Banking (prudential standard) determination No. 2 of 2024

APS 113 is built around a small set of concrete technical and governance concepts that determine regulatory capital outcomes and the obligations on ADIs. Those concepts are:

• IRB approach and variants: The Standard allows FIRB, AIRB, retail IRB and supervisory slotting approaches, each specifying which risk components the ADI must estimate and which are supervisory inputs (Key principles, para 3). Under FIRB an ADI provides PD and M, using supervisory LGD and EAD; under AIRB it provides PD, LGD and M (except supervisory LGD for certain corporate senior unsecured exposures) and uses supervisory EAD; retail IRB requires internal PD, LGD and EAD for most retail exposures; supervisory slotting requires mapping to supervisory categories with supervisory risk weights (Key principles, para 3).

• Risk components: PD, LGD, EAD and effective maturity M are the inputs. Attachment B defines how each is estimated, including floors and minimum observation periods. PD has specified minimums (PD floor of 0.05 per cent generally, higher floor for QRR revolvers, etc.), LGD must be economic loss based with floors for various exposure types and collateral treatments, EAD is defined without deducting provisions and has specific CCF rules for off-balance commitments, and M has a one-year floor with stated exceptions and a maximum of five years (Attachment B).

• Risk-weight functions and RWA: Attachment A prescribes the mathematical risk-weight functions for corporate, sovereign, financial institution and retail exposures, including correlation factors (R), maturity adjustments (b), capital requirement K, and the RWA conversion (RWA = K × 12.5 × EAD, with various multipliers for specific classes such as IPRE where RWA = K × 12.5 × EAD × 1.5). For retail residential mortgages special multipliers and floors apply (Attachment A).

• Expected loss and provisions: Attachment C requires calculation of EL separately for non-defaulted and defaulted exposures, specifies how EL is computed (PD×LGD×EAD for non-defaulted), and prescribes the interaction between EL and eligible provisions (where eligible provisions are less than EL, the difference is deducted from CET1; excess eligible provisions may be included in Tier 2 subject to a cap) (Attachment C).

• Governance, validation and data requirements: The Standard places the Board and senior management as responsible for approval and ongoing oversight of rating systems, mandates an independent credit risk control function, annual independent review by internal audit, model validation cycles, detailed data retention and quality rules (a minimum length of historical data for PD, LGD and EAD estimation is required), and documentation and change logs (Governance and oversight; Attachment D).

• APRA supervisory discretion and Level 2 group rules: APRA may adjust or exclude prudential requirements in writing for specified ADIs (Adjustments and exclusions, para 1). An ADI must ensure Level 2 group compliance and, for overseas subsidiaries prudentially regulated by a prescribed New Zealand authority, may apply the NZ regulator’s equivalent rules subject to APRA’s scalars and floor treatment (Scope, paras 2-3).

These main concepts are the building blocks of how capital for credit risk is calculated, what inputs may be internal versus supervisory, and what process and controls APRA expects in order to rely on internal estimates.

Primary taxpayers of the Standard are ADIs and authorised NOHCs that seek or hold APRA approval to use an IRB approach for Regulatory Capital purposes (Application and commencement, paras 1-3). The following groups are affected in concrete ways:

• Boards and senior management of ADIs: The Board must approve material aspects of rating and estimation processes and be informed of material changes or exceptions (Governance and oversight, paras 1-3). Senior management must understand design, operation and any material differences between procedures and practice, and ensure the rating systems operate as intended.

• Credit risk control units and model validators inside ADIs: ADIs must have an independent credit risk control unit with specified responsibilities including testing, monitoring, validation and oversight of models and rating processes (Governance and oversight, Credit risk control). Independent validation and annual internal audit or equally independent reviews are mandatory (Governance and oversight, Independent review).

• Risk, capital and compliance functions: The Standard requires integration of IRB systems into credit approval, internal capital allocation and risk management (Key principles, para 3; Use of internal ratings, Attachment D). These teams must maintain documentation, change logs, registers and validation evidence (Attachment D).

• Smaller business units and overseas subsidiaries: An ADI must seek IRB approval for all material asset classes/business units at initial application; phased roll-out is permitted but an ADI must apply the chosen IRB approach to all exposures within a business unit/asset class once implemented (IRB approval, Initial approval, Phased roll-out). For Level 2 group calculations, RWA and EL for overseas banking subsidiaries are to be calculated under this Standard unless regulated by a prescribed New Zealand authority, in which case the subsidiary’s home rules may be used subject to APRA’s scalars and floor adjustments (Scope, paras 2-3).

