Australian Prudential Regulation Authority instrument fixing charges No. 2 of 2020

Committed Liquidity Facility (CLF). The CLF is an arrangement offered by the Reserve Bank of Australia under which an ADI can access a committed line of liquidity, typically secured against a pool of eligible collateral. It is designed to help ADIs meet their Liquidity Coverage Ratio (LCR) requirements under Prudential Standard APS 210. The CLF effectively supplements an ADI’s own stock of high-quality liquid assets (HQLA) by providing a central bank backstop. To use the CLF for LCR purposes, an ADI must first apply to APRA for a determination of how much of the facility may be recognised in its LCR calculation. This instrument deals with charges for reviewing those applications.

Prudential Standard APS 210 - Liquidity. APS 210 is the prudential standard made under subsection 11AF(1) of the Banking Act 1959 that sets out the minimum liquidity requirements for ADIs. Attachment A to that standard contains specific provisions relating to the CLF, including how ADIs apply for recognition of the facility and the methodology APRA uses to determine the appropriate size. Paragraphs 17 and 19 of Attachment A are the specific provisions under which the applications reviewed here were made. Paragraph 17 deals with the initial application for CLF recognition, while paragraph 19 deals with subsequent variations or renewals (the instrument does not distinguish between them for charging purposes; both attract the same charge schedule).

APRA days. The instrument uses the phrase “the number of APRA days assessing the size of the CLF that may be recognised for LCR purposes” to determine the charge band. “APRA day” is not defined in the instrument; it appears to be an internal APRA metric representing one day of work by an APRA officer or team. The estimate is made unilaterally by APRA, not by the ADI, and there is no disclosed methodology for how the estimate is produced. This creates an information asymmetry: APRA controls the charge amount by controlling the estimate, and the ADI has no statutory right under this instrument to challenge the estimate or request a lower band.

Charge bands and fixed amounts. The four charge bands (10 or fewer days; 11-15 days; 16-30 days; 31-80 days) are set out in two identical tables, one for paragraph 17 applications and one for paragraph 19 applications. The amounts escalate sharply: the jump from the lowest band ($11,000) to the highest ($88,000) is eightfold, reflecting an implicit assumption that assessment effort is proportional to complexity. However, the bands are not linear in their relationship to days: the lowest band covers 0-10 days ($11,000), which is equivalent to $1,100 per day at the top of the band but $1,100 per day or more lower down. The second band (11-15 days, $16,500) gives $1,100-$1,500 per day. The third (16-30 days, $33,000) gives $1,100-$2,062.50 per day. The fourth (31-80 days, $88,000) gives $1,100-$2,838.71 per day. The band design does not strictly follow a constant daily rate; instead it appears to have a higher per-day cost for longer assessments, possibly reflecting opportunity cost, supervisory intensity, or overheads. But the instrument does not explain the cost allocation methodology.

Non-refundability and timing. The charge is non-refundable and payable whether or not the ADI obtains approval. This means an ADI that applies and is ultimately rejected - or that withdraws its application - still owes the full charge. The payment deadline is 14 days after receipt of APRA’s invoice, which can be issued after the instrument commences. Since the instrument was registered in June 2020 but covers services provided during 2019, APRA can issue invoices for work already done the previous year. The instrument does not impose interest or late fees for non-payment, but APRA’s underlying enforcement powers under the APRA Act presumably apply.

The instrument directly affects authorised deposit-taking institutions (ADIs) that submitted applications to APRA during calendar year 2019 seeking a determination of the appropriate size of the Committed Liquidity Facility (CLF) offered by the Reserve Bank of Australia, specifically under paragraphs 17 or 19 of Attachment A to Prudential Standard APS 210. There is no minimum size threshold or carve-out for small ADIs; any ADI that made such an application is potentially liable for one of the four charges, depending on APRA’s estimate of assessment days. The instrument does not limit the number of applications an ADI may have made; if an ADI submitted multiple applications (for example, an initial determination under paragraph 17 and a variation under paragraph 19), it would face a separate charge for each application, each based on its own estimated assessment days.

