Response to submissions - minimum capital requirements for PPF providers

 To: Providers of Purchased Payment Facilities (PPF Providers)

 

On 14 November 2022, APRA consulted on interim changes to Prudential Standard APS 610 Prudential Requirements for Providers of Purchased Payment Facilities (APS 610).¹ These changes aimed to align capital requirements for PPF providers more closely with the broader capital framework for other APRA-regulated industries. 

APRA proposed the following specific amendments:

• move the capital measurement basis to Common Equity Tier 1 Capital (CET1) rather than Tier 1 Capital;
• reduce the minimum capital requirement from 5 per cent to 4 per cent of total outstanding stored value liabilities, to better reflect PPF providers’ risk profiles; and
• provide for APRA to vary minimum capital adequacy requirements for individual PPF providers as a proportion of total outstanding stored value liabilities or set minimum capital requirements as a dollar amount, consistent with the approach for other APRA-regulated industries.

This consultation was an interim step to updating prudential requirements for PPF providers through a review of APS 610, which will be part of the implementation of broader reforms to the regulatory framework for stored-value facilities (SVFs).²

Submissions received

 

APRA received four submissions during the consultation process, which were broadly supportive of the interim changes. One submission raised concerns around the move to CET1, arguing that this could disadvantage APRA-regulated entities as international competitors would be able to issue lower cost capital instruments. APRA considers it appropriate to retain the proposal to move the capital measurement basis to CET1 capital rather than Tier 1 Capital, as this approach aligns with the requirements for other APRA-regulated industries and focuses on the highest quality of capital. 

Submissions also welcomed a further review into APS 610 and suggested further lowering capital requirements. APRA will consider this feedback as part of its broader review of APS 610. 

Next steps

 

APRA has updated APS 610 by incorporating the proposals set out in the November 2022 consultation. APRA has released an updated APS 610 alongside this letter. This standard will commence upon registration on the Federal Register of Legislation, which APRA intends in early June.

Yours sincerely,

 

Clare Gibney

Executive Director, APRA

Footnotes

 

¹ Refer to: https://www.apra.gov.au/consultation-on-minimum-capital-requirements-for-ppf-providers.

² Refer to the Council of Financial Regulators review of the regulatory framework for SVFs: https://www.cfr.gov.au/publications/policy-statements-and-other-reports/2020/regulation-of-stored-value-facilities-in-australia/pdf/report.pdf.