The Australian Prudential Regulation Authority (APRA) recently released the new Prudential Standard APS 330 Public Disclosure (the Standards). The Standards, which are legally binding, require locally incorporated authorised deposit-taking institutions (ADIs) to publicly disclose information on their risk profile, risk management, capital adequacy, capital instruments and remuneration practices.
Following the global financial crisis, concerns were raised regarding the transparency of regulatory capital (i.e. the capital an ADI is required to hold) and market discipline. Specifically, the following factors were identified as contributing to market uncertainty during the crisis and exacerbating a loss of market confidence in authorised deposit-taking institutions operating overseas:
insufficient disclosure requirements and the absence of a standard approach for reporting regulatory capital, making it difficult to evaluate an authorised deposit-taking institution’s capital position; and
remuneration practices which may have encouraged unsound risk-seeking behaviour.
In response to these issues, the Basel Committee on Banking Supervision published Composition of capital disclosure requirements (June 2012) and Pillar 3 disclosure requirements for remuneration (July 2011).
APRA is proposing to incorporate the Basel Committee’s Pillar 3 measures relating to the composition of capital and remuneration into APRA’s prudential framework.
What must ADIs disclose?
The Standards include an obligation on ADIs to disclose:
the composition of its regulatory capital in a standard form;
a reconciliation between the composition of its regulatory capital and its published financial statements;
the full terms and conditions of its regulatory capital instruments and the main features of these instruments in a standard form;
quantitative and qualitative information about its capital adequacy; and
quantitative and qualitative information on its approach to remuneration, including aggregate information on its remuneration of senior managers and material risk-takers.
Other measures include a requirement for an ADI to have a disclosure policy approved by the Board of directors and a separate ‘Regulatory Disclosures’ section on its website.
ADIs must also disclose information about their remuneration policies and procedures and aggregated data about the remuneration of its senior managers and material risk-takers.
'Best endeavours' for 2013
The Basel III disclosure requirements are to be implemented in a revised version of APS 330 that is to commence on 30 June 2013 and apply to locally incorporated ADIs in Australia.
When APRA released a consultation package outlining its detailed proposals to implement the Basel III capital and remuneration disclosure requirements in April 2013, APRA received submissions concerned that the 30 June deadline was too soon.
APRA has decided to continue with the 30 June start date rather than delay its commencement. However, to address concerns around the timing, APRA has announced that it will accept entities reporting the new Pillar 3 disclosures on capital and remuneration on a ‘best endeavours’ basis for the June 2013 reporting period.
Disclosures in subsequent reporting periods must fully comply with the new APS 330.
For more information
To view the Standards, click here. To view the APRA's explanatory Regulation Impact Statement, click here.