The Australian Prudential Regulation Authority (APRA) has released for consultation a discussion paper on its proposals to revise the prudential framework for securitisation for authorised deposit-taking institutions (ADIs). APRA has also released a draft Prudential Standard APS 120 Securitisation (APS 120).(Background)

APRA’s main proposals relating to the simplification of the prudential framework for securitisation are:

• dispensing with a credit risk retention or ‘skin-in-the-game’ requirement;
• removing explicit references to warehouse arrangements in the prudential framework. Warehouse arrangements can still be entered into, but would need to meet the relevant requirements in APS 120 to be considered a securitisation;
• the explicit recognition of funding-only securitisation. A simple structure facilitates a strong funding-only regime, where the originating ADI retains the junior securities and obtains funding from third parties through the sale of the senior securities. The explicit recognition of funding-only securitisation will assist ADIs to further strengthen their funding profiles.

APRA’s latest proposals incorporate the new Basel III securitisation framework, with appropriate adjustments to reflect the Australian context and APRA’s objectives, and will be applicable equally to all ADIs. Subject to consultation on this discussion paper and draft prudential standard, APRA proposes to implement these changes in line with the Basel Committee’s effective date of 1 January 2018.