Foreign ADIs operating in Australia through a branch are not exempt. The definition of ADI in section 5 of the Banking Act 1959 includes foreign ADIs, and nothing in the instrument limits its operation to domestic ADIs. Branch ADIs that rely on the CLF for LCR compliance would be subject to the same charge regime as locally incorporated ADIs.

The instrument does not affect non-ADI financial institutions such as credit unions, building societies, insurers, or superannuation funds, because only ADIs can access the CLF. It also does not affect ADIs that did not apply for CLF recognition in 2019. However, any ADI that applied but later withdrew its application, or that had its application rejected, is still liable because the charge is expressly non-refundable and payable “whether or not the ADI obtains approval”. The instrument gives no discretion to APRA to waive or reduce the charge for hardship, administrative error, or withdrawal.

Indirectly, the instrument affects shareholders, depositors, and borrowers of ADIs that are charged, because the compliance cost is a business expense that reduces net earnings. Larger ADIs may absorb the charge more easily, while smaller ADIs with smaller balance sheets may feel the proportional impact more. Since the charge is fixed and not scaled by asset size or CLF limit sought, a small regional ADI seeking a modest CLF could pay the same $88,000 as a major bank if APRA estimates the assessment will take 31-80 days. This lack of proportionality could create a disincentive for smaller institutions to apply for CLF recognition, particularly if they believe their application will be treated as complex. That in turn could affect their liquidity management and their ability to compete with larger ADIs that can spread the fixed compliance cost over a larger facility.

APRA itself is affected as the charging agency: it must implement an invoicing process, manage collections, and defend its day estimates if challenged. The instrument gives APRA the power to issue invoices at any time after commencement, so it can recover costs years after the service was provided if the instrument is registered long after the calendar year. In this case, the instrument was registered in June 2020 for 2019 services, a lag of up to 18 months. That creates cash flow risk for ADIs that had already closed their books for 2019 and must now budget for an unexpected retroactive charge.

The primary duty imposed by this instrument is the obligation of an ADI to pay the fixed charge to APRA within 14 days after receipt of an invoice. The amount is determined by the charge band into which APRA places the application, based on APRA’s own estimate of “APRA days” required. The ADI does not have a right to negotiate the amount, request a reassessment, or provide its own estimate of effort. The instrument does not state any duty on APRA to notify the ADI of the estimated days before invoicing, nor to provide a breakdown of those days. The ADI’s only apparent right is to see the invoice and pay it (or face enforcement) - the instrument confers no procedural rights.

Importantly, the instrument does not impose any duty on ADIs to make the application in the first place. The decision to apply for CLF recognition is voluntary; if an ADI chooses not to apply, it avoids the charge. However, if the ADI needs the CLF to meet its LCR obligations under APS 210, it may have little practical choice. This indirect compulsion means that the charge functions as a condition of regulatory compliance rather than a market service.

The instrument does not grant APRA any new investigatory or enforcement powers beyond the general powers under the APRA Act 1998. It is purely a charging instrument. The APRA Act provides that charges fixed under section 51 are recoverable as debts due to the Commonwealth (see section 53 of the APRA Act), so if an ADI fails to pay within 14 days, APRA can sue for the debt or potentially levy interest or late payment penalties under the Public Governance, Performance and Accountability Act 2013 or the Finance Law.

There is no duty on APRA to refund the charge even if the assessment is never completed, if the ADI withdraws, or if the application is determined to be out of scope. The three footnotes explicitly state: “Non-refundable and payable whether or not the ADI obtains approval.” This is a significant right for APRA and a corresponding risk for ADIs. It means that an ADI that makes a frivolous or poorly prepared application still bears the full charge, but also a genuine ADI that faces an error in APRA’s administrative process (for example, a duplicate application or an incorrect estimate) has no statutory recourse under this instrument.