• Borrowers and counterparties: Indirectly affected because the Standard determines capital charges for exposures. The choice of IRB approach, LGD floors, and risk-weight functions (including firm-size adjustments and IPRE multipliers) feed through to capital requirements, which influence pricing, lending terms, and product availability.

• External service providers and vendors: Models supplied by third parties remain subject to the ADI’s obligations. An ADI using third-party vendor models must still comply with all requirements including documentation, validation and independent review (Attachment D, Documentation of rating system design).

• Auditors and legal advisers: The Standard requires legal reviews for collateral and guarantee enforceability, and auditors must be able to verify compliance as internal audit must review rating systems annually (Attachment E, Governance and oversight).

APRA is the decision-maker that approves IRB use, can impose conditions, vary or revoke approval, and may adjust or exclude requirements for specified ADIs (IRB approval; Adjustments and exclusions). Where APRA grants phased roll-outs, it may restrict the recognition of capital benefits during the roll-out (IRB approval, Phased roll-out). Ultimately, ADIs pay the compliance and capital costs; APRA decides on approvals, ongoing conditions and supervisory actions.

The Standard imposes precise duties on ADIs and allocates supervisory rights to APRA. Key duties include:

• Obtain prior APRA approval: An ADI must obtain APRA approval to use an IRB approach for Regulatory Capital purposes and seek approval for all material asset classes and business units (IRB approval, Initial approval, paras 1-1.1). Where partial use is proposed, APRA must be provided with the scope and activities involved (IRB approval, para 4).

• Governance and Board oversight: The Board must approve material aspects of rating systems and be notified of material changes or exceptions. Senior management must understand and oversee rating systems (Governance and oversight, paras 1-3). ADIs must have documented policies for rating system development, validation, governance and control, including registers, change logs and centralised issues registers (Governance and oversight, para 5).

• Independent control and validation: ADIs must maintain an independent credit risk control unit responsible for design, implementation and performance of rating systems, participate in model development and hold ultimate oversight (Credit risk control). Internal audit or an equivalent independent function must review rating systems and operations at least annually and document findings (Independent review).

• Data, documentation and record-keeping: ADIs must collect and retain specified data to support rating and estimation processes, including rating histories, PD/LGD/EAD data, and records of defaulted exposures (Attachment D, Data maintenance). Minimum observation periods for PD, LGD and EAD estimation apply (Attachment D).

• Minimum technical requirements and estimation standards: ADIs must meet the minimum requirements in Attachment D to use internal PD, LGD, EAD estimates. PD estimates must be calibrated to long-run one-year default rates and based on at least five years of data where available; LGD estimates for corporate exposures should ideally cover a full economic cycle and not be shorter than seven years for at least one source; EAD estimation also has minimum observation requirements and rules for revolving exposures (Attachment B; Attachment D, Risk quantification).

• Use and limits of supervisory estimates and floors: Where supervisory estimates or floors apply (for example, LGD supervisory estimates for certain FIRB senior unsecured exposures, PD floors, LGD floors set out in Tables 6 and 7), ADIs must apply them (Attachment B, Tables 6-7; Key principles).

• Notification and approval for material changes: ADIs must seek prior APRA approval for material rating system changes that will materially affect RWA or for significant modelling changes (IRB approval, Ongoing requirements, para 1).

• Ongoing use and restrictions: An ADI approved to use IRB must continue to employ it on an ongoing basis, subject to APRA revocation or suspension. Returning to the standardised approach or downgrading FIRB/AIRB will generally be exceptional (IRB approval, Ongoing requirements, para 2). APRA may require capital add-ons or reduction of risk if capital is not commensurate with the ADI’s credit risk profile (IRB approval, para 1.3).

APRA’s rights and discretions include:

• approving, varying, suspending or revoking IRB approval and imposing conditions on use, in writing (IRB approval, paras 1-3; Interpretation para 2);
• adjusting or excluding a specific prudential requirement in relation to one or more specified ADIs (Adjustments and exclusions, para 1);
• requiring an ADI to apply the standardised approach for some or all operations pending remediation (IRB approval, para 3);
• applying a scaling factor or other supervisory adjustments in Level 2 calculations (Attachment A; Scope para 3 for NZ subsidiaries).

The Standard does not itself set criminal sanctions, but non-compliance triggers supervisory actions by APRA including revocation of IRB approval and capital add-ons (IRB approval, paras 2-3). ADIs also have a duty to notify APRA and provide a remediation plan if they become aware of non-compliance (IRB approval, para 7).

