Finalising minor prudential framework updates for ADIs and insurers
To: All authorised deposit-taking institutions and insurers
APRA is finalising several minor updates to the prudential framework. These updates are technical clarifications and are not material changes in policy settings.
In April 2024, APRA consulted on a suite of minor changes to standards and guidance, and received six submissions. Final standards, final guidance and non-confidential submissions are available on APRA’s website1. APRA’s response is summarised in the table below, with a detailed response at Attachment A.
| Standard or guidance subject to change | Industries covered | APRA response |
|---|---|---|
| GPS 310 Audit and Related Matters | General insurance | Finalised: effective 1 October 2024 |
| HPS 112 Capital Adequacy: Measurement of Capital | Private health insurance | Finalised: effective 1 October 2024 |
| LPS 112 Capital Adequacy: Measurement of Capital | Life insurance | Finalised: effective 1 October 2024 |
| LPS 117 Capital Adequacy: Asset Concentration Risk Charge | Life insurance | Finalised: effective 1 October 2024 |
| APG 210 Liquidity | Authorised deposit-taking institutions | Release: immediate |
| APS 330 Public Disclosure | Authorised deposit-taking institutions | Finalised: effective 1 January 2025 |
| APS 111 Capital Adequacy: Measurement of Capital | Authorised deposit-taking institutions | Deferred - see Attachment A |
| APS 220 Credit Risk Management | Authorised deposit-taking institutions | Deferred - see Attachment A |
Consultation on the next round of minor updates is planned for the second half of 2024.
Yours sincerely
Clare Gibney
Executive Director
Policy & Advice
Attachment A – Response to submissions
GPS 310 Audit and Related Matters; HPS 112 Capital Adequacy: Measurement of Capital; LPS 112: Capital Adequacy Measurement of Capital; and LPS 117: Capital Adequacy: Asset Concentration Risk Charge
APRA did not receive any submissions or feedback on the proposed updates.
LPS 117 has been updated to include a paragraph requiring a regulated institution to contact APRA if it seeks to place reliance on determinations made under a previous version of that Prudential Standard.
Paragraphs in GPS 310, HPS 112 and LPS 112 regarding reliance on a previous exercise of discretion have been updated to reflect standard wording to allow previous exercises of discretion to continue to have effect under the updated Prudential Standards.
APG 210 Liquidity
APRA received one submission on clarifying the classification of personal investment entity (PIE) deposits across ADIs to facilitate consistency. APG 210 has been updated to ensure consistency with Liquidity FAQ 6 on the treatment of deposits from PIEs.
APRA is also updating APG 210 to include a paragraph consulted on in the November 2023 minor updates package related to collateral flows. This change is to increase consistency across the industry in the recognition of derivatives and other margined products and to clarify that ADIs are to only consider collateral flows driven by market movements.
APS 330 Public Disclosure
| Proposed update | Comments received | APRA response |
|---|---|---|
| Macroprudential supervisory measures | Submissions welcomed the clarification around timing of the G-SIB indicators disclosures. However, some submissions suggested the 31 July deadline for the annual disclosure of G-SIB indicators be brought forward to 30 June to better align with Pillar 3 disclosure periods. | APRA has amended APS 330 to provide more flexibility for ADIs that are required to disclose their G-SIB indicators. The updated paragraph requires ADIs to disclose their G-SIB indictors annually using financial year-end data. It also clarifies that ADIs whose financial year ends on 30 June should use 31 December data. |
| Format of disclosures | Submissions requested APRA confirm whether using Microsoft Excel formats are suitable for publishing Pillar 3 disclosures. | APRA has amended APS 330 to provide more flexibility for ADIs to publish Pillar 3 disclosures. Instead of restricting disclosures to Comma Separated Value formats, ADIs can now use Microsoft Excel files as well as seek APRA approval to use other formats that facilitate the use of data. |
| Credit risk asset classes | Some submissions sought APRA clarification over what Standardised asset classes to use for disclosing risk weighted assets comparisons between the Standardised and Internal Ratings-based (IRB) Approach to credit risk capital requirements. This included suggesting APRA require ADIs to use the exposure classes set out in Reporting Standard ARS 112 Capital Adequacy: Standardised Approach to Credit Risk (ARS 112). | APRA has amended APS 330 to direct ADIs to use the exposure classes as set out ARS 112 and the asset classes in Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk (APS 113). APRA has also embedded flexibility for ADIs in meeting this requirement, stating that ADIs can consolidate exposure and asset classes where they are immaterial. The onus is on ADIs to determine which asset classes to disclose and how they compare between the two approaches. ADIs can also use the asset class mapping guidance in Attachment B to Prudential Practice Guide APG 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk to compare exposure and asset classes between the Standardised and IRB approaches. |
| Interest rate risk in the banking book (IRRBB) | Given the revised effective date of Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (APS 117) from 1 January 2025 to 1 October 2025, some submissions sought guidance from APRA on how to complete IRRBB disclosures under the revised APS 330 given they align with the new IRRBB framework.