The instrument also does not confer any private right of action or review rights. An ADI that considers the charge unreasonable may have to seek judicial review under the Administrative Decisions (Judicial Review) Act 1977 or the Legislation Act 2003, arguing that the estimate of APRA days was irrational, that the instrument is invalid, or that the charge is ultra vires. But the instrument itself does not mention such rights. The practical burden of challenging a charge (legal costs, delay, regulatory relationship damage) may deter all but the most aggrieved ADIs.

This instrument does not itself create penal offences or civil penalties. It fixes charges, not fines. Enforcement for non-payment is through the ordinary debt recovery mechanisms available to APRA under the APRA Act 1998. Section 53 of that Act provides that charges payable to APRA are recoverable as debts due to the Commonwealth. That means APRA can issue a letter of demand, and if the ADI still fails to pay, APRA could initiate court proceedings for a monetary judgment. There is no indication in the instrument that APRA has the power to suspend or cancel an ADI’s CLF determination for non-payment of this specific charge, although APRA’s broader prudential powers under the Banking Act 1959 (section 9C, for example) allow it to impose conditions on an ADI’s authority to carry on banking business, including conditions relating to compliance with prudential requirements and directions. A failure to pay a charge could theoretically be treated as non-compliance with a direction or condition, but the instrument does not link the charge to any ongoing licence condition.

The charge is non-refundable, which means that even if APRA later determines that it overestimated the number of days, or that the application should not have been charged at all, there is no obligation under the instrument to return the money. That is not a penalty in the strict sense, but it has a penal effect: it imposes a cost that may not correspond to the actual cost incurred by APRA, and it creates a disincentive for ADIs to apply if they suspect the charge may be disproportionate to the complexity of their application.

The instrument does not reference any penalty for late payment. There is no mention of interest on overdue amounts, though the Public Governance, Performance and Accountability (Charges) Rules or general government debt recovery policies may impose interest. APRA could also recover its costs of enforcement, including legal costs, as part of the debt.

APRA could potentially use its enforcement pyramid under the Banking Act 1959 if a pattern of non-compliance emerges, but the low-dollar nature of the charge (maximum $88,000 per application) relative to ADI balance sheets suggests that APRA would likely rely on letters and litigation rather than licence conditions. No court cases or enforcement actions specifically related to this instrument are known, as it has only been in force since June 2020.

The instrument is made under the APRA Act 1998, specifically paragraphs 51(1)(a) and (b). Paragraph 51(1)(a) allows APRA to fix charges for services provided by APRA; paragraph 51(1)(b) allows it to fix charges for applications made to APRA. This instrument relies on both. The charges are not a tax; they are a fee for service, and the instrument must comply with the charging framework in the APRA Act, which requires that charges be fixed by legislative instrument. The Legislation Act 2003 governs the registration, commencement, and tabling of the instrument. Because this instrument was registered on 5 June 2020, it is subject to parliamentary scrutiny but has not been disallowed (and likely was not disallowed, as it is a routine cost-recovery measure).

The instrument interacts with Prudential Standard APS 210, which is made under subsection 11AF(1) of the Banking Act 1959. APS 210 establishes the LCR requirements and the CLF framework. The instrument charges for reviewing applications under Attachment A to APS 210. It does not amend or override any provision of APS 210; it merely adds a financial obligation for ADIs that use the CLF process.

The Banking Act 1959 itself is unaffected by this instrument. The definition of “ADI” is imported from section 5 of that Act. The prudential standards made under the Banking Act remain the substantive regulatory framework. The instrument is a subordinate instrument that sits beneath the APRA Act and the Legislation Act 2003, and it must be interpreted consistently with those Acts.

