Banking (prudential standard) determination No. 6 of 2006 - Prudential Standard APS 120 - Funds Management and Securitisation
ADI’s involvement in funds management & ADI’s involvement in funds management & securitisation activities
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ADI’s involvement in funds management & securitisation activities
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An ADI’s role in a funds management or securitisation scheme can range from the establishment and sponsorship of the whole scheme to the provision of a single facility or service to a scheme sponsored by independent parties. Regulatory treatment, including for capital and disclosure, will vary depending on the risks that the ADI has to bear.
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Where the provision of facilities or services meet disclosure, separation and arm’s length criteria as listed in AGN 120.1, AGN 120.2, AGN 120.3, AGN 120.4 and AGN 120.5, they will be subject to capital requirements in accordance with Prudential Standard APS 112 Capital Adequacy: Credit Risk. Otherwise, an ADI may be required to hold capital, on a solo and consolidated group basis, against the full value of securities[3] issued by the SPV[4] with which it is involved.
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Where the totality of an ADI’s involvement in funds management and securitisation suggests that the overall level and/or concentration of risks has become excessive relative to its capital, APRA may require the ADI to maintain a buffer above the minimum capital ratio. In extreme circumstances, where there is evidence of misleading investors or incorrect perception of ADI support, such that the additional risks would not be adequately addressed by holding additional capital, an ADI may be precluded from continuing to undertake funds management and securitisation activities.
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This Prudential Standard and its associated Guidance Notes apply to all forms of funds management and securitisation activities undertaken by ADIs in both the retail and wholesale markets. It also covers securitisation arrangements where the exposures do not cross an ADI’s balance sheet. The provisions should also be considered in any asset sales undertaken by an ADI where the ADI provides support services or other facilities to the buyer.
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An ADI should consult APRA in advance of undertaking any new funds management or securitisation schemes, except where the structure involved has been previously provided to APRA by the ADI.