| As outlined in APRA’s recent IRRBB release, ADIs should make IRRBB disclosures on a best endeavours basis until the new APS 117 comes into effect.2 Additional guidance on IRRBB reporting, including net interest income modelling, which is also relevant for making IRRBB Pillar 3 disclosures is provided in the final Reporting Practice Guide RPG 117 Capital Adequacy: Interest Rate Risk in the Banking Book. |
| One submission suggested the earnings offset be excluded from the economic value of equity (EVE) calculation for better international comparisons. | The earnings offset should be included in the EVE calculation for Pillar 3 disclosures as it is a feature of APRA’s IRRBB framework. | |
| Liquidity | Some submissions sought APRA confirmation that template LIQ2: Net Stable Funding Ratio (NSFR) (LIQ2) provides sufficient information to cover the requirement in row (i) of template LIQA: Qualitative Disclosure (LIQA). | APRA confirms that the disclosures in LIQ2 are sufficient to meet the requirements in row (i) of LIQ2. |
Submissions suggested edits to the BCBS Standard to align with the approach under the current APS 330. In particular, updating the definition of ‘smaller business customers’ to align with APRA’s definition. | APRA has amended APS 330 to clarify that ADIs should use the definition of ‘SME customer’ used in Prudential Standard APS 210 Liquidity, when referred to in the BCBS Standard. | |
| Some submissions sought clarification over liquidity disclosure requirements for ADIs using the minimum liquidity holdings (MLH) approach, given the BCBS Standard only requires quantitative liquidity disclosures for ADIs using the liquidity coverage ratio (LCR) approach. | APRA has amended APS 330 to clarify that ADIs using the MLH approach are not required to make disclosures relating to the LCR or NSFR. However, MLH ADIs are still required to make relevant qualitative liquidity disclosures. | |
| Leverage ratio | Some submissions sought clarification over the interpretation of ‘Basel III leverage ratio’ and recommended amending APS 330 to clarify that leverage ratio disclosures refer to APRA’s leverage ratio requirements. | APRA has amended APS 330 to clarify that references to ‘Basel III leverage ratio’ in the BCBS Standard means the leverage ratio as defined and calculated by Prudential Standard APS 110 Capital Adequacy. |
| Some submissions suggested APRA modify APS 330 to remove the requirement to disclose rows 14a to 14d of KM1: Key Metrics. | APRA has not amended APS 330. However, if the disclosures are not meaningful to users ADIs can modify the BCBS Standard, as permitted by APS 330. | |
| Some submissions sought clarification over what is required to be disclosed in row 11 of LR1: Summary Comparison of Accounting Assets vs Leverage Ratio Exposure Measure. | The reference to prudent valuation adjustments relates to adjustments APRA makes to accounting values (for instance, where APRA applies a haircut to the fair value accounting treatment) for prudential purposes. Similarly, the reference to specific and general provisions relates to adjustments APRA makes to provisions for prudential purposes. | |
| Some submissions sought clarification over whether ADIs are required to disclose the amounts of adjusted gross securities financing transaction assets based on quarter-end values and on an average of daily values over the quarter, as is currently required by the BCBS Standard and APS 330. | APRA has amended APS 330 to remove the requirement for ADIs to disclose the amount of adjusted gross securities financing transactions assets based on quarter-end values, with ADIs now only having to disclose based on an average of daily values over the quarter. This aligns with the reporting requirements under Reporting Standard ARS 110 Capital Adequacy. | |
| Main features of regulatory capital instrument and total loss-absorbing capacity | Some submissions queried whether the main features report required in CCA: Main features of regulatory capital instruments and of other TLAC-eligible instruments (CCA) should take the format of a report or text in a table on an entity’s external website. | The main features report is a general reference to Table CCA, which can be included in an entity’s Pillar 3 disclosure report. |
| Proportionality | Some submissions stated that small SFI ADIs are generally not complex entities and unsuitable for the full Basel disclosure framework, suggesting a more targeted disclosure framework for these entities. | APRA is not proposing to materially amend its ADI public disclosure framework, as this is outside the scope of this consultation. |
APS 111 Capital Adequacy: Measurement of Capital and APS 220 Credit Risk Management
Submissions were received concerning Prudential Standard APS 111 Capital Adequacy: Measurement of Capital (APS 111) and Prudential Standard APS 220 Credit Risk Management (APS 220), with submissions requesting consequential amendments to the associated reporting standards. Given this feedback, APRA has decided to defer these changes until the associated reporting standards are consulted on.
Footnotes
1Minor updates to the prudential framework for ADIs and insurers, APRA, (Webpage, July 2024).
2Refer to: Interest rate risk in the banking book, APRA (Webpage, December 2023).