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APRA releases response to submissions and draft prudential standards on Basel III capital reforms

Friday 30 March 2012


The Australian Prudential Regulation Authority (APRA) has released for consultation a response paper and a set of five draft prudential standards that give effect to the Basel III capital reforms in Australia.

This package follows the release of a discussion paper in September 2011 on APRA’s approach to these global capital reforms, which will raise the level and quality of capital in the global banking system. The response paper provides APRA’s comments on key issues raised in the 13 submissions it received in the first-round consultation.

APRA is not intending to change its broad approach to the implementation of the Basel III reforms. However, in response to issues raised, APRA is proposing to provide some limited flexibility on certain aspects of the reforms and it has provided clarifications on a number of technical elements.

APRA Chairman Dr John Laker reiterated his earlier comments that the Basel III capital reforms will clearly strengthen the Australian banking system.

‘Some concerns were raised that APRA’s more conservative stance in some areas would disadvantage authorised deposit-taking institutions (ADIs) in international comparisons of capital ratios. However, APRA saw no strong in-principle arguments to move away from its traditional conservative stance, which is widely recognised and has served the Australian banking system well. In any event, a common disclosure template being considered by the Basel Committee on Banking Supervision will, if adopted, facilitate international comparisons.’

Dr Laker added: ‘APRA will work closely with mutual ADIs on the particular challenges that the Basel III measures on the quality of capital pose for that sector.’

The five draft prudential standards are:

  • Prudential Standard APS 001 Definitions, which defines terms that apply across ADI prudential standards;
  • Prudential Standard APS 110 Capital Adequacy, which sets out the overall Basel III capital framework, including minimum regulatory capital requirements and two new capital buffers;
  • Prudential Standard APS 111 Capital Adequacy: Measurement of Capital, which provides details on the eligibility criteria for regulatory capital and on regulatory adjustments;
  • Prudential Standard APS 160 Basel III Transitional Arrangements, which outlines transitional arrangements for non-complying capital instruments; and
  • Prudential Standard APS 222 Associations with Related Entities, which now includes Extended Licensed Entity requirements previously included in APS 110.

The response paper and the five draft prudential standards can be found on the APRA website.

APRA has also released a letter to ADIs outlining further interim arrangements for capital instruments that are issued before the new prudential standards come into effect on 1 January 2013. These arrangements are additional to the arrangements set out in APRA’s letters to ADIs of 17 September 2010 and 27 May 2011, which remain in force.

The latest letter 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.