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Determinations/Financial (Other) as made
This instrument determines Reporting Standard ARS 114.0 Standardised Approach – Operational Risk and revokes the Financial Sector (Collection of Data) (reporting standard) determination No. 1 of 2011, including Reporting Standard ARS 114.0 Standardised Approach – Operational Risk.
Administered by: Treasury
Registered 25 Mar 2021
Tabling HistoryDate
Tabled HR11-May-2021
Tabled Senate11-May-2021

Financial Sector (Collection of Data) (reporting standard) determination No. 7 of 2021

Reporting Standard ARS 114.0 Standardised Approach – Operational Risk

Financial Sector (Collection of Data) Act 2001

 

I, Alison Bliss, delegate of APRA, under paragraph 13(1)(a) of the Financial Sector (Collection of Data) Act 2001 (the Act) and subsection 33(3) of the Acts Interpretation Act 1901:

 

(a)    REVOKE Financial Sector (Collection of Data) (reporting standard) determination No. 1 of 2011, including Reporting Standard ARS 114.0 Standardised Approach – Operational Risk made under that Determination; and

 

(b)   DETERMINE Reporting Standard ARS 114.0 Standardised Approach – Operational Risk, in the form set out in the Schedule, which applies to the financial sector entities to the extent provided in paragraph 3 of the reporting standard.

 

Under section 15 of the Act, I DECLARE that the reporting standard shall begin to apply to those financial sector entities on 1 April 2021, and the revoked reporting standard shall cease to apply, on 1 April 2021.

 

This instrument commences on 1 April 2021.

 

Dated: 22 March 2021

 

[Signed]

 

Alison Bliss

General Manager

Data Analytics and Insights Division

 

 

 

Interpretation

In this Determination:

APRA means the Australian Prudential Regulation Authority.

financial sector entity has the meaning given by section 5 of the Act.

 

 

Schedule

 

Reporting Standard ARS 114.0 Standardised Approach – Operational Risk comprises the document commencing on the following page.

 


Reporting Standard ARS 114.0

Standardised Approach – Operational Risk

Objective of this reporting standard

This Reporting Standard outlines the overall requirements for the provision of information to APRA relating to an authorised deposit-taking institution’s operational risk regulatory capital. It:

·                includes the versions of Reporting Form ARF 114.0 StandardisedOperational Risk designated for an authorised deposit-taking institution reporting at Level 1 and Level 2, and the associated instructions (all of which are attached and form part of this Reporting Standard); and

·                should be read in conjunction with Prudential Standard APS 114 Capital Adequacy: Standardised Approach to Operational Risk.

 

Authority

1.      This Reporting Standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001.

Purpose

2.      Data collected in Reporting Form ARF 114.0 StandardisedOperational Risk (ARF 114.0) is used by APRA for the purpose of prudential supervision including assessing compliance with Prudential Standard APS 114 Capital Adequacy: Standardised Approach to Operational Risk (APS 114).  It may also be used by the Reserve Bank of Australia and the Australian Bureau of Statistics.

Application

3.      This Reporting Standard applies to an authorised deposit-taking institution (ADI) that satisfies both of the following requirements:

(a)           it is applying the standardised approach to operational risk to all or part of its business activities for capital adequacy purposes (refer to APS 114 or Prudential Standard APS 115 Advanced Measurement Approaches to Operational Risk, as appropriate); and

 

(b)          it is included in one of the classes of ADIs to which this Reporting Standard applies, as set out in the table below.

Class of ADI

Applicable

Bank – advanced or applicant advanced

Yes

Bank – standardised

Yes

Branch of a foreign bank

No

Building society

Yes

Credit union

Yes

Provider of purchased payment facilities

No

Other ADI

Yes

 

This Reporting Standard may also apply to the non-operating holding company (NOHC) of an ADI (refer to paragraph 6).

Commencement

4.      This Reporting Standard applies for reporting periods commencing on or after 1 April 2021.

Information required

5.      An ADI to which this Reporting Standard applies must provide APRA with the information required by this Reporting Standard designated for an ADI at Level 1 for each reporting period.