The Public Governance, Performance and Accountability Act 2013 (PGPA Act) applies to APRA as a Commonwealth entity. The collection of charges and the issuance of invoices must comply with PGPA requirements for proper use of public money, debt management, and financial reporting. The PGPA Act may also require APRA to record and report the charges as revenue, and to pursue recovery as a debt owed to the Commonwealth.

The instrument does not address Goods and Services Tax (GST). The footnotes state the charges are inclusive of GST. That implies APRA is registered for GST and the charges are consideration for a taxable supply. ADIs that are registered for GST may be able to claim input tax credits for the charge, depending on their creditable purpose. The instrument does not provide a separate GST-free option. That is consistent with the ATO’s approach to regulatory charges that are fees for service rather than taxes.

The instrument does not interact with state or territory laws, as prudential regulation is a Commonwealth responsibility. ADIs that operate in states or territories do not face additional charges under this instrument beyond the Commonwealth charge.

There is no stated sunset or review date in the instrument. It came into force on registration and has no expiry unless repealed or replaced by a later instrument. Because it covers only the 2019 calendar year, once all invoices for 2019 applications have been issued and recovered, the instrument becomes obsolete but remains on the register.

The instrument has not been amended since its registration on 5 June 2020. The Federal Register of Legislation shows no subsequent amending instruments. Given that this is a time-limited cost recovery instrument covering applications made in the 2019 calendar year, it is likely that APRA intended it to be a one-off measure rather than an ongoing charging mechanism. APRA may issue similar instruments for later calendar years (and in fact has done so: for example, similar instruments for 2020 and 2021 exist), but those are separate instruments, not amendments to this one. The instrument itself does not provide for its own repeal after use; it remains legally in force until revoked or replaced. ADIs that have already paid their charges for 2019 have no further obligations under it.

The absence of amendment history is notable for its simplicity: APRA could have chosen to make a single rolling charging instrument with annual updates, but instead it issued a separate instrument for each year. That means practitioners must check each year’s instrument for changes in charge amounts or bands. For 2019, the bands are as set out. For later years, the amounts may differ. The instrument provides no transitional provisions or grandfathering.

Because there are no amendments, there is no explanatory statement accompanying the instrument (though a regulation impact statement or explanatory note may exist in APRA’s records; but it is not part of the instrument). The instrument stands alone with the charging table and footnotes.

There is no publicly reported litigation concerning this specific instrument. This is unsurprising for a cost recovery instrument of relatively low dollar value. ADIs generally have ongoing regulatory relationships with APRA and tend to resolve fee disputes informally rather than through the courts. However, the instrument’s structure (non-refundable charge based on APRA’s unilateral estimate) could theoretically give rise to an application for judicial review if an ADI believed APRA had misapplied the bands or had made an irrational estimate. No such case has been identified as of the time of writing.

The instrument could be challenged on validity grounds under the Legislation Act 2003 (e.g., if it is not properly registered or if it imposes a tax rather than a fee for service, which would exceed APRA’s power). The High Court has considered similar charging instruments under the APRA Act and other regulators, and the general principle is that a fee for service must bear a reasonable relationship to the cost of providing the service. If an ADI could show that the charge exceeded APRA’s costs for that particular application, the charge might be ultra vires. The instrument does not provide a breakdown of costs, making such a challenge factually intensive. No such challenge has been reported.

The risk of litigation is low because the amounts are modest relative to the cost of challenging them. ADIs may prefer to pay and incorporate the cost into their compliance budgets. The absence of litigation history does not mean the instrument is litigation-proof, but it suggests that APRA has not faced significant pushback.

Retrospective charging. The instrument covers applications made during the 2019 calendar year but was only registered in June 2020. ADIs that applied for CLF recognition in 2019 had no notice of the specific charge amounts at the time of application. APRA’s general power to fix charges may have been known, but the specific bands ($11,000 to $88,000) were not in place when the ADI decided to apply. This creates a retroactive cost that may not have been budgeted. If an ADI applied early in 2019, it may have already received its CLF determination and closed its books before the charge was announced.

