APRA delays implementation of BEAR reforms

In June, the Australian Prudential Regulation Authority (APRA) commenced consultation on its proposed approach to implementing the banking royal commission’s recommendation to determine an end-to-end product responsibility for all authorised deposit-taking institutions (ADIs) that are subject to Banking Executive Accountability Regime (BEAR) obligations.

The royal commission recommended that APRA should “determine an additional prescribed responsibility (which would apply to domestic ADIs only) for all steps in the design, delivery and maintenance of all products offered to customers by the ADI and any necessary remediation of customers in respect of any of those products”. 

However, in a letter to ADIs on 28 June 2019, APRA has revealed that it will be delaying its decision on the proposed product responsibility requirements under the BEAR regime, with the date revised from December 2019 to the “first half of 2020”.

According to the regulator, its decision is designed to time implementation with the government’s proposals to extend the BEAR scheme, which it said would reduce implementation costs for ADIs. 

“APRA will be giving careful consideration to the alignment of product responsibility with the timing and content of the government’s proposed extended accountability regime as recommended by the royal commission,” the regulator stated.

“APRA is therefore delaying the product responsibility consultation to allow for this proposal to be timed to align with the implementation of all relevant royal commission recommendations in order to maximise the effectiveness of the proposed BEAR product responsibility and minimise unnecessary cost for institutions.”

This is the latest of several regulatory announcements from APRA over the past few weeks.

Last week, the regulator released an updated prudential standard on the credit risk management responsibilities for ADIs.

The updated standard also seeks to address recommendation 1.12 from the banking royal commission by amending APS 220 to require independent valuation of collateral, for the valuation to take into account the time taken for realisation of collateral and, to the extent possible, the likelihood of external events, such as drought and flood.

Other key revisions to APS 220 include:

• a clarification of the scalable and flexible approach that should be applied to an ADI’s credit assessment in the application of each of the credit standards requirements;
• no longer requiring ADIs to predict when “external events” are likely to occur for valuations of collateral and no longer requiring APRA approval for fair values to be based on highest and best use; and 
• providing a simpler classification for prudential reporting purposes, with the term “significantly deteriorated” removed from the final APS 220, replaced by “performing” or “non-performing”, as well as “past due” and “restructured”.

APRA added that its finalised prudential standard was broadened to include credit standards, consistent with the Australian Securities and Investments Commission’s recent update to its responsible lending guidance.

APRA claimed that it also incorporates enhanced board oversight of credit risk and the need for ADIs to maintain prudent credit risk practices over the entire credit life cycle.

The revised APS 220 will come into effect from 1 January 2021.

[Related: New credit risk management standard released]