6.      If an ADI to which this Reporting Standard applies is part of a Level 2 group, the ADI must also provide APRA with the information required by this Reporting Standard designated for an ADI at Level 2 for each reporting period, unless the ADI is a subsidiary of an authorised NOHC.  If the ADI is a subsidiary of an authorised NOHC, the ADI’s immediate parent NOHC must provide APRA with the information required by this Reporting Standard designated for an ADI at Level 2 for each reporting period.  In doing so, the immediate parent NOHC must comply with this Reporting Standard (other than paragraphs 5 and 12) as if it were the relevant ADI.

Forms and method of submission

7.       The information required by this Reporting Standard must be given to APRA in electronic format using an electronic method available on APRA’s website or by a method notified by APRA, in writing, prior to submission.

Reporting periods and due dates

8.      Subject to paragraph 9, an ADI to which this Reporting Standard applies must provide the information required by this Reporting Standard in respect of each quarter based on the financial year (within the meaning of the Corporations Act 2001) of the ADI.

9.      APRA may, by notice in writing, change the reporting periods, or specified reporting periods, for a particular ADI, to require it to provide the information required by this Reporting Standard more frequently, or less frequently, having regard to:

(a)           the particular circumstances of the ADI;

(b)          the extent to which the information is required for the purposes of the prudential supervision of the ADI; and

(c)           the requirements of the Reserve Bank of Australia or the Australian Bureau of Statistics.

10.  The information required by this Reporting Standard must be provided to APRA in accordance with the table below.   The right hand column of the table sets out the number of business days after the end of the reporting period to which the information relates, within which time information must be submitted to APRA by an ADI in each of the classes set out in the same row in the left hand column.

Class of ADI

Number of business days

Bank – advanced or applicant advanced

30

Bank – standardised

20

Branch of a foreign bank

Not applicable

Building society

15

Credit union

15

Provider of purchased payment facilities

Not applicable

Other ADI[1]

20

 

In certain cases an ADI will be both a bank – advanced or applicant advanced and a bank – standardised.  The instructions associated with ARF 114.0 set out the relevant reporting requirements and timeframes in those circumstances.

11.  APRA may grant an ADI an extension of a due date in writing, in which case the new due date for the provision of the information will be the due date specified on the notice of extension.

Quality control

12.  The information provided by an ADI under this Reporting Standard (except for the information required under paragraph 6) must be the product of systems, processes and controls that have been reviewed and tested by the external auditor of the ADI as set out in Prudential Standard APS 310 Audit and Related Matters. Relevant standards and guidance statements issued by the Auditing and Assurance Standards Board provide information on the scope and nature of the review and testing required from external auditors. This review and testing must be done on an annual basis or more frequently if required by the external auditor to enable the external auditor to form an opinion on the accuracy and reliability of the information provided by an ADI under this Reporting Standard.

13.  All information provided by an ADI under this Reporting Standard must be subject to processes and controls developed by the ADI for the internal review and authorisation of that information. These systems, processes and controls are to assure the completeness and reliability of the information provided.

Authorisation

14.  When an officer of an ADI submits information under this Reporting Standard using a method notified by APRA, the officer must digitally sign the relevant information using a digital certificate or other digital identity credential acceptable to APRA.

Minor alterations to forms and instructions

15.  APRA may make minor variations to:

(a)           a form that is part of this Reporting Standard, and the instructions to such a form, to correct technical, programming or logical errors, inconsistencies or anomalies; or

(b)          the instructions to a form, to clarify their application to the form

without changing any substantive requirement in the form or instructions.

16.  If APRA makes such a variation it must notify in writing each ADI that is required to report under this Reporting Standard.

Interpretation

17.  In this Reporting Standard:

ADI means an authorised deposit-taking institution within the meaning of the Banking Act 1959.

APRA means the Australian Prudential Regulation Authority established under the Australian Prudential Regulation Authority Act 1998.