APS 113 implements a supervisory enforcement structure rather than criminal penalties in the Standard text. The enforcement levers and consequences described in the instrument are administrative and capital-related:

• APRA’s supervisory powers: APRA may approve, vary, revoke or impose conditions on an ADI’s IRB approval, in writing, if the ADI is not complying with the Standard or APRA considers it appropriate having regard to the ADI’s circumstances (IRB approval, paras 1-3). APRA may require an ADI to apply the standardised approach instead of IRB for some or all operations where it has varied or revoked approval (IRB approval, para 3).

• Capital-based remedies: APRA may require an ADI to reduce its level of credit risk or increase its capital if it considers the ADI’s IRB capital is not commensurate with its credit risk profile (IRB approval, para 2.1). This is an explicit supervisory tool to correct perceived undercapitalisation.

• Removal of capital relief: During phased roll-outs APRA may restrict the immediate recognition of expected Regulatory Capital benefits and may deny capital relief for intra-group transactions that move risk among different approaches (IRB approval, Phased roll-out, para 2).

• Adjustment or exclusion of requirements: APRA may adjust or exclude a specific prudential requirement in relation to one or more specified ADIs, under the Banking Act power referenced (Adjustments and exclusions, para 1). That power allows APRA to grant targeted relief or exigent measures in writing.

• Reporting and remediation obligations: If an ADI becomes aware it is not complying with the Standard it must notify APRA and provide a remediation plan (IRB approval, para 7).

• Internal enforcement: The Standard also creates internal governance duties that, if breached, can lead to supervisory action. For example, failure to maintain independent validation, proper data retention or documented rating criteria may be taken into account by APRA in exercising supervisory powers (Governance and oversight; Attachment D).

The Standard does not itself create civil or criminal penalties; enforcement is through prudential measures, including conditions on IRB approval, mandatory adoption of the standardised approach, and capital add-ons or deductions (for example, deduction of EL shortfalls from CET1 under Attachment C). The Administrative law consequences for APRA decisions (judicial review) or civil penalties are not discussed in the text. The Standard does, however, preserve prior exercises of discretion by APRA (Previous exercise of discretion, para 1), which could be relevant to enforcement and transitional arrangements.

APS 113 is integrated with other APRA prudential standards and operates under the Banking Act 1959. Key interaction points:

• Banking Act 1959: The Standard is made under s 11AF of the Act (Authority, para 1), and adjustments/exclusions reference subsection 11AF(2) for APRA’s statutory discretion (Adjustments and exclusions, para 1). All APRA exercises of power under the Standard must be in writing (Interpretation, para 2).

• APS 112 (Standardised Approach to Credit Risk): APS 113 repeatedly cross-references APS 112 for classification, collateral haircuts, CCFs, netting and subsidiary treatment. Many exclusions are routed to APS 112 (Scope, para 1(a); Attachment E, cross-references to APS 112; Attachment B and G cross-references). For exposures required to be on the standardised approach, APS 112 governs. The Standard also relies on APS 112 for methodology details such as the comprehensive approach haircuts (Attachment B, Eligible financial collateral; Attachment E).

• APS 111 (Measurement of Capital): APS 113’s treatment of provisions and EL interacts with APS 111 for capital deductions and inclusion rules (Attachment C). For example, deductions from Common Equity Tier 1 Capital for EL shortfalls are to be made in accordance with APS 111 (Attachment C, paras 2-3).

• APS 120 (Securitisation) and APS 121 (Covered Bonds): APS 113 excludes securitisation exposures subject to APS 120, except funding-only or synthetic securitisations where the ADI must include underlying exposures in IRB calculations (Scope, para 1(c)). Covered bond SPV liabilities are excluded as specified in APS 121 (Scope, para 1(d)).

• APS 116 (Market Risk) and APS 180 (Counterparty Credit Risk): Exposures subject to market risk under APS 116 are excluded where there is no counterparty credit risk under APS 180 (Scope, para 1(e)). For counterparty credit risk EAD calculations, APS 180 applies (Attachment B, Off-balance exposures that expose to counterparty credit risk).

• APS 117 (Interest Rate Risk in the Banking Book): An initial IRB application must, unless APRA determines otherwise, seek approval to use an internal model for interest rate risk in the banking book per APS 117 (IRB approval, para 2).

