The Australian Prudential Regulation Authority (APRA) has released amendments to relevant prudential standards, prudential practice guides (PPGs) and reporting forms to give effect to enhancements to the Basel II Framework in Australia.

The measures aim to enhance the Basel II Framework by ensuring that the risks inherent in banks’ portfolios relating to trading activities, securitisations and exposures to off-balance sheet vehicles are better reflected in minimum capital requirements, risk management practices and accompanying public disclosures. APRA has consulted with industry on these measures.

The changes to APRA’s prudential standards include:

• higher capital requirements to capture the credit risk of complex trading activities and the introduction of a stressed value-at-risk (VaR) requirement;
• higher risk-weights for so-called ‘resecuritisation’ exposures to better reflect the risk inherent in these products, and increased credit conversion factors for short-term liquidity facilities provided to off-balance sheet conduits;
• requirements in relation to valuation practices and the capture of off-balance sheet and securitisation activities; and
• increased disclosure requirements for securitisations and off-balance sheet exposures.

APRA is also implementing a number of other amendments to its prudential standards on capital to clarify existing provisions and support the implementation of the Basel II enhancements.

The amended prudential standards, PPGs and reporting forms will come into effect on 1 January 2012.