{"id":"F2024L01518","name":"Banking (prudential standard) determination No. 6 of 2024","slug":"banking-prudential-standard-determination-no-6-of-2024","collection":"legislative_instrument","jurisdiction":"commonwealth","status":"in_force","isInForce":true,"actNumber":null,"makingDate":null,"administeringDepartment":null,"currentVersion":{"id":105479,"registerId":"commonwealth-F2024L01518-current","compilationNumber":null,"startDate":"2026-04-03","status":"InForce","reasons":null,"registeredAt":null},"sections":[{"sectionNumber":"Attachment A — Risk-based regulatory cap","sectionType":"part","heading":"Attachment A — Risk-based regulatory capital ratios","content":"# Attachment A – Risk-based regulatory capital ratios\n\n1. An ADI’s Tier 1 Capital is the sum of its Common Equity Tier 1 Capital and Additional Tier 1 Capital. Its Total Capital is the sum of Tier 1 Capital and Tier 2 Capital. The criteria for inclusion in Common Equity Tier 1 Capital, Additional Tier 1 Capital and Tier 2 Capital are set out in APS 111.\n2. Under APRA’s risk-based capital adequacy framework, an ADI’s capital adequacy is measured by means of risk-based capital ratios calculated by dividing each of its Common Equity Tier 1 Capital, Tier 1 Capital and Total Capital by its total RWA. That is:\n\n```html\n

Common Equity Tier 1 Capital ratio =

Common Equity Tier 1 Capital

Total RWA

Tier 1 Capital ratio =

Tier 1 Capital

Total RWA

Total Capital ratio =

Total Capital

Total RWA

\n```\n\nTotal RWA are calculated in accordance with paragraph 3 or paragraph 4 of this Attachment.\n\n1. Standardised ADIs must calculate total RWA as the sum of:\n 1. RWA determined in accordance with Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112);\n 2. RWA determined in accordance with Prudential Standard APS 120 Securitisation (APS 120); and\n 3. unless APRA determines otherwise in a particular case, either:\n 1. for non-significant financial institutions, 10 per cent of the sum of RWA calculated under sub-paragraphs 3(a) and 3(b) of this Attachment as RWA for operational risk; or\n 2. for significant financial institutions, risk-weighted credit exposures calculated under Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk (APS 180) and 12.5 times the sum of the capital charges determined under Prudential Standard APS 115 Capital Adequacy: Standardised Measurement Approach to Operational Risk (APS 115), Prudential Standard APS 116 Capital Adequacy: Market Risk (APS 116) and APS 180.[\\[9\\]](#_ftn9)\n2. IRB ADIs must calculate total RWA as the greater of:\n 1. the sum of:\n 1. RWA determined in accordance with APS 112 for those asset classes where an IRB ADI is required to use the standardised approach to credit risk, or where APRA has approved partial use;\n 2. RWA determined in accordance with Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk (APS 113);\n 3. RWA determined in accordance with APS 120;\n 4. risk-weighted credit exposures calculated under APS 180;[\\[10\\]](#_ftn10) and\n 5. 12.5 times the sum of the capital charges determined under APS 115, APS 116, APS 180 and Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (APS 117);[\\[11\\]](#_ftn11) or\n 2. 72.5 per cent of total RWA calculated in accordance with paragraph 3 of this Attachment.[\\[12\\]](#_ftn12)\n3. For the purpose of paragraph 4(b) of this Attachment, an IRB ADI may determine its market risk capital charge using its internal model approach, rather than the standard method set out in APS 116.","sortOrder":0},{"sectionNumber":"Attachment B — Constraints on capital di","sectionType":"part","heading":"Attachment B — Constraints on capital distributions","content":"# Attachment B – Constraints on capital distributions\n\n1. Capital distribution constraints apply when an ADI’s Common Equity Tier 1 Capital ratio is within the capital buffer (CB) range (consisting of the capital conservation buffer plus any countercyclical capital buffer). The CB range is divided into four quartiles for the purposes of determining the minimum capital conservation ratios, as set out in Table 1.\n\nTable 1: Minimum capital conservation ratios\n\n| Common Equity Tier 1 Capital ratio | Minimum capital conservation ratios (expressed as a percentage of earnings) |\n| -------------------------------------------------------------------- | --------------------------------------------------------------------------- |\n| Within first quartile of bufferPCR to ≤ (PCR + 0.25CB) | 100 |\n| Within second quartile of buffer> (PCR + 0.25CB) to ≤ (PCR + 0.50CB) | 80 |\n| Within third quartile of buffer> (PCR + 0.50CB) to ≤ (PCR + 0.75CB) | 60 |\n| Within fourth quartile of buffer> (PCR + 0.75CB) to ≤ (PCR + CB) | 40 |\n| Above top of buffer> (PCR + CB) | 0 |\n\n1. The minimum capital conservation ratios in Table 1 represent the percentage of earnings that an ADI must not distribute if its Common Equity Tier 1 Capital ratio falls within the corresponding quartile. If the Common Equity Tier 1 Capital ratio falls within the first quartile, the ADI must also cease all Tier 1 Capital distributions.