Independent Review – Australian Prudential Regulation Authority
On 29 November 2021, the Australian Prudential Regulation Authority (APRA) announced new prudential standards for ADI capital adequacy and credit risk requirements; APS 110, APS 112 and APS 113.
The Australian Government’s 2014 Financial System Inquiry recommended, and the Government subsequently endorsed, that APRA increase capital requirements for authorised deposit-taking institutions (ADIs) such that they meet ‘unquestionably strong’ capital benchmarks. Australia is also a member of the Basel Committee on Banking Supervision and is committed to meeting internationally agreed standards for prudential regulation. APRA’s preferred option was to adopt the Basel III reforms with adjustments appropriate for the Australian market. This option achieves ‘unquestionably strong’ capital ratios for ADIs while balancing other objectives such as risk sensitivity, competition, transparency and comparability and proportionality.
Consistent with the Government’s Regulation Impact Statement (RIS) requirements, the review of prudential standards for ADI capital adequacy and credit risk requirements has been certified by APRA as meeting the requirements of a RIS. The Office of Best Practice Regulation (OBPR) does not assess the quality of independent reviews and RIS-like documents used in lieu of a RIS, but does assess whether the options analysed in the independent review are relevant to the regulatory proposal. The OBPR assessed that the options analysed in the independent review are sufficiently relevant to the regulatory proposal.
The agency estimates the average annual regulatory costs at $1.5 million.