{"id":"F2022L01563","name":"Banking (prudential standard) determination No. 8 of 2022","slug":"banking-prudential-standard-determination-no-8-of-2022","collection":"legislative_instrument","jurisdiction":"commonwealth","status":"in_force","isInForce":true,"actNumber":null,"makingDate":null,"administeringDepartment":null,"currentVersion":{"id":441628,"registerId":"F2022L01563-fast-fetch-1775956889204","compilationNumber":null,"startDate":"2026-04-12","status":"InForce","reasons":null,"registeredAt":null},"sections":[{"sectionNumber":"1","sectionType":"section","heading":"Banking (prudential standard) determination No. 8 of 2022","content":"---\nmeta-content-style-type: text/css\nmeta-content-type: application/xhtml+xml; charset=utf-8\nmeta-generator: Aspose.Words for .NET 22.10.0\nmeta-keywords: \"[SEC=OFFICIAL]\"\ntitle: Banking (prudential standard) determination No. 8 of 2022\n---\n\n![Commonwealth Coat of Arms](image.001.png)\n\nBanking (prudential standard) determination No. 8 of 2022\n\nPrudential Standard APS 115 Capital Adequacy: Standardised Measurement Approach to Operational Risk\n\nBanking Act 1959\n\nI, Renée Roberts, a delegate of APRA:\n\n \n\n(a)          under subsection 11AF(3) of the Banking Act 1959 (the Act) REVOKE Banking (prudential standard) determination No. 7 of 2012 including Prudential Standard APS 114 Capital Adequacy: Standardised Approach to Operational Risk made under that determination;\n\n(b)          under subsection 11AF(3) of the Act REVOKE Banking (prudential standard) determination No. 8 of 2012 including Prudential Standard APS 115 Capital Adequacy: Advanced Measurement Approaches to Operational Risk made under that determination;\n\n(c)           under subsection 11AF(3) of the Act REVOKE Banking (prudential standard) determination No. 6 of 2020 including Prudential Standard APS 115 Capital Adequacy: Standardised Measurement Approach to Operational Risk made under that determination; and\n\n(d)          under subsection 11AF(1) of the Act DETERMINE Prudential Standard APS 115 Capital Adequacy: Standardised Measurement Approach to Operational Risk in the form set out in the schedule, which applies to ADIs and authorised NOHCs to the extent provided in paragraphs 2 to 4 of the prudential standard.\n\nThis instrument commences on 1 January 2023.\n\n \n\nDated:  1 December 2022\n\n \n\n[Signed]\n\n \n\nRenée Roberts\n\nExecutive Director\n\nPolicy and Advice Division\n\nInterpretation\n\nIn this instrument:\n\nAPRA means the Australian Prudential Regulation Authority.\n\nADI and authorised NOHC have their respective meanings given in section 5 of the Act.\n\n \n\nSchedule\n\nPrudential Standard APS 115 Capital Adequacy: Standardised Measurement Approach to Operational Risk comprises the document commencing on the following page.\n\n \n\n![Commonwealth Coat of Arms](image.002.png)\n\nPrudential Standard APS 115\n\nCapital Adequacy: Standardised Measurement Approach to Operational Risk\n\n| Objectives and key requirements of this Prudential Standard<br>This Prudential Standard requires an authorised deposit-taking institution to hold sufficient regulatory capital against its operational risk exposures.<br>The key requirement of this Prudential Standard is that an authorised deposit-taking institution that is a significant financial institution must calculate its capital requirement for operational risk based on its business indicator, a financial statement-based proxy of its operational risk exposure. |\n| --- |\n\n\n \n\n \n\nTable of Contents\n\n[Authority](#_Toc8120207)\n\n[Application](#_Toc8120208)\n\n[Interpretation](#_Toc8120209)\n\n[Scope](#_Toc8120210)\n\n[Adjustments and exclusions](#_Toc8120211)\n\n[Previous exercise of discretion](#_Toc8120212)\n\n[Calculation of the business indicator](#_Toc8120213)\n\n[Calculation of operational risk regulatory capital](#_Toc8120214)\n\n# Authority\n\n1. This Prudential Standard is made under section 11AF of the Banking Act 1959 (Banking Act).\n\n\n# Application\n\n2.             This Prudential Standard applies to authorised deposit-taking institutions (ADIs) except:\n\n(a)          foreign ADIs;\n\n(b)          purchased payment facility providers (PPF providers); and\n\n(c)          non-significant financial institutions (non-SFIs).\n\nNotwithstanding paragraph (c), APRA may determine, in a particular case, that this Prudential Standard applies to a non-SFI.\n\n3.             A reference to an ADI in this Prudential Standard is a reference to:\n\n(a)          an ADI on a Level 1 basis; and\n\n(b)          a group of which an ADI is a member on a Level 2 basis.\n\n4.             If an ADI to which this Prudential Standard applies is:\n\n(a)          the holding company for a group, the ADI must ensure that the requirements in this Prudential Standard are met on a Level 2 basis, where applicable; or\n\n(b)          a subsidiary of an authorised non-operating holding company (authorised NOHC), the authorised NOHC must ensure that the requirements in this Prudential Standard are met on a Level 2 basis, where applicable.\n\n5.             