\n2. Earnings are defined for the purposes of this Attachment as distributable profits calculated prior to the deduction of elements subject to the restriction on distributions. Earnings are calculated after the tax that would have been reported had none of the distributable items been paid. As such, any tax impact of making such distributions is reversed out. An ADI that does not have positive earnings and has a Common Equity Tier 1 Capital ratio less than the sum of its Common Equity Tier 1 PCR plus the capital conservation buffer must not make positive net distributions.\n3. Payments made by an ADI that do not result in a depletion of Common Equity Tier 1 Capital are not considered to be distributions for the purposes of this Attachment. APRA may impose restrictions on capital distributions even where an ADI’s Common Equity Tier 1 Capital ratio is above the capital conservation buffer.\n4. APRA may impose limits on the period in which an ADI may operate within the capital conservation buffer range, on a case-by-case basis.","sortOrder":1},{"sectionNumber":"Attachment C — Countercyclical capital b","sectionType":"part","heading":"Attachment C — Countercyclical capital buffer","content":"# Attachment C – Countercyclical capital buffer\n\n1. An ADI must calculate the ADI-specific countercyclical capital buffer requirement as the weighted average of the jurisdictional countercyclical capital buffers that apply in jurisdictions in which the ADI has exposures.\n2. The weighting applied to the jurisdictional countercyclical capital buffer in each jurisdiction will be the risk-weighted amount of an ADI’s private sector credit exposures in that jurisdiction, divided by the risk-weighted amount of the ADI’s private sector credit exposures across all jurisdictions, where:\n 1. private sector credit exposures are:\n 1. on-balance sheet assets, off-balance sheet exposures and on- and off-balance sheet securitisation and resecuritisation exposures determined under APS 112, APS 113 or APS 120, as relevant; and\n 2. exposures for which an ADI calculates a trading book capital charge for specific risk, including equity specific risk, interest rate specific risk, incremental risk, securitisation and resecuritisation under APS 116,\n\nto private sector counterparties, excluding ADIs (and equivalent overseas deposit-taking institutions) but including other financial institutions; and\n\n1. the risk-weighted amount of an ADI’s private sector credit exposures is the sum of:\n 1. the risk-weighted assets for the assets and exposures in paragraph 2(a)(i) of this Attachment; and\n 2. the risk-weighted equivalent trading book capital charges for exposures in paragraph 2(a)(ii) of this Attachment.\n\n1. When determining the jurisdiction to which a private sector credit exposure relates, ADIs must use an ultimate risk basis, where possible. An ADI must use the jurisdiction where the guarantor of the exposure resides, not where the exposure has been booked.\n2. APRA may require an ADI to apply a higher countercyclical capital buffer for a particular jurisdiction than may be determined by the regulator in that jurisdiction.\n3. For Level 2 purposes, the ADI-specific countercyclical capital buffer must cover all exposures incurred in relevant jurisdictions, even though the business may be undertaken by a member of the Level 2 group that is not itself an ADI or equivalent overseas deposit-taking institution.\n\n1. For the Value-at-Risk (VaR) for specific risk, the incremental risk charge and the comprehensive risk measurement charge included in calculating the ADI-specific countercyclical capital buffer, an ADI must consult with APRA to develop an approach that would translate these charges into individual instrument risk-weights that would then be allocated to the geographic location of the specific counterparties that make up the charge.","sortOrder":2},{"sectionNumber":"Attachment D — Leverage ratio","sectionType":"part","heading":"Attachment D — Leverage ratio","content":"# Attachment D – Leverage ratio\n\n1. An ADI must calculate its leverage ratio as follows:\n\n```html\n

Leverage ratio =

Tier 1 Capital

Exposure Measure

\n```\n\nwhere:\n\n1. Tier 1 Capital is determined in accordance with APS 111; and\n2. the exposure measure is determined in accordance with this Attachment and is calculated as the sum of:[\\[13\\]](#_ftn13)\n 1. on-balance sheet exposures;\n 2. non-market related off-balance sheet exposures;\n 3. derivative exposures; and\n 4. securities financing transaction (SFT) exposures.\n\n1. Unless otherwise specified in this Attachment, an ADI must follow Australian Accounting Standards in calculating its exposure measure, subject to the following:\n 1. physical or financial collateral, guarantees or other credit risk mitigation techniques must not be taken into account by an ADI to reduce the exposure measure;\n 2. netting of assets and liabilities is not permitted; and\n 3. securitisation exposures which meet the operational requirements for regulatory capital relief, as set out in APS 120, may be excluded from the exposure measure. All other securitisation exposures, including funding-only and synthetic securitisations, must be included in the exposure measure.