Australian-owned bank means a locally incorporated ADI that assumes or uses the word ‘bank’ in relation to its banking business and is not a foreign subsidiary bank.

authorised NOHC has the meaning given in the Banking Act 1959.

bank – advanced or applicant advanced means an Australian-owned bank or a foreign subsidiary bank that has APRA’s approval or is seeking APRA’s approval to use an internal ratings-based approach to credit risk and/or an advanced measurement approach to operational risk for capital adequacy purposes.

bank – standardised means an Australian-owned bank or a foreign subsidiary bank that uses the standardised approaches to credit risk and operational risk for capital adequacy purposes in respect of the whole of its operations.

branch of a foreign bank means a ‘foreign ADI’ as defined in section 5 of the Banking Act 1959.

building society means a locally incorporated ADI that assumes or uses the expression ‘building society’ in relation to its banking business.

business days means ordinary business days, exclusive of Saturdays, Sundays and public holidays.

class of ADI means each of the following:

(i)                 bank – advanced or applicant advanced;

(ii)               bank – standardised;

(iii)             branch of a foreign bank;

(iv)             building society;

(v)               credit union;

(vi)             other ADI; and

(vii)           a provider of purchased payment facilities.

credit union means a locally incorporated ADI that assumes or uses the expression ‘credit union’ in relation to its banking business and, for the purposes of this Reporting Standard, includes Cairns Penny Savings and Loans Limited.

foreign subsidiary bank means a locally incorporated ADI in which a bank that is not locally incorporated has a stake of more than 15%.

immediate parent NOHC means an authorised NOHC, or a subsidiary of an authorised NOHC, that is an immediate parent NOHC within the meaning of paragraph 5 of Prudential Standard APS 001 Definitions(APS 001).

Level 1 has the meaning in paragraph 5 of APS 001.

Level 2 has the meaning in paragraph 5 of APS 001.

locally incorporated means incorporated in Australia or in a State or Territory of Australia, by or under a Commonwealth, State or Territory law.

other ADI means an ADI that is not an Australian-owned bank, a branch of a foreign bank, a building society, a credit union, a foreign subsidiary bank, or a provider of purchased payment facilities, but for the purposes of this Reporting Standard does not include Cairns Penny Savings and Loans Limited.

provider of purchased payment facilities means an ADI that is subject to a condition on its authority under section 9 of the Banking Act 1959 confining the banking business that the ADI is authorised to carry on to providing purchased payment facilities.

reporting period means a period mentioned in paragraph 8 or, if applicable, paragraph 9.

stake means a stake determined under the Financial Sector Shareholdings Act 1998, as if the only associates that were taken into account under paragraph (b) of subclause 10(1) of the Schedule to that Act were those set out in paragraphs (h), (j) and (l) of subclause 4(1).

subsidiary has the meaning in the Corporations Act 2001.

18.  APRA may make a determination in writing that an individual ADI of one class of ADI is to be treated, for the purposes of this Reporting Standard, as though it was an ADI of another class of ADI.

19.  In this Reporting Standard, unless the contrary intention appears, a reference to an Act, Regulation, Prudential Standard, Reporting Standard, Australian Accounting Standard or Auditing Standard is a reference to the instrument as in force or existing from time to time.

 

 



Reporting Form ARF 114.0

Standardised – Operational Risk

Instruction Guide

This instruction guide is designed to assist in the completion of Reporting Form ARF 114.0 Standardised – Operational Risk (ARF 114.0). ARF 114.0 captures the calculation of the capital requirement for operational risk using the standardised approach. In completing ARF 114.0, authorised deposit-taking institutions (ADIs) should refer to Prudential Standard APS 114 Capital Adequacy: Standardised Approach to Operational Risk (APS 114).

General directions and notes

Reporting entity

ARF 114.0 is to be completed at Level 1 and Level 2[2] by each ADI that satisfies both of the following paragraphs:

(a)           it is applying the standardised approach to operational risk to all or part of its business activities for capital adequacy purposes (refer to APS 114 or Prudential Standard APS 115 Advanced Measurement Approaches to Operational Risk, as appropriate); and

(b)          it is included in one of the classes of ADI to which ARF 114.0 applies, as set out in the table below.