• APS 220 (Credit Risk Management): The definition of default in APS 113 is drawn from APS 220’s reference definitions; the classification of non-performing exposures is linked to APS 220 (Definitions, defaulted exposure).

• Overseas prudential regimes: For Level 2 group calculations, an ADI may calculate RWA and EL for overseas subsidiaries prudentially regulated by a prescribed New Zealand authority using the NZ authority’s equivalent rules, but APRA requires the use of a 1.1 scaling factor for IRB RWA instead of the NZ scalar, and APRA’s floor value in APS 110 applies (Scope, para 3).

• Other attachments and cross-references: APS 113 depends heavily on attachments to APS 112 for collateral, netting, CCFs, and portfolio segmentation. For example, Attachment E to APS 113 requires an ADI to meet Attachment G to APS 112 for eligible financial collateral methodology.

Practically, an ADI will need to manage a compliance matrix spanning APS 111, APS 112, APS 116, APS 117, APS 120, APS 121, APS 180 and APS 220 in order to apply APS 113 correctly. APRA retains discretion to require different treatment and to vary approvals. The Standard explicitly preserves prior exercises of APRA discretion made under earlier versions (Previous exercise of discretion, para 1), which affects transitional compliance.

The instrument records the immediate amendment effect: it revokes Banking (prudential standard) determination No. 7 of 2022 and the associated Prudential Standard APS 113 made under that determination, and determines the new APS 113 in the schedule (front matter, delegate Clare Gibney). The commencement date for the new Standard is 30 September 2024 (Application and commencement, para 4, and preamble).

Beyond the current revocation and replacement, the Standard itself contains mechanisms for future adjustment:

• APRA may adjust or exclude specific prudential requirements in writing for specified ADIs (Adjustments and exclusions, para 1).
• APRA may vary or revoke IRB approvals and impose conditions at any time (IRB approval, paras 3.1-3.3).
• References to Acts, Regulations and Prudential Standards are to be read as in force from time to time (Interpretation, para 3), so later amendments to cross-referenced standards will affect operational application.

The Standard includes footnotes and cross-references to prior dates and earlier rule treatments, for example:

• It preserves prior APRA discretion exercises made under the previous version as continuing (Previous exercise of discretion, para 1);
• It specifies that improvements to an ADI’s rating systems will not render the ADI non‑compliant with the three-year prior-use requirement for initial IRB approval (IRB approval, footnote addressing para 1.1);
• It establishes that when calculating Level 2 RWA for New Zealand prudentially regulated subsidiaries, the ADI must use the NZ authority’s equivalent rules but apply APRA scalars (Scope, para 3).

There are no further historical amendment dates, amending instruments, or prior versions detailed in the text except the immediate prior Determination No. 7 of 2022 which is expressly revoked. The schedule’s attachments are integral parts of the Standard and would be the locus of future revisions by APRA.

The Standard text does not record any judicial or tribunal decisions, nor does it cite any cases. It is a prudential instrument and the schedule contains technical and operational requirements; no litigation outcomes or references are included in the document.

Two operational facts in the Standard may be relevant in any future contested administrative law or judicial review proceedings, and therefore are useful points to note for litigators:

• APRA’s discretions (for example, to adjust or exclude requirements and to approve, vary or revoke IRB approaches) are to be exercised in writing (Interpretation, para 2; Adjustments and exclusions, para 1; IRB approval). The requirement of writing is an administrative formal requirement that can be addressed in judicial review for procedural fairness and reasoned decision-making.
• The Standard preserves earlier exercises of APRA discretion as continuing under the corresponding powers in the new Standard (Previous exercise of discretion, para 1). That preservation may be relied upon as a transitional basis by ADIs and could be the subject of argument in supervisory disputes.

Because the Standard is prescriptive on methodology and leaves enforcement and modification to APRA’s supervisory apparatus rather than to statutory criminal penalties, disputes arising from APRA decisions under this Standard are likely to proceed as judicial review challenges to administrative action or be handled through regulatory remediation rather than reported case law. The Standard itself contains no litigation history.

The Standard has numerous detailed technical and operational traps where a failure to follow the wording precisely will affect capital outcomes or APRA’s supervisory response. The most practically significant are:

• APRA approval is prerequisite: ADIs must not use IRB capital inputs for Regulatory Capital without prior APRA approval for all material asset classes and business units (IRB approval, Initial approval). Using internal estimates without approval risks supervisory action.