\n2. APRA may temporarily exclude central bank reserves from the leverage ratio exposure measure in exceptional macroeconomic circumstances. If APRA excludes central bank reserves, it may increase the minimum leverage ratio requirement commensurately to offset the impact of the exclusion. In the event that APRA excludes central bank reserves from the calculation of the exposure measure, an ADI must publicly disclose the impact of the exclusion, as well as its leverage ratio calculated without the benefit of the exclusion.","sortOrder":3},{"sectionNumber":"On-balance sheet exposures","sectionType":"part","heading":"On-balance sheet exposures","content":"## On-balance sheet exposures\n\n1. For the purpose of calculating on-balance sheet assets, an ADI must include all balance sheet assets, including any on-balance sheet collateral for derivatives and SFTs, but excluding on-balance sheet derivatives and SFTs covered by paragraphs 16 to 45 of this Attachment.\n2. Balance sheet assets deducted from Common Equity Tier 1 Capital and Additional Tier 1 Capital for the purposes of regulatory adjustments under APS 111 may be deducted from the exposure measure.\n3. Liability items must not be deducted from the exposure measure, including any gains and losses on fair value liabilities, or accounting value adjustments on derivative liabilities due to changes in an ADI’s own credit risk.\n4. On-balance sheet assets may be included in the exposure measure at their accounting values net of any provisions that have otherwise been deducted from Tier 1 Capital.\n5. Where an ADI holds assets in a fiduciary capacity, these assets may be excluded from the exposure measure provided that the assets meet the accounting criteria for derecognition and, where applicable, the accounting criteria for deconsolidation.","sortOrder":4},{"sectionNumber":"Unsettled trades","sectionType":"division","heading":"Unsettled trades","content":"### Unsettled trades\n\n1. An ADI must account for regular-way purchases or sales of financial assets that have not been settled on the following basis:\n 1. ADIs which apply trade date accounting must reverse out any offsetting between cash receivables for unsettled sales and cash payables for unsettled purchases of financial assets. Thereafter, ADIs may offset between those cash receivables and cash payables (irrespective of whether such offsetting is permitted under Australian Accounting Standards) only if all of the following conditions are met:\n 1. the financial assets bought and sold that are associated with cash payables and receivables are measured at fair value through the income statement and included in the ADI’s trading book in accordance with Attachment A to APS 116; and\n 2. the transactions of the financial assets are settled on a delivery-versus-payment basis; and\n 2. ADIs which apply settlement date accounting must apply the treatment set out in paragraphs 12 and 15 of this Attachment.","sortOrder":5},{"sectionNumber":"Cash pooling","sectionType":"division","heading":"Cash pooling","content":"### Cash pooling\n\n1. If an ADI uses cash pooling arrangements which combine the credit and debit balances of several individual participating customer accounts into a single account balance, the ADI may recognise the single account balance in its calculation of the exposure measure if:\n 1. the balances are transferred on at least a daily basis; and\n 2. the ADI cannot be held liable for the balances on an individual basis upon the transfer, i.e. the ADI can only be held liable for a single claim based on the single account.\n2. If cash pooling arrangements do not meet the conditions set out in paragraph 10 of this Attachment, the individual balances of the participating customer accounts must be reflected separately in the exposure measure.","sortOrder":6},{"sectionNumber":"Non-market-related off-balance sheet exp","sectionType":"part","heading":"Non-market-related off-balance sheet exposures","content":"## Non-market-related off-balance sheet exposures\n\n1. For the purpose of calculating non-market-related off-balance sheet exposures, an ADI must apply credit conversion factors (CCFs) to the gross notional amounts of off-balance sheet items.[\\[14\\]](#_ftn14) An ADI must apply the CCFs set out in Table 17 of Attachment C to APS 112.\n2. For any off-balance sheet securitisation exposures, an ADI must apply the relevant CCFs as set out in paragraph 43 of APS 120.\n3. Provisions that have decreased Tier 1 Capital may be deducted from the credit exposure equivalent amount (i.e. the exposure amount after the application of the relevant CCF). However, the resulting off-balance sheet equivalent amount for these exposures cannot be less than zero.