This Prudential Standard commences on 1 January 2023.\n\n# Interpretation\n\n6.             Terms that are defined in Prudential Standard APS 001 Definitions appear in bold the first time they are used in this Prudential Standard.\n\n7.             Where this Prudential Standard provides for APRA to exercise a power or discretion, the power or discretion is to be exercised in writing.\n\n8.             In this Prudential Standard, unless the contrary intention appears, a reference to an Act, Regulations, Prudential Standard or Australian Accounting Standards is a reference to the instrument as in force from time to time.\n\n# Scope\n\n9.             This Prudential Standard applies to all operations and activities of an ADI.\n\n# Adjustments and exclusions\n\n10.         APRA may adjust or exclude a specific prudential requirement in this Prudential Standard in relation to one or more specified ADIs, authorised NOHCs or subsidiaries of an ADI or authorised NOHC.\n\n11.         APRA may require an ADI to reduce its level of operational risk or increase its capital if APRA considers that the ADI’s Regulatory Capital for its operational risk exposure is not commensurate with the ADI’s operational risk profile.\n\n# Previous exercise of discretion\n\n12.         An ADI must contact APRA if it seeks to place reliance, for the purposes of complying with this Prudential Standard, on a previous exemption or other exercise of discretion by APRA under a previous version of this Prudential Standard.\n\n# Calculation of operational risk regulatory capital\n\n13.         An ADI must calculate its operational risk capital charge as 12 per cent of its business indicator (BI), plus:\n\n(a)          if the BI exceeds $1.5 billion, then 3 per cent of the amount by which the BI exceeds $1.5 billion, plus\n\n(b)          if the BI exceeds $45 billion, then 3 per cent of the amount by which the BI exceeds $45 billion.\n\n# Calculation of the business indicator\n\n14.         An ADI must calculate its BI as set out in paragraphs 15 to 22 of this Prudential Standard.\n\n15.         The BI is calculated as follows:\n\n![](image.003.png)\n\nwhere:\n\ninterest, leases and dividend component (ILDC) = the lesser of the interest component (as defined in paragraph 16) and the asset component (as defined in paragraph 17) plus the dividend component (as defined in paragraph 18); and\n\nservices component (SC) = the sum of the other operating component (as defined in paragraph 19) and the fee and commission component (as defined in paragraph 20); and\n\nfinancial component (FC) = the sum of the trading book component (as defined in paragraph 21) and the banking book component (as defined in paragraph 22).\n\n16.         For the purposes of paragraph 15 of this Prudential Standard, an ADI’s interest component is the annual average value over the most recent three years of the absolute value of the following calculation:\n\n(a)          the ADI’s interest income from all financial assets and other interest income, including interest income from finance and operating leases and profits from leased assets, less\n\n(b)          the ADI’s interest expenses from all financial liabilities and other interest expenses, including interest expense from finance and operating leases, losses, depreciation and impairment of operating leased assets.\n\n17.         For the purposes of paragraph 15 of this Prudential Standard, an ADI’s asset component is 2.25 per cent times the average value over the most recent three years of the sum of the ADI’s total gross outstanding loans (including non-performing loans), advances, interest bearing securities (including government bonds) and lease assets, measured at the end of each financial year.\n\n18.         For the purposes of paragraph 15 of this Prudential Standard, an ADI’s dividend component is the annual average over the most recent three years of the ADI’s dividend income from investments in stocks and funds not consolidated in the ADI’s financial statements, including dividend income from non-consolidated subsidiaries, associates and joint ventures.\n\n19.         For the purposes of paragraph 15 of this Prudential Standard, an ADI’s other operating component is the maximum of:\n\n(a)          the annual average over the most recent three years of the ADI’s other operating income and income not included in other BI components calculated according to paragraphs 15 to 22 of this Prudential Standard,[[1]](#_ftn1) and\n\n(b)          the annual average over the most recent three years of the ADI’s other operating expenses and expenses not included in other BI components calculated in accordance with paragraphs 15 to 22 of this Prudential Standard.[[2]](#_ftn2)\n\n20.         For the purposes of paragraph 15 of this Prudential Standard, an ADI’s fee and commission component is the maximum of:\n\n(a)          the annual average over the most recent three years of the ADI’s fee and commission income;[[3]](#_ftn3) and\n\n(b)          the annual average over the most recent three years of the ADI’s fee and commission expenses.