The Australian Prudential Regulation Authority (APRA) has released for consultation a discussion paper and draft Prudential Standard APS 210 Liquidity (APS 210) outlining its proposed implementation of the Basel III liquidity reforms in Australia.
APRA proposes to apply the new global liquidity standards to the larger authorised deposit-taking institutions (ADIs). However, APRA does not intend to apply these standards to ADIs that are subject to a simple quantitative metric, the minimum liquidity holdings (MLH) regime. APRA currently exempts ADIs with simple, retailed based business models from scenario analysis and instead imposes a simple quantitative liquidity ratio requirement, the minimum liquidity holdings (MLH) regime.
APRA is proposing to follow the Basel Committee’s timetable for the implementation of the new global liquidity standards. Accordingly, the Liquidity Coverage Ratio requirement will become effective from 1 January 2015 and the Net Stable Funding Ratio requirement from 1 January 2018. APRA is also proposing that the qualitative requirements outlined in this package become effective when the revised APS 210 is implemented.
APRA views liquidity risk management as ultimately a Board responsibility.
APRA is proposing that APS 210 be strengthened to require:
• the operational independence of a liquidity risk management oversight function, with the skills and seniority to challenge liquidity management
practices when appropriate; and
• a formal role for internal audit or an equivalent independent function in relation to liquidity risk management.
Concurrently, the Reserve Bank of Australia (RBA) has provided further detail on the committed liquidity facility that will be available to ADIs subject to the LCR requirement. APRA will be reviewing each ADI’s liquidity risk management framework as the basis for approving the amount of the RBA facility that can be recognised for LCR purposes.
APRA intends to publish a final Prudential Standard APS 210 Liquidity in mid-2012.