\n4. If the exposure amount relates to an unsettled regular-way financial asset purchase (i.e. the commitment to pay) that is accounted for at settlement date, an ADI must apply a CCF of 100 per cent. An ADI may offset commitments to pay for unsettled purchases and cash to be received for unsettled sales provided the following conditions are met:\n 1. the financial assets bought and sold that are associated with the cash payables and receivables are included in the ADI’s income statement at fair value and allocated to the ADI’s trading book in accordance with Attachment A to APS 116; and\n 2. the transactions of the financial assets are settled on a delivery-versus-payment basis.","sortOrder":7},{"sectionNumber":"Derivative exposures","sectionType":"part","heading":"Derivative exposures","content":"## Derivative exposures\n\n1. For the purpose of calculating the exposure measure, an ADI must apply the specific treatment set out in paragraphs 17 to 36 of this Attachment to any derivatives transaction.","sortOrder":8},{"sectionNumber":"Treatment of derivatives","sectionType":"division","heading":"Treatment of derivatives","content":"### Treatment of derivatives\n\n1. An ADI must calculate its exposures associated with all derivative transactions, including where it sells protection using a credit derivative, as:\n\nexposure measure = 1.4\\*(RC + PFE)\n\nwhere:\n\nRC \\= the replacement cost, calculated according to paragraph 19 of this Attachment; and\n\nPFE = the potential future exposure, calculated according to paragraphs 20 and 21 of this Attachment.\n\n1. An ADI must calculate its exposure to:\n 1. a single derivatives transaction not covered by an eligible bilateral netting agreement by applying the formula in paragraph 17 of this Attachment to each transaction separately; and\n 2. derivatives transactions covered by an eligible bilateral netting agreement by applying the formula in paragraph 17 of this Attachment at the netting set level.[\\[15\\]](#_ftn15)\n\nFor this purpose, an eligible bilateral netting agreement is one that meets the criteria in Attachment H to APS 112\\. Cross-product netting (i.e. between derivatives and SFTs) is not permitted.","sortOrder":9},{"sectionNumber":"Calculation of the replacement cost","sectionType":"subdivision","heading":"Calculation of the replacement cost","content":"#### Calculation of the replacement cost\n\n1. The RC of a transaction or netting set is measured as follows:\n\nRC = max {V - CVMr + CVMp, 0}\n\nwhere:\n\nV \\= the market value of the individual derivative transaction, or of the derivative transactions in a netting set;\n\nCVMr \\= the cash variation margin received that meets the conditions set out in paragraph 23 of this Attachment and for which the amount has not already reduced the market value of the derivative transaction V under Australian Accounting Standards; and\n\nCVMp \\= the cash variation margin provided by the ADI that meets the conditions set out in paragraph 23 of this Attachment and for which the amount has not already increased the market value of the derivative transaction V under Australian Accounting Standards.","sortOrder":10},{"sectionNumber":"Calculation of the potential future expo","sectionType":"subdivision","heading":"Calculation of the potential future exposure","content":"#### Calculation of the potential future exposure\n\n1. The PFE for derivative exposures must be calculated in accordance with Attachment D to APS 180\\. Specifically,\n\nPFE \\= m\\*AddOnaggregate\n\nwhere:\n\nm= 1; and\n\nAddOnaggregate = the aggregation of all add-on components calculated in accordance with Attachment D to APS 180\\. The maturity factor used must reflect the treatment for margined and unmargined transactions.\n\n1. Written options must be included in the leverage ratio exposure measure, even where the exposure at default may be set to zero under APS 180.","sortOrder":11},{"sectionNumber":"Treatment of related collateral","sectionType":"division","heading":"Treatment of related collateral","content":"### Treatment of related collateral\n\n1. Subject to paragraphs 24 and 29 of this Attachment, an ADI:\n 1. must not reduce its exposure measure by the amount of any derivatives collateral received from a counterparty; and\n 2. must increase its exposure measure by the amount of any derivatives collateral provided by it to a counterparty, where the provision of that collateral has reduced the value of its balance sheet assets under Australian Accounting Standards.","sortOrder":12},{"sectionNumber":"Treatment of cash variation margin","sectionType":"subdivision","heading":"Treatment of cash variation margin","content":"#### Treatment of cash variation margin\n\n1. An ADI may reduce its exposure measure by treating the cash portion of variation margin exchanged between counterparties as a form of pre-settlement payment, if the following conditions are met:\n 1. for trades not cleared through a qualifying central counterparty (QCCP),[\\[16\\]](#_ftn16) the cash received by the recipient counterparty must not be segregated. Cash variation margin would satisfy the non-segregation criteria if the recipient counterparty is not subject to any restrictions by law, regulation or agreement on the counterparty’s ability to use the cash received;\n 2. variation margin is calculated and exchanged on a daily basis based on mark-to-market valuation of derivatives positions. In order to meet this requirement, derivative positions must be valued daily and cash variation margin must be transferred at least daily to the counterparty;\n 3. the cash variation margin is received in a currency specified in the derivatives contract, governing master netting agreement (MNA),[\\[17\\]](#_ftn17) credit support annex to the qualifying MNA or as defined by any netting agreement with a central counterparty (CCP);[\\[18\\]](#_ftn18)\n 4. variation margin exchanged is the full amount that would be necessary to extinguish the mark-to-market exposure of the derivative subject to the threshold and minimum transfer amounts applicable to the counterparty;[\\[19\\]](#_ftn19) and\n 5. derivatives transactions and variation margins are covered by a single MNA between the legal entities that are the counterparties in the derivatives transaction. The MNA must explicitly stipulate that the counterparties agree to settle on a net basis any payment obligations covered by the MNA, taking into account any variation margin received or provided if a credit event occurs involving either counterparty.