Reporting Form ARF 222.0
Exposures to Related Entities
Instruction Guide
Purpose
This form collects information on an authorised deposit-taking institution’s (ADI’s) exposures to individual counterparties that are related to the ADI.
Information reported on this form is prudentially important, as it will form part of APRA’s monitoring and analysis framework for the ADI and the industry.
Audit requirements
This form is subject to audit review and testing. The scope and nature of audit testing required is outlined in the applicable Audit Guidance Statement issued by the Auditing and Assurance Board of the Australian Accounting Research Foundation.
Reporting entity
This form is to be completed as follows:
- foreign ADIs and Specialist Credit Card Institutions (SCCIs) operating through branches in Australia are only required to complete Part C of this form for the Australian branch (i.e. Parts A and B of this form are not applicable); and
- all other ADIs (including locally incorporated SCCIs) are required to complete Parts A and B of this form.
Unit of measurement
Banks are asked to complete the form in millions of Australian dollars rounded to one decimal place, and for other non-bank ADIs (including SCCIs), in whole Australian dollars (no decimal place).
Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates (AASB 121).
The general requirements of AASB 121 for translation are:
- foreign currency monetary items outstanding at the reporting date must be translated at the spot rate at the reporting date;[1]
- foreign currency non-monetary items that are measured at historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction;[2]
- foreign currency non-monetary items that are measured at fair value will be translated at the exchange rate at the date when fair value was determined.
Transactions arising under foreign currency derivative contracts at the reporting date must be prepared in accordance with AASB 139 Financial Instruments: Recognition and Measurement (AASB 139). However, those foreign currency derivatives that are not within the scope of AASB 139 (e.g. some foreign currency derivatives that are embedded in other contracts) remain within the scope of AASB 121.
For APRA purposes equity items must be translated using the foreign currency exchange rate at the date of investment or acquisition. Post acquisition changes in equity are required to be translated on the date of the movement.
As foreign currency derivatives are measured at fair value, the currency derivative contracts are translated at the spot rate at the reporting date.
Exchange differences should be recognised in profit and loss in the period which they arise. For foreign currency derivatives, the exchange differences would be recognised immediately in profit and loss if the hedging instrument is a fair value hedge. For derivatives used in a cash flow hedge, the exchange differences should be recognised directly in equity.
The ineffective portion of the exchange differences in all hedges would be recognised in profit and loss; and
- translation of financial reports of foreign operations.
A foreign operation is defined in AASB 121 as meaning an entity that is a subsidiary, associate, joint venture or branch of a reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity.
- Exchange differences relating to foreign currency monetary items that form part of the net investment of an entity in a foreign operation, must be recognised as a separate component of equity.
- Translation of financial reports should otherwise follow the requirements in AASB 121.
Reporting period
The form is to be completed as at the last day of the stated reporting quarter. Locally incorporated banks, foreign ADIs (other than specialist credit card institutions) and Special Service Providers should submit the completed form to APRA within 20 business days after the end of the relevant reporting quarter. Credit Unions, Cairns Penny Savings & Loans Limited, Building Societies and SCCIs should submit the completed form to APRA within 15 business days after the end of the relevant reporting quarter.
Basis of preparation
For the purposes of this form, unless specifically advised in the ‘Instruction Guide for Specific Items’, ADIs are to report all exposures gross. No netting is to be recognised even if the ADI has in place netting agreements that are in the form of a legally recognised right to net or set off items of assets and liabilities in accordance with AASB 139, AASB 132 Financial Instruments: Disclosure and Presentation and AASB 7 Financial Instruments: Disclosures.
Definitions
This section provides guidance on the interpretation of certain items used in this form.
Licensed ADI
This refers to the operations of the reporting ADI on a stand-alone basis.
Securitisation deconsolidation principle
Except where stated otherwise on this form, reporting entities must treat any securitisation program special purpose vehicles (SPVs) in which the ADI (or a member of its consolidated group) participates in accordance with APRA’s clean sale and separation requirements as non-consolidated independent third parties. As a result, for reporting purposes all assets, liabilities, revenues and expenses of these SPVs must be excluded from the ADI’s reported amounts. Where relevant, report on this form any exposure to or other transaction between the ADI and any such SPV as if such transaction was conducted with an independent third party, regardless of whether the SPV or its assets is consolidated for accounting purposes.
