Banking, Insurance and Life Insurance (prudential standard) determination No. 2 of 2016
Aggregate risk exposuresAggregate risk exposures
Start here
Get a plain-English read of Aggregate risk exposures
Turn the raw legal text into a practical explanation grounded in Banking, Insurance and Life Insurance (prudential standard) determination No. 2 of 2016.
Aggregate risk exposures
-
For the purposes of this Prudential Standard, aggregate risk exposures arise from exposures to individual counterparties, a group of related individual counterparties, a group of counterparties with similar characteristics (e.g. in specific geographical locations or industry sectors) or to particular asset classes (e.g. property holdings or other investments) where the exposures have the potential to result in material losses for the Level 3 group or an individual prudentially regulated institution in the group. Aggregate risk exposures include both on- and off-balance sheet exposures. Unlimited exposures to any individual counterparty (e.g. a general guarantee of the obligations of a counterparty) are not permitted unless agreed with APRA.
-
For the purposes of this Prudential Standard, when determining aggregate risk exposures the Level 3 Head must ensure that exposures to the wider conglomerate group to which the Level 3 group belongs are taken into account.
-
For the purposes of this Prudential Standard, aggregate risk exposures exclude any exposures held, in accordance with written legal agreements, by the Level 3 group on behalf of entities external to the Level 3 group (e.g. custodian arrangements), even if the assets are held in the name of a Level 3 institution in the group.
-
A Level 3 Head must have an ‘aggregate risk exposures policy’ that addresses all material risk exposures associated with the operations undertaken by Level 3 institutions in the Level 3 group. The policy must include systems and procedures to identify, measure, monitor, evaluate, report and control or mitigate all material risks arising from aggregate risk exposures.
-
A Level 3 Head must conduct forward-looking scenario analysis and stress testing of the Level 3 group’s material aggregate risk exposures. The analysis must assess the impact of changes in market conditions and key risk factors on these aggregate risk exposures, and how these changes impact on the group’s risk profile, capital strength and earnings.
-
The management of aggregate risk exposures must be a part of the Level 3 group’s risk management framework.[1]