\n2. If the conditions in paragraph 23 of this Attachment are met and an ADI:\n 1. receives cash variation margin from a counterparty, it may reduce the RC (but not the PFE component) of the exposure amount of the derivative transactions consistent with paragraph 19 of this Attachment; and\n 2. provides cash variation margin to a counterparty, it may deduct the resulting receivable from its exposure measure, where the cash variation margin has been recognised as an asset in accordance with Australian Accounting Standards, and instead include the cash variation margin provided in the calculation of the RC consistent with paragraph 19 of this Attachment.","sortOrder":13},{"sectionNumber":"Treatment of clearing services","sectionType":"division","heading":"Treatment of clearing services","content":"### Treatment of clearing services\n\n1. If an ADI acting as a clearing member (CM)[\\[20\\]](#_ftn20) offers clearing services to clients, its trade exposures to the CCP must be included in its exposure measure by applying the same treatment as for any other type of derivative transaction. Trade exposures to a CCP arise when the ADI is obligated to reimburse the client for any losses suffered due to changes in the value of its transactions in the event that the CCP defaults.[\\[21\\]](#_ftn21)\n2. If an ADI acting as a CM is not contractually obligated to reimburse the client for any losses suffered in the event that a QCCP defaults, the ADI may exclude the resulting trade exposures to the QCCP from its exposure measure.\n3. If a client enters directly into a derivative transaction with a CCP, and an ADI acting as a CM guarantees the performance of the client’s transaction to the CCP, the ADI must calculate its related leverage ratio exposure resulting from the guarantee as a derivative exposure in accordance with paragraphs 17 to 24 of this Attachment, as if it had entered directly into the transaction with the client.\n4. If an entity falls within the Level 2 group of the ADI acting as a CM, trades between that entity and the ADI are eliminated in the course of consolidation and the ADI retains an exposure to the CCP. In this case, the transaction with the CCP will be considered proprietary for the ADI acting as a CM, and the exemption set out in paragraph 26 of this Attachment will not apply.\n5. If an ADI is providing client clearing services, it may use the approach detailed in Attachment D to APS 180 to calculate the RC and PFE of the exposure to the client. In using this approach, the ADI must only include the portion of initial margin received from the client which is subject to appropriate segregation by the ADI.","sortOrder":14},{"sectionNumber":"Additional treatment for written credit ","sectionType":"division","heading":"Additional treatment for written credit derivatives","content":"### Additional treatment for written credit derivatives\n\n1. For written credit derivatives, an ADI must apply the additional treatment set out in paragraphs 30 to 36 of this Attachment. For the purposes of this Attachment, written credit derivative refers to a broad range of credit derivatives through which an ADI effectively provides credit protection and is not limited solely to credit default swaps and total return swaps.\n2. To capture the credit exposure to the underlying reference entity, the effective notional amount[\\[22\\]](#_ftn22) referenced by a written credit derivative must be included in the exposure measure unless:\n 1. the written credit derivative is included in a transaction cleared on behalf of a client of the ADI acting as a CM; and\n 2. the transaction meets the requirements of paragraph 26 of this Attachment for the exclusion of trade exposures to the QCCP.\n3. The effective notional amount of a written credit derivative may be reduced in one or both of the following ways:\n 1. by any negative change in the fair value amount that has been incorporated into the calculation of Tier 1 Capital with respect to the written credit derivatives; and\n 2. by the effective notional amount of an offsetting purchased credit derivative on the same reference name[\\[23\\]](#_ftn23) provided the conditions set out in paragraph 33 of this Attachment are satisfied.\n4. An ADI may reduce the effective notional amount through the application of offsetting purchased credit derivatives if the following conditions are satisfied:\n 1. the credit protection purchased through credit derivatives is otherwise subject to the same, or more conservative, material terms as those in the corresponding written credit derivative.