APRA proposes to amend APS 111 to require all instruments to be
subject to Australian law before they can qualify as Additional
Tier 1 or Tier 2 Capital.
The reason given by APRA for this proposed amendment is to
provide greater assurance that any conversion and/or write-off
mechanism contained in regulatory capital instruments will be
implemented with certainty and within a short timeframe.
The proposed amendment may be of concern to ADIs that raise
regulatory capital under offshore programmes governed by foreign
laws, particularly given that no transitional arrangements have
been proposed by APRA.
Proposed treatment of joint arrangements
Following the introduction of Australian Accounting Standard
AASB 11, joint operators are required to be accounted for on a
"proportionate consolidation" basis while joint ventures
continue to be accounted for using the "equity method".
APRA proposes to amend APS 111 to clarify that joint arrangements
and joint ventures should be accounted for in the same manner under
Basel III (ie. equity accounting treatment). This will result in a
full deduction of the equity investment as a regulatory adjustment
APRA is seeking feedback on both of these proposals by 6 July
Proposed refinements to APRA's reporting standards
On Friday 8 June 2012 APRA also released for consultation
a Discussion Paper and
draft Reporting Standards outlining its proposed reporting
requirements for implementing the Basel III capital reforms in
Australia. The proposals will involve amendments to the existing
Reporting Standard ARS 110.0 Capital Adequacy (ARS 110.0) and the
associated reporting forms and instructions at both Level 1 and
Level 2. In addition APRA is proposing to introduce a new Reporting
Standard ARS 111.0 Fair Values (ARS 111.0).
The proposed amendments to the Reporting Standards are largely
housekeeping matters reflecting changes to APRA's capital
requirements as a result of the adoption of Basel III. Many of
these changes are already outlined in APRA's discussion papers
September 2011 and
March 2012 dealing with the implementation of Basel III in
The only proposed amendments to the Reporting Standards which
were not outlined in the earlier discussion papers are set out
amendments to the reporting standards to give effect to the
proposed capital treatment of joint arrangements referred to
APRA is seeking feedback on the Discussion Paper by 3 August
2012. Following its consideration of the submissions received, APRA
will issue final reporting standards and reporting forms later in
2012 to come into effect from 1 January 2013. The first quarterly
report under the new reporting standards will be due in April 2013
for the period ending 31 March 2013.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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