Class of ADI

Reporting required

Bank – advanced or applicant advanced[3]

Yes

Bank – standardised

Yes

Branch of a foreign bank

No

Building society

Yes

Credit union

Yes

Provider of purchased payment facilities

No

Other ADI

Yes

 

If an ADI is a subsidiary of an authorised non-operating holding company (NOHC), the report at Level 2 is to be provided by the ADI’s immediate parent NOHC.[4] 

Securitisation deconsolidation principle

Except as otherwise specified in these instructions, the following applies:

1.             Where an ADI (or a member of its Level 2 consolidated group) participates in a securitisation that meets APRA’s operational requirements for regulatory capital relief under Prudential Standard APS 120 Securitisation (APS 120):

(a)           special purpose vehicles (SPVs) holding securitised assets may be treated as non-consolidated independent third parties for regulatory reporting purposes, irrespective of whether the SPVs (or their assets) are consolidated for accounting purposes; and

(b)          the assets, liabilities, revenues and expenses of the relevant SPVs may be excluded from the ADI’s reported amounts in APRA’s regulatory reporting returns.

2.             Where an ADI (or a member of its Level 2 consolidated group) participates in a securitisation that does not meet APRA’s operational requirements for regulatory capital relief under APS 120, or the ADI undertakes a funding-only securitisation or synthetic securitisation, such assets are to be reported as on-balance sheet in APRA’s regulatory reporting returns.

Reporting period and timeframes for lodgement

The form is to be completed as at the last day of the stated reporting period (i.e. the relevant quarter). The table below specifies the number of business days after the end of the relevant reporting period, within which each class of ADI must submit data to APRA.

Class of ADI

Number of business days

Bank – advanced or applicant advanced

30

Bank – standardised

20

Branch of a foreign bank

Not applicable

Building society

15

Credit union

15

Provider of purchased payment facilities

Not applicable

Other ADI[5]

20

 

An immediate parent NOHC must submit data to APRA within the same timeframe as its subsidiary ADI.

Where both bank – standardised and bank – advanced or applicant advanced reporting requirements and timeframes apply to an ADI

 

In the following cases an Australian-owned bank or a foreign subsidiary bank must meet reporting requirements and timeframes applicable to both a bank – advanced or applicant advanced and a bank – standardised:

 

(a)           where the ADI is operating under the standardised approach to operational risk under APS 114, but has applied for AMA approval under APS 115, in which case the ADI will be both a bank – advanced or applicant advanced and a bank – standardised; and

 

(b)          where the ADI has received AMA approval under APS 115 in respect of most (but not all) of its operations, and has approval for partial use of the standardised approach under APS 114 for the remainder of its operations.

 

Such an ADI must report under ARF 114.0 as follows:

Description of bank

Reporting requirement

Timeframes for lodgement

 

ADI is operating under Basel II[6] APS 114 standardised approach, but has applied for AMA approval for all its operations

 

 

Report under the form (for purposes of calculating operational risk component of regulatory capital for all of its operations)

 

 

Bank – standardised timeframe (within 20 business days)

 

ADI is operating under Basel II APS 114 standardised approach, but has applied to adopt AMA approach for most (but not all) of its operations (or APRA has indicated that it does not propose to grant AMA approval in respect of all of the ADI’s operations)

 

Report under the form (for purposes of calculating operational risk component of regulatory capital for all of its operations)

 

 

Bank – standardised timeframe (within 20 business days)

 

 

Separately report under the form in respect of operations that will remain under the standardised approach (i.e. partial use) after AMA approval given (for purposes of assessing prospective operational risk component of regulatory capital calculation after AMA approval (i.e. “parallel run” of data))

 

 

Bank – advanced or applicant advanced timeframe (within 30 business days)

 

ADI has AMA approval, but some operations remain under Basel II standardised approach

 

 

Report under the form in respect of operations that remain under standardised approach (for purposes of calculating partial use operational risk component of regulatory capital)

 

 

Bank – advanced or applicant advanced timeframe (within 30 business days)

 

These ADIs will also have certain reporting obligations under Reporting Forms ARF 115.0A to ARF 115.0C Advanced Measurement Approaches to Operational Risk.