[\\[24\\]](#_ftn24) This ensures that if an ADI provides written credit protection via a credit derivative, it may only recognise offsetting from another purchased credit derivative if the purchased protection is certain to deliver a payment to the ADI in all circumstances;\n 2. the remaining maturity of the credit protection purchased through credit derivatives is equal to or greater than the remaining maturity of the written credit derivatives;\n 3. the credit protection purchased through credit derivatives is not purchased from a counterparty whose credit quality is highly correlated with the value of the reference obligation(i.e. wrong-way risk);\n 4. in the event that the effective notional amount of a written credit derivative is reduced by any negative change in fair value reflected in the ADI’s Tier 1 Capital, the effective notional amount of offsetting credit protection purchased through credit derivatives must also be reduced by any resulting positive change in fair value reflected in Tier 1 Capital; and\n 5. the credit protection purchased through credit derivatives is not included in a transaction that has been cleared on behalf of a client and for which the effective notional amount referenced by the corresponding written credit derivative is excluded from the exposure measure under paragraph 26 of this Attachment.\n5. Credit protection purchased on a pool of reference names may only offset credit protection sold on individual reference names if the credit protection purchased is economically equivalent to buying protection separately on each of the individual names in the pool. If the credit protection purchased does not cover the entire pool (i.e. the protection covers only a subset of the pool, as in the case of an nth-to-default credit derivative or a securitisation tranche), no offsetting of credit protection sold on individual reference names is allowed.\n6. Where an ADI purchases credit protection through a total return swap and records the net payments received as net income, but does not record the offsetting deterioration in the value of the written credit derivative (either through reductions in fair value or by an addition to reserves) in Tier 1 Capital, the credit protection must not be used to offset the effective notional amounts of the written credit derivatives.\n7. An ADI may choose to exclude from the netting set for the calculation of PFE the portion of a written credit derivative which is not offset in accordance with paragraph 32 of this Attachment, and for which the effective notional amount is included in the exposure measure.","sortOrder":15},{"sectionNumber":"Securities financing transaction exposur","sectionType":"part","heading":"Securities financing transaction exposures","content":"## Securities financing transaction exposures\n\n1. For the purpose of calculating the exposure measure, an ADI must apply the specific treatment set out in paragraphs 38 to 45 of this Attachment to any SFT exposures.[\\[25\\]](#_ftn25)","sortOrder":16},{"sectionNumber":"ADI acting as a principal","sectionType":"division","heading":"ADI acting as a principal","content":"### ADI acting as a principal\n\n1. When an ADI is acting as a principal in an SFT, its exposure measure must include the sum of the following amounts:\n 1. gross SFT assets recognised for accounting purposes[\\[26\\]](#_ftn26) (i.e. with no recognition of accounting netting), adjusted as follows:\n 1. excluding the value of any securities received under an SFT, where the ADI has recognised the securities as an asset on its balance sheet; and\n 2. cash payables and cash receivables in SFTs with the same counterparty may be measured net if all the following criteria are met:\n 1. transactions have the same explicit final settlement date. Transactions with no explicit end date but which can be unwound at any time by either party to the transaction are not eligible;\n 2. the right to set-off the amount owed to the counterparty with the amount owed by the counterparty is legally enforceable both in the normal course of business and in the event of the default, insolvency or bankruptcy of the counterparty; and\n 3. the counterparties intend to settle net, settle simultaneously, or the transactions are subject to a settlement mechanism that results in the functional equivalent of net settlement.[\\[27\\]](#_ftn27) If there is a failure of the securities leg of a transaction at the end of the window for settlement in the settlement mechanism, then this transaction and its matching cash leg must be split out from the netting set and treated gross; and\n 2. a measure of counterparty credit risk calculated as the current exposure without a PFE add-on, calculated as follows:\n 1. where a qualifying MNA as defined in paragraphs 40 and 41 of this Attachment is in place, the current exposure (E\\*) must be set to the greater of zero and the total fair value of securities and cash lent to a counterparty for all transactions included in the qualifying MNA (∑Ei) less the total fair value of cash and securities received from the counterparty for those transactions (∑Ci). This is illustrated in the following formula:\n\nE\\* = max {0, \\[∑Ei \\- ∑Ci\\]}\n\n1. where no qualifying MNA is in place, the current exposure for transactions with a counterparty must be calculated on a transaction by transaction basis; that is, each transaction i is treated as its own netting set, as shown in the following formula:\n\nEi\\* = max {0, \\[Ei – Ci\\]}\n\nEi\\* may be set to zero if:\n\n1. Ei is the cash lent to a counterparty;\n2. this transaction is treated as its own netting set; and\n3. the associated cash receivable is not eligible for the netting treatment in paragraph 38(a) of this Attachment.