APRA's clean sale and separation requirements are set out in APS 120 Funds Management and Securitisation and related Guidance Notes AGN 120.3 Purchase and Supply of Assets (including Securities Issued by SPVs) and AGN 120.1 Disclosure and Separation. Whenever the clean sale and separation requirements are not met, all the assets, liabilities, revenues and expenses of the SPV are to be consolidated with the ADI’s reported amounts.
Extended Licensed Entity (ELE)
This means, in relation to a locally-incorporated ADI:
(a) the ADI; and
(b) all subsidiaries of the ADI that have been approved under Guidance Note AGN 222.1 Extended Licensed Entity (AGN 222.1) for the purposes of Prudential Standard APS 222 Associations with Related Entities (APS 222) (each made under s 11AF of the Banking Act 1959) taken together and treated as if they formed a single entity for the purposes of measuring the ADI’s exposures to related entities.
Subject to specific requirements, APRA may deem a subsidiary of an ADI (other than an entity regulated by APRA or by a foreign equivalent) to be part of the ADI itself for the purposes of measuring the ADI’s exposures to related entities (refer to APS 222 and AGN 222.1).
Related entities
All entities controlled (whether directly or indirectly) by an ADI (other than subsidiaries that form part of its ELE), or by the ultimate domestic parent of an ADI (including the parent entity itself) represent a “related entity” of an ADI. A “related entity” excludes the foreign parent(s) of an ADI, the foreign parent’s overseas based subsidiaries and their directly owned non-ADI entities operating in Australia[3]. Where appropriate, APRA may deem that other entities (and their subsidiaries) represent a “related entity” of an ADI.
Subsidiary
This is defined in accordance with the definition provided in AASB 127 Consolidated and Separate Financial Statements (AASB 127) as “an entity that is controlled by another entity (known as the parent)” unless otherwise instructed by APRA.
Control is defined by AASB 127 as “the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities”.
Parent entity
This is defined by AASB 127 as meaning “an entity that has one or more subsidiaries”.
Exposures
An exposure to an entity is the aggregate of all claims, commitments and contingent liabilities arising from on- and off-balance sheet transactions (in both the banking and trading books) with the entity. This includes equity investment in the entity.
Note: Where credit risk is unequivocally transferred from the entity to another entity by an irrevocable letter of credit or a direct guarantee, the exposure is to be recorded against the other entity.
On-balance sheet exposures
This refers to items of assets that are recognised or recorded on the statement of financial position of the ADI/ELE (as appropriate).
Off-balance sheet exposures
This refers to items of assets or liabilities that are not recognised or recorded on the statement of financial position of the ADI because they do not satisfy the asset or liability accounting recognition requirements. Items that were treated as off-balance sheet items for the purpose of this form, pre-IFRS, will continue to be treated as off-balance sheet items, post-IFRS.
Instruction guide for specific items
The form has the following reporting components:
Part A: 10 Largest exposures to related entities
Part A is to be completed by all locally incorporated banks and locally-incorporated non-bank ADIs (including SCCIs) on a licensed ADI or ELE basis (where applicable). Report in this part on a net basis (explained in detail below) the ADI’s/ELE’s (as appropriate) 10 largest exposures to individual related entities.
The following instructions are applicable to Part A of this form.
Name of entity
Report in column 1 the names of the relevant individual related entities to which the ADI/ELE (as appropriate) has exposures to.
Category
Report in column 2 the category of the related entity reported in column 1 using the following abbreviations:
- ADI for related ADIs (including overseas based equivalents);
- OR for other regulated related entities (i.e. any related entity other than an ADI or overseas based equivalent directly regulated by APRA or by a foreign equivalent); or
- UR for unregulated related entities.