[[4]](#_ftn4)\n\n21.         For the purposes of paragraph 15 of this Prudential Standard, an ADI’s trading book component is the annual average over the most recent three years of the absolute value of the net profit (loss) on the ADI’s trading book.[[5]](#_ftn5) This includes the net profit (loss) on trading assets and trading liabilities, hedge accounting and exchange differences.\n\n22.         For the purposes of paragraph 15 of this Prudential Standard, an ADI’s banking book component is the annual average over the most recent three years of the absolute value of the net profit (loss) on the ADI’s banking book.[[6]](#_ftn6) This includes the net profit (loss) on financial assets and liabilities measured at fair value through profit or loss, hedge accounting and exchange differences and realised gains (losses) on financial assets and liabilities not measured at fair value through profit or loss.\n\n23.         For the avoidance of doubt, an ADI must not include the following items in the calculation of a component of the BI in paragraphs 15 to 22 of this Prudential Standard:\n\n(a)          income and expenses from insurance or reinsurance businesses;\n\n(b)          premiums paid and reimbursements/payments received from insurance or reinsurance policies purchased;\n\n(c)          administrative expenses, including staff expenses, outsourcing fees paid for the supply of non-financial services (e.g. logistical, information technology, or human resources services) and other administrative expenses, (e.g. expenses related to information technology, utilities, telephone, travel, office supplies, or postage);\n\n(d)          recovery of administrative expenses including recovery of payments on behalf of customers (e.g. taxes debited to customers);\n\n(e)          expenses of premises and fixed assets, except when these expenses result from operational loss events;\n\n(f)           depreciation/amortisation of tangible and intangible assets, except depreciation/amortisation related to lease assets, which should be included in finance and operating lease expenses;\n\n(g)          provisions or reversal of provisions (e.g. on pensions, commitments and guarantees given), except provisions related to operational loss events;\n\n(h)          expenses due to share capital repayable on demand;\n\n(i)            impairment or reversal of impairment (e.g. on financial assets, non-financial assets, investments in subsidiaries, joint ventures and associates);\n\n(j)            changes in goodwill recognised in profit or loss; or\n\n(k)          corporate income tax (tax based on profits including current tax and deferred tax).\n\n24.         An ADI must base the calculations in paragraphs 15 to 22 of this Prudential Standard on the most recent three years of its audited year-end financial statements. Where an ADI does not have audited financial statements from each of the previous three years (e.g. in the case of an ADI in the early years of its operation), it must obtain APRA’s approval to use an alternative calculation methodology.\n\n25.         In the event of a merger or acquisition, an ADI must use aggregated values when calculating the BI as set out in paragraphs 15 to 22 of this Prudential Standard, unless otherwise approved by APRA.\n\n26.         Subject to APRA’s approval, an ADI may exclude divested activities when calculating the BI as set out in paragraphs 15 to 22 of this Prudential Standard.\n\n---\n\n\n[[1]](#_ftnref1)  For the avoidance of doubt, this item includes gains from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations (in accordance with Australian Accounting Standards). However, this item does not include income from operating or finance leases, which are instead treated as interest income under paragraph16(a).\n\n[[2]](#_ftnref2)  For the avoidance of doubt, this item includes operational loss events and losses from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations (refer to Australian Accounting Standards). However, this item does not include expenses from operating or finance leases, which are instead treated as interest expenses under paragraph16(b).\n\n[[3]](#_ftnref3)  For the avoidance of doubt, this includes income received by the ADI for providing advice and services and as an outsourcer of financial services.\n\n[[4]](#_ftnref4)  For the avoidance of doubt, this includes outsourcing fees paid by the ADI for the supply of financial services, but not outsourcing fees paid for the supply of non-financial services such as logistical, information technology or human resources services (which are instead included in the calculation of the other operating component in paragraph 19 of this Prudential Standard).\n\n[[5]](#_ftnref5)  An ADI’s trading book has the meaning given in Prudential Standard APS 116 Capital Adequacy: Market Risk.\n\n[[6]](#_ftnref6)  An ADI’s banking book has the meaning given in Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced ADIs).