\n\n1. For the purposes of paragraph 38(b) of this Attachment, ‘counterparty’ includes not only the counterparty of the bilateral repurchase transactions, but also triparty repurchase agents that receive collateral in deposit and manage the collateral in the case of triparty repurchase transactions. Securities deposited at triparty repurchase agents are included in the total value of securities and cash lent to a counterparty (E) up to the amount effectively lent to the counterparty in a repurchase transaction. However, excess collateral that has been deposited at triparty agents but that has not been lent out may be excluded.\n2. For the purpose of paragraph 38(b), a bilateral netting agreement for covering SFTs may be recognised as a qualifying MNA on a counterparty by counterparty basis only if it:\n 1. is legally enforceable in each relevant jurisdiction upon the occurrence of an event of default, regardless of whether the counterparty is insolvent or bankrupt;\n 2. provides the non-defaulting party with the right to terminate and close out in a timely manner all transactions under the agreement upon an event of default, including in the event of insolvency or bankruptcy of the counterparty;\n 3. provides for the netting of gains and losses on transactions (including the value of any collateral) terminated and closed out under it so that a single net amount is owed by one party to the other; and\n 4. allows for the prompt liquidation or set-off of collateral in the event of default.\n3. Netting across SFT positions held in the banking book and trading book will only be recognised when the netted transactions meet the conditions set out in paragraph 6 of Attachment H to APS 112.\n4. Where an ADI applies sale accounting to an SFT in accordance with Australian Accounting Standards, it must reverse all sales-related accounting entries, and then calculate its exposure as if the SFT had been treated as a financing transaction under those standards (i.e. the ADI must include the sum of amounts in paragraphs 38(a) and 38(b) of this Attachment for such an SFT) for the purposes of determining its exposure measure.","sortOrder":17},{"sectionNumber":"ADI acting as an agent","sectionType":"division","heading":"ADI acting as an agent","content":"### ADI acting as an agent\n\n1. An ADI acting as an agent in an SFT may apply paragraph 38(b) of this Attachment to calculate its exposure measure for the transaction where:\n 1. the ADI provides an indemnity or guarantee to a customer or counterparty for any difference between the value of the security or cash that the customer has lent and the value of collateral that the borrower has provided; and\n 2. the ADI’s exposure to the transaction is limited to the guaranteed difference between the value of the security or cash its customer has lent, and the value of the collateral the borrower has provided.\n\nWhere the ADI is further economically exposed (i.e. beyond the guarantee for the difference) to the underlying security or cash in the transaction, a further exposure equal to the full amount of the security or cash must be included in the exposure measure.\n\n1. Where an ADI acting as an agent provides an indemnity or guarantee to both parties involved in an SFT (i.e. securities lender and securities borrower), the ADI must calculate its exposure measure separately for each party involved in the transaction.\n2. When an ADI acting as agent in an SFT does not provide an indemnity or guarantee to any of the involved parties, the ADI has no exposure to the SFT, and is not required to include those SFTs in its exposure measure.","sortOrder":18}],"analysis":{"flash_summary":{"complexity_score":9,"scope_assessment":{"changed":false,"description":"The instrument specifies measurement, buffer and distribution rules for ADIs but does not on its face expand or narrow the population of entities captured. It refines calculation methods and permits APRA to vary treatment in particular cases (eg exclusions, time limits, model approvals) without expressly changing which entities are regulated."