APRA consults on proposed revisions to its counterparty credit risk framework for ADIs

The Australian Prudential Regulation Authority (APRA) has today released:

• a Discussion Paper setting out both its response to submissions on APRA’s September 2016 Discussion Paper, Counterparty credit risk for ADIs, and a number of revised proposals for further consultation;
• revised drafts of Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112) and Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk, which incorporate changes to APRA’s proposed new counterparty credit risk requirements for authorised deposit-taking institutions (ADIs); and
• three draft reporting standards which set out proposed revisions to the corresponding reporting requirements, as well as proposed reporting requirements on margining for non-centrally cleared derivatives.

Collectively, the package sets out APRA’s proposed implementation of the Basel Committee on Banking Supervision’s Standardised approach for measuring counterparty credit risk exposures (SA-CCR) and Capital requirements for bank exposures to central counterparties.

The Discussion Paper released today modifies aspects of the SA-CCR in response to issues raised in submissions on the September 2016 consultation. In particular, APRA proposes that an ADI with approval to use an internal ratings-based approach to credit risk must use the SA-CCR to measure its counterparty credit risk exposures, while all other ADIs may continue to use the Current Exposure Method, subject to appropriate recalibration. The Discussion Paper released today also provides clarification on a range of other matters raised in submissions.

APRA’s current intention is that the new prudential and reporting requirements for counterparty credit risk will take effect no earlier than 1 January 2019.

APRA has also today released a letter to ADIs regarding minor amendments to APS 112, which APRA consulted on in September 2016. APRA proposes finalising these amendments at the same time as the counterparty credit risk requirements.

APRA invites written submissions on its proposals by 29 September 2017.

The consultation package is available on APRA’s website.

A letter to ADIs regarding minor amendments to APS 112 is available on APRA’s website.