\n","sortOrder":0}],"analysis":{"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"},"flash_summary":{"complexity_score":7,"scope_assessment":{"changed":true,"description":"This instrument expressly revokes prior determinations (Banking (prudential standard) determinations Nos. 7 of 2012, 8 of 2012 and 6 of 2020) and replaces them with Prudential Standard APS 115 that adopts a Standardised Measurement Approach to operational risk rather than the previous Advanced Measurement Approaches referenced in the revoked instruments (instrument opening recital and paras 1–5). It retains application to domestic ADIs and Level‑2 groups and creates explicit APRA powers to adjust or exempt requirements (paras 2, 3–4, 10–11)."},"complexity_factors":["Formulaic calculation combining multiple BI components (interest/asset/dividend, services, financial) with absolute values and maxima — requires detailed mapping to financial statement items (paras 15–22).","Tiered capital surcharge structure with specific BI thresholds ($1.5bn, $45bn) that change marginal capital rates (para 13).","Extensive exclusions of items from BI components (e.g. insurance, administrative expenses, tax) that require careful accounting treatment (para 23).","Three‑year audited year‑end averaging and need for APRA approval where audited statements are unavailable — implementation and record‑keeping burden (para 24).","Consolidation and Level‑2 application: parent ADIs and authorised NOHCs must ensure group‑level compliance, adding coordination and consolidation complexity (paras 3–4).","APRA discretion to adjust/exclude requirements and to require increased capital or reduced operational risk — regulatory uncertainty and case‑by‑case outcomes (paras 10–11).","Specific rules for mergers, acquisitions and divestments (aggregation or APRA approval to exclude) that affect transitional calculations (paras 25–26).","Requirement that APRA exercise powers/discretions in writing — procedural requirement but preserves regulator latitude (para 7)."],"plain_english_summary":"Replaces earlier APS instruments and requires authorised deposit‑taking institutions to hold regulatory capital for operational risk calculated from a three‑year \"business indicator\" (BI). The operational risk charge is 12% of the BI plus 3% surcharges on BI amounts above $1.5 billion and $45 billion (para 13, paras 15–22). It applies to domestic ADIs and Level‑2 consolidated groups, excludes foreign ADIs, PPF providers and non‑SFIs unless APRA directs (paras 2–4, 10–11)."},"kimi_summary":{"content_quality":"ok","complexity_score":6,"scope_assessment":{"changed":false,"description":"This determination consolidates and replaces previous versions of APS 115 but maintains the same fundamental scope: operational risk capital requirements for ADIs. The shift from allowing 'advanced measurement approaches' (internal models) to mandating the 'standardised measurement approach' (formula-based) represents a methodological narrowing rather than scope expansion. The application to authorised NOHCs and Level 2 groups was already present in predecessor instruments."},"complexity_factors":["Multi-layered formula with three tiers of capital charges (12%, +3%, +3%) triggered at specific thresholds ($1.5bn and $45bn)","Business indicator calculation requires aggregation of six distinct sub-components (ILDC, SC, FC) with their own sub-definitions","Extensive cross-referencing to external standards: APS 001 (Definitions), APS 116 (Market Risk), APS 117 (Interest Rate Risk), and Australian Accounting Standards","11 specific exclusions from BI calculation (para 23) with nuanced distinctions (e.g., lease depreciation treated differently from other depreciation)","Conditional application rules with exceptions: applies to Level 1 and Level 2 entities, but excludes foreign ADIs, PPF providers, and non-SFIs unless APRA determines otherwise","Multiple APRA discretions embedded throughout (adjustments, exclusions, alternative methodologies for new banks, merger treatment, divestment treatment)","Footnotes create additional definitional complexity, particularly around lease accounting and outsourcing fee treatment"],"plain_english_summary":"This law sets how Australia’s biggest banks, ADIs and their holding companies must hold capital against operational risk (fraud, systems failure, legal errors). It replaces older rules with a single, simpler standard tied to a three‑year \"business indicator\" (BI).\n\nBanks must hold regulatory capital equal to 12% of BI, plus an extra 3% on BI above $1.5bn and another 3% above $45bn. It implements Basel III’s operational‑risk safeguards to strengthen resilience."}},"importantCases":[],"_links":{"self":"/api/acts/banking-prudential-standard-determination-no-8-of-2022","history":"/api/acts/banking-prudential-standard-determination-no-8-of-2022/history","analysis":"/api/acts/banking-prudential-standard-determination-no-8-of-2022/analysis","conflicts":"/api/acts/banking-prudential-standard-determination-no-8-of-2022/conflicts","importantCases":"/api/acts/banking-prudential-standard-determination-no-8-of-2022/important-cases","documents":"/api/acts/banking-prudential-standard-determination-no-8-of-2022/documents"}}