APRA releases revisions to the large exposures framework

The Australian Prudential Regulation Authority (APRA) has today released a response paper setting out revisions to its prudential framework for large exposures of authorised deposit-taking institutions (ADIs).

APRA’s large exposure framework aims to limit the impact of losses when a large counterparty defaults, and to restrict the potential for problems in one entity from spreading across the financial system.

The core components of the new large exposures framework are:

• a reference to Tier 1 Capital as a basis for determining large exposures;
• a recalibration of existing large exposure limits, and the introduction of a lower limit on D-SIB to D-SIB exposures; and
• a stronger set of requirements for measuring exposure values, and for assessing groups of connected counterparties.

APRA will require ADIs to implement most aspects of the revised Prudential Standard APS 221 Large Exposures (APS 221) by 1 January 2019. A transition period will be provided for provisions relating to groups of connected counterparties and structured vehicles, allowing ADIs full implementation of the large exposures framework by no later than 1 January 2020. 

The response paper, revised APS 221 and the reporting standard can be found on APRA’s website.