 

Unit of measurement

ARF 114.0 should be completed in Australian dollars (AUD) and in accordance with the units set out for each class of ADI in the table below.

Class of ADI

Units

Bank – advanced or applicant advanced

Millions of dollars rounded to one decimal place

Bank – standardised

Millions of dollars rounded to one decimal place

Branch of a foreign bank

Not applicable

Building society

Whole dollars with no decimal place

Credit union

Whole dollars with no decimal place

Provider of purchased payment facilities

Not applicable

Other ADI

Whole dollars with no decimal place

 

An immediate parent NOHC must complete ARF 114.0 in AUD and in accordance with the same units as its subsidiary ADI.

Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates.

Specific instructions

The following instructions are applicable at Level 1 and (where relevant) Level 2.

Section A: Operational risk regulatory capital for retail banking

The operational risk regulatory capital for the retail banking area of business is determined using a proportion of an ADI’s total gross outstanding loans and advances for retail banking as an indicator of the area’s operational risk exposure.

1.1   Total gross outstanding loans and advances for retail banking

Report the last six consecutive half-yearly balances[7] of total gross outstanding loans and advances for the retail banking area of business. 

Total gross outstanding loans and advances for this area of business is calculated as the total of on-balance sheet exposures to the following items:

(a)           cash holdings of notes and coins; and

(b)          loans to households comprising:

(i)            housing loans;

(ii)          revolving credit;

(iii)        credit cards;

(iv)        leasing; and

(v)          other personal term loans (including margin lending facilities).

For reporting at Level 2, an ADI may map these data items to the relevant on-balance sheet items reported in the version of Reporting Form ARF 112.1A Standardised Credit Risk – On-balance Sheet Assets (ARF 112.1A) designated for an ADI reporting at Level 2.

Exclude the balances of loans and advances that meet the operational requirements for regulatory capital relief outlined in APS 120, and are therefore excluded from the calculation of RWA under APS 120.

1.2   Total operational risk regulatory capital for retail banking

Derived field that calculates the total operational risk regulatory capital for the retail banking area of business, in accordance with APS 114.

Section B: Operational risk regulatory capital for commercial banking

The operational risk regulatory capital for the commercial banking area of business is determined using a proportion of an ADI’s total gross outstanding loans and advances for commercial banking as an indicator of the area’s operational risk exposure.

2.1   Total gross outstanding loans and advances for commercial banking

Report the last six consecutive half-yearly balances[8] of total gross outstanding loans and advances for the commercial banking area of business.

Total gross outstanding loans and advances for this area of business is calculated as the total of on-balance sheet exposures to the following items:

(a)           amounts, including all deposits, due from financial institutions including:

(i)            Reserve Bank of Australia, central banks, banks, other ADIs, Registered Financial Corporations.

(b)          gross book value of securities (including all debt securities) held in the banking book (refer to APS 114); and

(c)           commercial lending, comprising loans and advances to:

(i)            private and public trading corporations;

(ii)          private unincorporated businesses and community service organisations;

(iii)        ADIs and other financial institutions; and

(iv)        government.

For reporting at Level 2, an ADI may map these data items to the relevant on-balance sheet items reported in the version of ARF 112.1 designated for an ADI reporting at Level 2.

Exclude:

(a)           funded positions with respect to corporate finance activities (refer to APS 114);

(b)          the balances of loans and advances that are excluded from risk-weighted assets under APS 120; and

(c)           the gross book value of securities arising from the ADI’s involvement in corporate finance related activities and those that are deducted from capital pursuant to Prudential Standard APS 111 Capital Adequacy: Measurement of Capital.