On-balance sheet exposures
Report all on-balance sheet exposures to the related entity noted in column 1. This includes all loans and advances to the related entity, equity investment in the related entity, and all other claims on the related entity. Any accrued interest associated with the exposure should also be included.
3.1 Equity investment
Report in column 3.1 the book value of equity investment in the related entity. Exclude any equity investment in the related entity that has been deducted from the ADI’s Level 1 (stand-alone) capital for capital adequacy purposes (see Prudential Standard APS 111 Capital Adequacy: Measurement of Capita (APS 111)).
3.2 Other
Report in column 3.2 the book value of all other on-balance sheet exposures to the related entity on a net basis. Net basis means net of exposures excluded under paragraphs 28(b)(ii)-(vi) in APS 222, specifically:
- exposures deducted from the ADI’s Level 1 (stand-alone) capital for capital adequacy purposes (see APS 111);
- exposures to the extent that they are secured by cash deposits (subject to satisfying the criteria set out in Attachment B to Guidance Note AGN 112.1 Risk-Weighted On-Balance Sheet Credit Exposures (AGN 112.1));
- exposures to the extent that they are guaranteed by governments, or secured by government securities (subject to satisfying the conditions set out in paragraphs 9, 12, 13, 14 and 15 of AGN 112.1);
- exposures arising in the course of settlement of market-related contracts; and
- exposures to the extent that they have been written off or specifically provided for.
Off-balance sheet exposures
4.1. Non-market related
This includes all commitments, whether revocable or not, which have been advised to the related entity reported in column 1 (see Attachment A to Guidance Note AGN 112.2 Risk-Weighted Off-Balance Sheet Credit Exposures (AGN 112.2) for examples of these commitments). For SCCIs that are involved in self-acquiring of credit card transactions, include any potential chargeback exposures to the related entity (merchant).
Exclude:
- internal limits that have not been formally advised to the related entity and may be cancelled at the ADI’s/ELE’s (as appropriate) discretion.
Report in column 4.1 the value of all unused commitments to the related entity (do not apply credit conversion factors or risk weightings to the value) on a net basis (i.e. net of exposures excluded under paragraphs 28(b)(ii)-(vi) in APS 222 as detailed in point 3.2 above).
SCCIs should use their own methodology in determining the amount of potential chargeback exposures to the related entity (e.g. this could be based on the SCCI’s historical trends of chargeback exposures to the related entity). Any funds held as performance bond from related entities for settling any outstanding liabilities to the reporting SCCI (e.g. reimbursement for merchant chargebacks) must be placed in a trust account with an ADI authorised to accept deposits to be eligible for netting purposes.
Exposures arising from repos (i.e. sale and repurchase agreements) and reverse repos (i.e. purchase and resale agreements) of securities should be reported as exposures to the issuer of the securities and collateralised loans to the counterparty respectively.
4.2. Market related
Include:
- all exposures arising from off-balance sheet market related contracts with the related entity reported in column 1 (see AGN 112.2) for examples of these contracts).
Report in column 4.2 the credit equivalent amounts of all market related contracts on a net basis (i.e. net of exposures excluded under paragraphs 28(b)(ii)-(vi) in APS 222 as detailed in point 3.2 above). The credit equivalent amounts of these contracts are to be calculated in accordance with AGN 112.2 or Guidance Note AGN 112.3 Netting (112.3) where netting applies. Netting by novation and close-out netting are permissible for market related contracts provided all the requirements set out in AGN 112.3 for bilateral netting are met.
Total exposures
5.1 Amount
This represents the total of column numbers 3.1, 3.2, 4.1 and 4.2.
5.2 As % of capital base
This represents the value reported for column 5.1 divided by the ADI’s capital base as reported in ‘Memorandum items’ (i).
Memorandum items
(i) Capital base of licensed ADI
Report the ADI’s capital base at Level 1 for the reporting quarter (as shown in ARF 110.0 Capital Adequacy (Licensed ADI) for the same reporting quarter).