},"complexity_factors":["Two alternative RWA calculation regimes (Standardised vs IRB) with different add‑ons and floors (Attachment A, paras 3–4).","Multiple referenced prudential standards (APS 111, 112, 113, 115, 116, 117, 120, 180) create cross‑document dependency and implementation coordination (Attachment A; throughout).","Capital distribution constraints use a quartile‑based schedule tied to CET1 buffer position and earnings calculations, creating operational sequencing and measurement burdens (Attachment B, Table 1; B.1–B.2).","ADI‑specific countercyclical buffer requires jurisdictional weighting by risk‑weighted private‑sector credit exposures and trading book risk charges, needing geographic allocation on an ultimate‑risk basis (Attachment C, paras 1–3).","Leverage ratio exposure measure disallows collateral and netting in many cases, includes detailed treatments for on‑balance, off‑balance, derivatives and SFTs, and permits limited securitisation exclusions (Attachment D and subsequent sections, paras D.1–D.2, 1–5, 16–45, 38–45).","Complex derivative exposure maths (RC + PFE multiplied by factor) and detailed eligibility rules for variation margin, netting sets and CCP treatment create model and data requirements (paras 17–24, 26–29).","SFT treatments include grossing adjustments, qualifying master netting agreement criteria and different treatments where the ADI acts as principal or agent (paras 38–45).","APRA discretion to impose alternative treatments, time limits within buffer range, or temporary exclusions (eg central bank reserves) adds regulatory uncertainty and case‑by‑case compliance work (Attachment A.3; B.3–B.4; D.2).","Interactions between accounting standards and prudential adjustments (eg treatment of sale accounting, derecognition, provisions) require reconciliations between financial accounts and prudential measures (On‑balance sheet exposures; paras on sale accounting and derecognition).","Operational compliance: daily variation margin, segregation and settlement requirements, jurisdictional mapping of exposures, and model approval/consultation obligations impose ongoing monitoring and governance costs (paras 23, C.1, Attachment A.3)."],"plain_english_summary":"The determination sets how authorised deposit‑taking institutions (ADIs) must measure capital and leverage: it defines Tier 1/Total capital, risk‑weighted assets (RWA) under standardised or IRB methods, an ADI‑specific countercyclical buffer, and a leverage exposure measure, and it constrains capital distributions when Common Equity Tier 1 (CET1) falls into buffer quartiles. It changes how banks calculate and report capital, affects dividend and AT1/Tier 1 payouts, and gives APRA case‑by‑case discretion to vary treatments (for example, exclusions or model approvals)."},"flash_summary_failed":{"failed":true,"reason":"A positive credit balance is required for all requests, including BYOK, so fallback providers remain available. Add credits at https://vercel.com/d?to=%2F%5Bteam%5D%2F%7E%2Fai%3Fmodal%3Dtop-up to continue.","source":"analysis-cron"},"kimi_summary":{"content_quality":"ok","complexity_score":8,"scope_assessment":{"changed":false,"description":"This appears to be a standard prudential standard determination that aligns with the Basel III international banking framework. The scope remains consistent with the original intent of implementing risk-based capital adequacy requirements for Australian deposit-taking institutions. The document covers the expected technical elements: capital ratios, distribution constraints, countercyclical buffers, and leverage ratios – all core components of modern banking regulation without significant mission creep."},"complexity_factors":["Extensive cross-referencing to at least 8 separate prudential standards (APS 111, APS 112, APS 113, APS 115, APS 116, APS 117, APS 120, APS 180)","Nested conditional logic with multiple calculation methods depending on bank type (Standardised ADI vs IRB ADI)","Mathematical formulas with multiple variables (RC, PFE, CVMr, CVMp, AddOnaggregate) requiring reference to other standards","Detailed exception hierarchies for specific transaction types (e.g., cash pooling arrangements, unsettled trades, client clearing services)","Multi-layered offsetting and netting rules with strict qualifying conditions","Jurisdictional weighting calculations for countercyclical buffers requiring geographic allocation of exposures","Specific accounting treatment reversals required (e.g., sale accounting for SFTs)","Footnote references to undefined external provisions (indicated by [\\[9\\]](#_ftn9) etc.) suggesting incomplete context"],"plain_english_summary":"This law sets how Australian banks (ADIs) calculate and hold regulatory capital—mandating quality capital ratios, extra buffers and a leverage cap—to ensure they can absorb losses without touching depositors’ funds. \n\nIt affects all ADIs, their shareholders and executives (by limiting dividends/bonuses when capital falls) and the wider economy, aiming to prevent bank failures, reduce bailout risk and curb excessive balance-sheet growth."}},"importantCases":[],"_links":{"self":"/api/acts/banking-prudential-standard-determination-no-6-of-2024","history":"/api/acts/banking-prudential-standard-determination-no-6-of-2024/history","analysis":"/api/acts/banking-prudential-standard-determination-no-6-of-2024/analysis","conflicts":"/api/acts/banking-prudential-standard-determination-no-6-of-2024/conflicts","importantCases":"/api/acts/banking-prudential-standard-determination-no-6-of-2024/important-cases","documents":"/api/acts/banking-prudential-standard-determination-no-6-of-2024/documents"}}