2.2   Total operational risk regulatory capital for commercial banking

Derived field that calculates the total operational risk regulatory capital for the commercial banking area of business, in accordance with APS 114.

Section C: Operational risk regulatory capital for all other activity

The operational risk regulatory capital for the all other activity area of business is determined using a proportion of an ADI’s gross income, adjusted to exclude income primarily relating to retail banking and commercial banking (adjusted gross income)[9] as an indicator of the area’s operational risk exposure.

An ADI must include, in the all other activity area of business, income (including net interest income and servicing activities) from its involvement in securitisation, trading and corporate finance activities.  For trading activities, net income includes profits and losses on instruments held for trading purposes, net of funding costs, plus fees from wholesale broking.

Report the last six consecutive half-yearly amounts[10] for the following items:

3.1   Total operating income from continuing operations

Report the last six half-yearly balances of total operating income from continuing operations as at the end of each half-year and financial year of the ADI.

LESS

In this section, items 3.1.1 and 3.1.2 are deducted from item 3.1 to arrive at an adjusted gross income figure in item 3.2.

3.1.1     Adjustments relating to the retail banking and commercial banking areas of business

Include adjustments primarily relating to the retail banking and commercial banking areas of business.  Refer to Prudential Practice Guide APG 114 Standardised Approach to Operational Risk for examples of the types of adjustments that may be made in relation to the retail banking and commercial banking areas of business. 

3.1.2     Other adjustments

Include any other adjustments not already included in item 3.1.1. 

3.2   Adjusted gross income

Derived field calculated as item 3.1 less items 3.1.1 and 3.1.2.

3.3   Total operational risk regulatory capital for all other activity

Derived field that calculates the total operational risk regulatory capital for the all other activity area of business, in accordance with APS 114.

Section D: Operational risk regulatory capital summary

4.    Total operational risk regulatory capital

Derived field that totals the operational risk regulatory capital for the retail banking, commercial banking and all other activity areas of business, in accordance with APS 114.

5.    RWA equivalent amount for operational risk regulatory capital

Derived field that converts the total operational risk regulatory capital to a RWA equivalent amount by multiplying the Total operational risk regulatory capital by 12.5.

 



[1]           The definitions of ‘credit union’ and ‘other ADI’ in paragraph 17 of this Reporting Standard provide that Cairns Penny Savings and Loans Limited is to be treated in accordance with the reporting period requirements applicable to credit unions.

[2]           Level 1 and Level 2 defined in accordance with paragraph 5 of Prudential Standard APS 001 Definitions.

[3]           When an ADI is seeking APRA’s approval to use the internal ratings-based approach to credit risk and/or an advanced measurement approach to operational risk and is therefore classified as a bank – advanced or applicant advanced, the ADI may concurrently be classified as a bank – standardised and therefore also subject to the reporting requirements for a bank – standardised (refer to the section Where both bank – standardised and bank – advanced or applicant advanced reporting requirements and timeframes apply to an ADI below).

[4]           Refer to paragraph 6 of Reporting Standard ARS 114.0 Standardised Approach – Operational Risk.

[5]           Cairns Penny Savings and Loans Limited is to be treated in accordance with the reporting period requirements applicable to credit unions.

[6]           If an ADI is required to apply the Basel I capital adequacy standards pending APRA’s determination of an application made before 1 January 2008 for approval to use the internal ratings-based approach to credit risk and/or an advanced measurement approach to operational risk, the ADI must report under the Basel I capital reporting standards: refer to Reporting Standard ARS 150 Capital Adequacy: Basel II Transition (Advanced ADIs) and paragraph 14 of Prudential Standard APS 150 Capital Adequacy: Basel II Transition (Advanced ADIs).

[7]           Refer to paragraph 20 of APS 114 for details of the calculation of the last six consecutive half-yearly balances in the event of a merger or where actual balances are not available.

[8]           Refer to footnote 8.

[9]            Adjusted gross income is defined in accordance with APS 114.

[10]           Refer to footnote 8.