APRA extends timelines on revisions to market risk standards

The Australian Prudential Regulation Authority (APRA) has written to authorised deposit-taking institutions (ADIs) to confirm that it is extending the timelines for the revisions to several market risk prudential standards.

In the letter, Renee Roberts, APRA’s executive director for policy and advice, said that the new deadlines will provide more time for implementation of:

• Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (APS 117)
• Prudential Standard APS 116 Capital Adequacy: Market Risk (APS 116)
• Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk (APS 180)

For example, APRA had previously flagged that it has releases the revised APS 117 this year, with implementation from 2023. 

However, it has now extended this time frame to become effective from 1 January 2024, “in light of feedback from industry”.

Additional time will also be provided for the associated reporting requirements and model submissions. 

APRA also highlighted that the Basel Committee on Banking Supervision’s (BCBS’s) fundamental review of the trading book (FRTB) will be implemented by APRA through a revised APS 116. 

The BCBS has also released a revised version of the credit valuation adjustment (CVA) risk framework, which will be implemented by APRA through a revised Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk (APS 180).

As such, Ms Robert said that APRA believed that implementing FRTB and CVA through changes to APS 116 and APS 180 “should be conducted in parallel”, so that “any interactions can be carefully considered”.

“To this end, and to allow adequate time for consultation, APRA is moving the intended effective date for APS 116 and APS 180 to 1 January 2025,” she added.

Given the revised timelines, the APRA executive director said it would provide “flexibility” regarding requirements for the calculation of the capital floor under the new Prudential Standard APS 110 Capital Adequacy. 

“The calculation of the floor will be based on existing requirements for APS 116, APS 117 and APS 180 until the revised standards are effective in 2024-2025,” Ms Roberts told ADIs.

“While there will be capital impacts when these standards are implemented, APRA has already factored in estimates of this at an industry level in calibrating the capital framework to meet the ‘unquestionably strong’ benchmarks.” 

APRA said it would confirm the timelines for its review of these market risk standards in the annual information paper on APRA’s policy priorities “early next year”.

[Related: APRA issues capital framework changes update]