• Phased roll-out limits and intra-group restrictions: Where APRA permits phased roll-out, a capital benefit may be deferred at APRA’s discretion and no capital relief is permitted for intra‑group transactions that shift risk among entities using different approaches during roll-out (IRB approval, Phased roll-out, paras 1-2). ADIs must not expect immediate capital relief when rolling out IRB.

• Data observation period minima: PD estimation requires at least five years of data from one source (Attachment D, Risk quantification), LGD for corporate exposures ideally covers a full economic cycle and not less than seven years from one source (Attachment D), and EAD reference data has minimum five-year observation periods (Attachment D). Absence of such data requires conservative adjustments and may jeopardise approval.

• PD and LGD floors and supervisory estimates: PD minimums apply (e.g. 0.05 per cent general floor, 0.1 per cent for QRR revolvers), supervisory LGD estimates or floors apply for senior unsecured exposures in FIRB and AIRB contexts and in many retail settings (Attachment B, Tables 6 and 7). ADIs cannot representatively undercut those floors.

• Treatment of defaulted exposures: For defaulted exposures K for UL under the AIRB or retail IRB approach equals the excess of LGD over the ADI’s best estimate of EL; under FIRB or supervisory slotting K is zero for defaulted exposures (Attachment A, Risk-weighted assets for defaulted exposures). This asymmetric treatment matters for provisioning and capital deductions, and requires careful reconciliation of EL and provisions (Attachment C).

• EAD measurement rules: EAD must be measured without deduction of provisions (Attachment B, EAD estimates). For revolving retail exposures using internal EAD estimates the minimum is drawn plus 50 per cent of the off-balance sheet exposure (Attachment B). Incorrect EAD measurement can materially understate RWA.

• Collateral and CRM legal enforceability: Collateral and guarantees are only recognised if the ADI has perfected security and has undertaken sufficient legal review to satisfy enforceability in relevant jurisdictions, with ongoing reviews (Attachment E). Loose or informal documentation will fail APRA scrutiny.

• Mapping and segmentation constraints: The Standard prohibits allocating borrowers across rating methodologies primarily to minimise capital (Attachment D, Rating system design). ADIs must document rationale for multiple systems and cannot game mapping to slotting categories.

• Level 2 scaling and AVCM: ADIs must sum RWA for UL and multiply by a 1.1 scaling factor at Level 2 (Attachment A). For financial institution exposures an asset value correlation multiplier AVCM is 1.25 for regulated financial institutions with assets ≥ $125 billion or for unregulated financial institutions regardless of size (Attachment A). These supervisory adjustments raise capital relative to pure model outputs.

• IPRE and residential mortgage multipliers: Non-defaulted IPRE exposures RWA are multiplied by 1.5 (Attachment A). Retail residential mortgages have differing multipliers based on owner-occupied status and number of investment properties (1.4, 2.5, 1.7) and a floor of 0.05 × EAD in some cases (Attachment A). Misclassification of IPRE or mortgage type will affect capital heavily.

• Retail pool and QRR limits: QRR has product, account and behavioural criteria (maximum exposure $100,000 per account, revolving, unconditionally cancellable lines) and requires separations between transactors and revolvers; failing those criteria disqualifies QRR treatment (Asset classes, QRR). SME retail thresholds and criteria are specific (exposure < $1.5 million and revenue < $75 million, Attachment D and Definitions), and mismatches will require corporate IRB treatment.

• Purchased receivables top-down approach: The top-down approach for purchased corporate receivables requires prior APRA approval and strict eligibility conditions (Attachment F). Failure to meet these conditions forces a more conservative treatment.

• Interaction with APS 112 and other APS: APS 113 defers specific treatment to APS 112 (e.g. haircuts, netting, CCFs). ADIs must coordinate compliance across multiple APSs; a mistake in applying APS 112 rules to a collateral or CCF computation will affect APS 113 outputs.

These are concrete operational points where mistakes change capital requirements or provoke supervisory intervention. ADIs should treat the Standard as prescriptive and technical, with APRA discretion to adjust or exclude requirements only in writing.

Compliance requires a coordinated programme across governance, data, modelling, legal, operations and reporting. Concrete checklist items, tied to the Standard’s provisions, are:

1. Governance sign-off and Board involvement

   • Ensure the Board, or a Board committee, has formally approved rating system policies and receives regular reporting that includes risk profile by grade, migrations, parameter estimates and back-testing comparisons (Governance and oversight, paras 1-3).
   • Maintain documentation of Board approvals, minutes and evidence of senior management engagement (Governance and oversight, para 5).