Non-refundability. Even if APRA makes an error (e.g., mis-estimates the number of days, or duplicates an application), the charge is not refundable. The instrument provides no mechanism for refund or adjustment. An ADI that later discovers that the actual assessment took only 5 days but was charged at the $33,000 band (estimated 16-30 days) has no recourse under the instrument. It would have to rely on an administrative law remedy.

No proportionality. The charge bands are the same regardless of the size of the CLF sought or the size of the ADI. A small community bank with $100 million in assets faces the same charge as a major bank with $1 trillion in assets if APRA estimates the same number of days. That means the charge as a proportion of assets is far higher for small ADIs, potentially making CLF access uneconomical for smaller institutions.

“APRA days” is undefined. The instrument does not define what constitutes an APRA day, how the estimate is prepared, or whether it includes only direct assessment time or also management overhead, travel, research, etc. This gives APRA broad discretion. An ADI has no way to audit or contest the estimate.

Two separate charges. An ADI that makes both an initial application under paragraph 17 and a subsequent variation under paragraph 19 in the same year will face two separate charges (one under each table). There is no cap on the total number of applications or charges per ADI per year.

Late invoice risk. The invoice may be issued at any time after commencement. That means an ADI might receive an invoice in June 2020 for services rendered in early 2019, giving it 14 days to pay. For an ADI that has changed its personnel, accounting systems, or banking licence, tracking down the invoice and authorising payment in 14 days could be administratively challenging.

No waiver provision. The instrument does not empower APRA to waive the charge in cases of hardship, minor applications, or administrative error. Even if the CLF determination eventually proves unnecessary because the ADI changes its liquidity profile, the charge stands.

Compliance with this instrument is straightforward for an ADI that has received an invoice: pay the invoiced amount within 14 days of receipt. The ADI should verify that the invoice matches the description of services (review of application under paragraph 17 or 19 of APS 210 Attachment A for the 2019 calendar year) and that the amount corresponds to one of the four charge bands. The instrument does not require the ADI to submit any forms or notifications beyond payment.

However, compliance at an earlier stage involves recognising that the charge is a consequence of applying for CLF recognition. To minimise the charge amount, an ADI may want to engage with APRA early to ensure its application is complete and well-prepared, reducing the number of APRA days required. The ADI could also ask APRA for an estimate of the number of days before applying, although the instrument does not require APRA to provide that estimate before invoicing. In practice, ADIs can request an indicative cost from their supervisory contact.

An ADI that wishes to challenge the charge should first consider whether it has grounds under administrative law. It must act quickly because the payment deadline is only 14 days. The ADI could pay under protest and then seek a refund through legal action, but the instrument does not provide for refunds. Alternatively, the ADI could refuse to pay and await enforcement, but that risks litigation costs and regulatory friction.

For ongoing compliance, ADIs should maintain records of CLF applications and related correspondence with APRA, including any estimates of assessment days provided informally. If APRA later issues an instrument for 2020 or later years, the same compliance steps will apply, but ADIs should verify whether the charge amounts or bands have changed.

If an ADI has not yet applied for CLF recognition but is considering it for future years, it should factor the charge (potentially $11,000-$88,000) into the cost-benefit analysis. The charge is a fixed compliance cost that does not vary with the size of the facility. ADIs with small CLF needs may find the charge disproportionate, possibly making it more economical to hold additional high-quality liquid assets directly rather than rely on the CLF.

Finally, ADIs should ensure that their accounts payable function is aware of the 14-day payment term and that the invoice from APRA is not inadvertently treated as a routine bill that can be paid within 30 days. The instrument gives APRA no discretion to extend the deadline. Non-payment could lead to formal debt recovery proceedings under the APRA Act. ADIs that receive an invoice should also consider whether they can claim an input tax credit for the GST component (11/11ths of the amount if they are registered for GST and the charge relates to their creditable purpose).