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APRA releases discussion paper on covered bonds and securitisation

Tuesday 8 November 2011


The Australian Prudential Regulation Authority (APRA) has released for consultation a discussion paper outlining its proposals to introduce a new prudential standard for authorised deposit-taking institutions (ADIs) that issue covered bonds. The discussion paper is accompanied by a draft of Prudential Standard APS 121 Covered bonds (APS 121).

The discussion paper, Covered bonds and securitisation matters, and the draft prudential standard reflect the Government’s recent amendments to the Banking Act 1959 to allow ADIs to issue covered bonds. APRA has already removed the prohibition on ADIs issuing covered bonds from its prudential standards. 

The discussion paper and draft prudential standard aim to ensure that ADIs adopt prudent practices when issuing covered bonds and managing risks associated with exposure to a covered bond special purpose vehicle. Following consideration of submissions received, APRA will finalise APS 121 and related amendments to other prudential standards with a view to implementation in early 2012.
Included in this discussion paper, but unrelated to covered bonds, are proposed changes to Prudential Standard APS 120 Securitisation (APS 120) to clarify the prudential treatment of holdings of subordinate tranches of securitisations held by an ADI other than the originator of the loans. Subject to feedback on this proposal, APRA envisages that the proposed changes would be incorporated into APS 120 and take effect from 1 January 2012.

Submissions on the covered bond and securitisation proposals are due by 9 December 2011 and should be sent to

The discussion paper and draft APS 121 can be found on APRA's website.

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 trillion in assets for Australian depositors, policyholders and superannuation fund members.