2. APRA approvals and change management

   • Submit a complete initial IRB application covering all material asset classes and business units, with at least three years’ prior usage evidence where required (IRB approval, Initial approval, para 1).
   • If a phased roll-out is sought, prepare an implementation plan with timetable, and expect APRA to limit capital benefits and to prohibit intra-group capital arbitrage during roll-out (IRB approval, Phased roll-out).
   • Seek prior APRA approval before making material changes that will significantly alter RWA or modelling assumptions (IRB approval, Ongoing requirements).

3. Rating systems, policies and documentation

   • Implement documented rating system design, including borrower and facility grade definitions, rating criteria, documentation of default and loss definitions and a register of rating systems, change logs and a central issues register (Attachment D, Rating system design; Documentation of rating system design).
   • Ensure rating assignment processes are documented, consistently applied and allow independent replication (Attachment D).

4. Independent credit risk control and validation

   • Establish an independent credit risk control unit tasked with testing, monitoring and validating ratings, and ensure it participates in model development (Governance and oversight, Credit risk control).
   • Maintain an annual independent review by internal audit or equivalent, with documented findings and remediation tracking (Independent review).

5. Data management and retention

   • Collect and retain rating histories, PD/LGD/EAD data, migration and default histories, and data needed for re-rating when models are improved (Attachment D, Data maintenance).
   • Ensure minimum observation periods are met: PD at least five years, LGD for corporate ideally one full cycle and not less than seven years where possible, EAD at least five years for reference data (Attachment D, Risk quantification).

6. Model development, validation and conservatism

   • For statistical models, document variables, predictive performance, out-of-sample tests and model limitations; set and document margins of conservatism where data or methods are limited (Attachment D, Use of statistical models; Risk quantification).
   • Maintain a documented validation cycle, including back-testing realised defaults and loss rates against estimates, and adjust estimates and capital accordingly (Attachment D, Validation of internal estimates).

7. PD, LGD, EAD and M estimation standards

   • Apply the Standard’s floors and supervisory estimates where required (Attachment B: PD floors, LGD floors in Tables 6 and 7, supervisory LGD for senior unsecured under FIRB).
   • Ensure EAD is measured per the Standard without excluding provisions, and apply supervisory CCFs or internal CCF estimates only where the ADI meets the minimum requirements (Attachment B, Exposure at default estimates).
   • Calculate effective maturity M with the one-year floor (subject to specified exceptions), and cap M at five years (Attachment B, Effective maturity).

8. Collateral and CRM legal enforceability

   • Undertake legal due diligence to confirm perfection and enforceability of security and guarantees in all relevant jurisdictions, maintain evidence of perfection, and carry out periodic review to confirm ongoing enforceability (Attachment E).
   • Maintain operational capacity to realise collateral within reasonable timeframes and evidence of monitoring, valuation and insurance (Attachment E).

9. Expected loss, provisions and capital reconciliation

   • Compute EL separately for non-defaulted and defaulted exposures, reconcile EL with eligible provisions, and apply CET1 deductions where EL exceeds eligible provisions, or include excess provisions in Tier 2 within the cap (Attachment C).
   • For defaulted exposures under AIRB or retail IRB, construct best-estimate EL reflecting current economic circumstances (Attachment C).

10. Stress testing and capital assessment

    • Implement sound stress-testing processes for credit risk, including mild recession scenarios at minimum, and incorporate results into assessment of IRB capital adequacy (Attachment D, Stress tests).

11. Records and reporting to APRA

    • Maintain registers required by the Standard (e.g. for sold credit obligations and eligible collateral), change logs, override records, and documentation of decisions and validations for APRA inspection (Governance and oversight; Attachment D).
    • Notify APRA promptly if non-compliance is identified and submit a remediation plan (IRB approval, para 7).

12. Legal and external vendor management

    • Where third-party vendor models are used, retain full responsibility for compliance, validate vendor models, and preserve access to documentation to enable APRA and internal auditors to replicate rating assignments (Attachment D, Documentation of rating system design).

13. Level 2 group and overseas subsidiary treatment

    • Ensure Level 2 group calculations apply APS 113 where required, and follow the Special New Zealand subsidiary treatment if applicable but with APRA’s scalars (Scope, paras 2-3).

This compliance checklist maps to specific provisions of APS 113. ADIs should convert these items into programme plans with assigned owners, timelines and tangible evidence to be produced to APRA during the approval and ongoing supervision processes.