The Australian Prudential Regulation Authority (APRA) released its draft amended Prudential Standard APS 120 yesterday, and in good news for the industry APRA has listened to and considered feedback on the previous Discussion Paper, of April 2014, and in many instances has responded favourably to the feedback. The Discussion Paper accompanying the new draft standard analyses the feedback to the April 2014 Discussion Paper and in most cases gives helpful and cogent responses.
In essence, the new draft is clearer and simpler than the current APS 120 or the previous proposals. As APRA notes in the Discussion Paper, APRA’s previous proposals regarding "skin in the game", the two credit class structure, funding-only securitisation and warehouse arrangements have all either been removed or adjusted. Master Trusts, too, now seem to be a viable proposition. Although not all concerns have been addressed, and some technical matters will need to be resolved or clarified during the consultation process, it would seem that the industry may now have a standard that will work practically for most transactions while still addressing APRA's concerns.
A key issue that will no doubt be the subject of submissions is APRA's proposed adoption of the Basel III securitisation revised framework. Particularly the proposal not to incorporate the IRB approach for calculating capital.
For ease of reference, we have prepared a table summarising the main proposals, and their effect (Good, Bad or Ugly) on issuing ADIs and investor ADIs.
Generally it appears that the proposals are "Good" ‒ only in some specific applications might they cause concern.
A few proposals, especially on the investor side, might have an adverse effect on demand or pricing. In relation to those we expect there will be scope for adjustment on the basis the proposals are a first draft and given APRA's favourable response to the feedback on its previous consultation. Those provisions will also be affected by Basel's proposed rules for simple, transparent, comparable securitisations once finalised.
Click here to view table.