NEED TO KNOW

APRA has released for consultation clarification to the governance and risk management components of the framework for supervision of Level 3 groups. Time to lodge comments on these clarifications closes on 13 May 2016. The new standards will come into effect on 1 July 2017.

As part of this process, APRA has also released for consultation two draft prudential practice guides; 3PG Aggregate Risk Exposures and 3PG 222 Intra-Group Transactions and Exposures. Both have previously been published in August 2014 but excluded from all prior Level 3 group consultations. The time to lodge comments for these guides closes on 27 May 2016.

APRA has deferred implementation of the Level 3 Group prudential capital standards. Further consultation on these standards will now happen post mid 2017. This is to allow these standards to be developed alongside the FSI recommendation on unquestionably strong capital ratios for ADIs, loss absorption and recapitalisation capacity and the proposed strengthening of APRA’s crisis management powers. Implementation of these standards will not occur before 2019.

BACKGROUND

APRA’s Level 3 Framework, to which these standards relate, are in respect of the supervision of conglomerate groups operating in the financial services industry. APRA categorises these as “Level 3 groups”, which are corporate groups whose operations span multiple APRA regulated industries (or include material non-APRA-regulated operations). This is a further step in APRA’s desire to harmonise prudential standards across the financial services industry and to adequately supervise aggregate exposure across Level 3 groups as well as intra-group transactions and risks.

Our earlier In Briefs which outline the background to the consultations appear on the right hand side of your screen.

SUMMARY OF CHANGES TO THE DRAFT LEVEL 3 NON-CAPITAL REPORTING STANDARDS

As a result of the deferment of the capital components it has been necessary for APRA to adjust the remaining standards that become operational on 1 July 2017. The adjustments are relatively minor and reflect:

  1. necessary edits to accommodate 3PS 110 Capital Adequacy not being finalised;
  2. clarifications in respect of the Head of a group in the cross industry prudential standards;
  3. changes to Board requirements resulting from the October 2014 consultation on “Improving APRA’s board engagement”; and
  4. changing the timeline for submitting the annual risk declaration required pursuant to CPS 220 Risk Management in response to industry feedback.

Notwithstanding 3PS 110 not being finalised, APRA has advised that it will still implement the limitations on activities of a non-operating holding company that were contained in the draft 3PS 110. These will now be implemented by way of a direct update to the authorisation held by each NOHC.

The impacted standards are:

  1. 3PS 001: Definitions
  2. 3PS 221: Aggregate Risk Exposure
  3. 3PS 222: Intra-group Transactions and Exposures
  4. 3PS 310: Audit and Related matters
  5. CPS 220: Risk Management
  6. CPS 231: Outsourcing
  7. CPS 232: Business Continuity Management
  8. CPS 510: Governance
  9. CPS 520: Fit and Proper

CONSULTATION ON DRAFT 3PG PRACTICE GUIDES

APRA has now opened a consultation process in respect of the two draft prudential practice guides; 3PG 221 Aggregate Risk Exposures and 3PG 222 Intra-Group Transactions and Exposures. Originally released in August 2014 these guides establish APRA’s view of sound practice in these specific areas and compliment 3PS 221 Aggregate Risk Exposures as set out in the table below:

Click here to view table.

NEXT STEPS

Only a small window for consultation has been allowed as submissions on the clarification are due by 13 May 2016. The draft prudential standards commence on 1 July 2017.

Submission on the previously published practice guides close on 27 May 2017.