copies of the response paper and the final standard are available on APRA’s website.


Capital framework

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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, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6.5 trillion in assets for Australian depositors, policyholders and superannuation fund members.