(ii) Aggregate exposure to all related ADIs (including overseas based equivalents)
Report the ADI’s/ELE’s (as appropriate) aggregate exposure to all related ADIs and related overseas based equivalents on a net basis (i.e. net of exposures excluded under paragraphs 28(b)(ii)-(vi) in APS 222 as detailed in points 3.1 and 3.2 above).
(iii) Aggregate exposure to all related entities other than related ADIs and related overseas based equivalents
Report the ADI’s/ELE’s (as appropriate) aggregate exposure to all related entities other than related ADIs and related overseas based equivalents on a net basis (i.e. net of exposures excluded under paragraphs 28(b)(ii)-(vi) in APS 222 as detailed in points 3.1 and 3.2 above).
Part B: 10 Largest exposures to ELE-eligible subsidiaries
Part B is to be completed by all locally incorporated banks and locally-incorporated non-bank ADIs (including SCCIs) that have APRA-approved ELE-eligible subsidiaries. Report in this part on a net basis (explained in detail below) the ADI’s 10 largest exposures to individual subsidiaries that form part of the ADI’s ELE (i.e. 10 largest exposures to ELE-eligible subsidiaries).
The following instructions are applicable to Part B of this form.
Name of entity
Report in column 1 the names of the relevant individual ELE-eligible subsidiaries to which the ADI has exposures to.
On-balance sheet exposures
Report all on-balance sheet exposures to the subsidiary noted in column 1. This includes all loans and advances to the subsidiary, equity investment in the subsidiary, and all other claims on the subsidiary. Any accrued interest associated with the exposure should also be included.
Equity investment
Report in column 2.1 the book value of equity investment in the subsidiary. Exclude any equity investment in the subsidiary that has been deducted from the ADI’s Level 1 (stand-alone) capital for capital adequacy purposes (see APS 111).
Other
Report in column 2.2 the book value of all other on-balance sheet exposures to the subsidiary on a net basis. Net basis means net of the following exposures:
- exposures deducted from the ADI’s Level 1 (stand-alone) capital for capital adequacy purposes (see APS 111);
- exposures to the extent that they are secured by cash deposits (subject to satisfying the criteria set out in Attachment B to AGN 112.1);
- exposures to the extent that they are guaranteed by governments, or secured by government securities (subject to satisfying the conditions set out in paragraphs 9, 12, 13, 14 and 15 of AGN 112.1);
- exposures arising in the course of settlement of market-related contracts; and
- exposures to the extent that they have been written off or specifically provided for.
- Off-balance sheet exposures
3.1 Non-market related
Include:
- all commitments, whether revocable or not, which have been advised to the subsidiary reported in column 1 (see Attachment A to AGN 112.2 for examples of these commitments).
Exclude:
- internal limits that have not been formally advised to the subsidiary and may be cancelled at the ADI’s discretion.
Report in column 3.1 the value of all unused commitments to the subsidiary (do not apply credit conversion factors or risk weightings to the value) on a net basis (i.e. net of exposures detailed in point 2.2 above).
3.2 Market related
Include:
- all exposures arising from off-balance sheet market related contracts with the subsidiary reported in column 1 (see AGN 112.2 for examples of these contracts).
Report in column 3.2 the credit equivalent amounts of all market related contracts on a net basis (i.e. net of exposures detailed in point 2.2 above). The credit equivalent amounts of these contracts are to be calculated in accordance with AGN 112.2 or AGN 112.3 where netting applies. Netting by novation and close-out netting are permissible for market related contracts provided all the requirements set out in AGN 112.3 for bilateral netting are met.
- Total exposures
This represents the total of column numbers 2.1, 2.2, 3.1 and 3.2.
- Memorandum item
Aggregate exposure to all ELE-eligible subsidiaries
Report the ADI’s aggregate exposure to all ELE-eligible subsidiaries on a net basis (i.e. net of exposures detailed in points 2.1 and 2.2 above).
Part C: Exposures to head office, overseas branches, Australian and overseas subsidiaries
Part C is to be completed by all foreign ADIs and SCCIs that operate as branches in Australia. Report in this part on a net basis (explained in detail below) exposures of the Australian branch to head office, to individual overseas branches, as well as to individual Australian and overseas subsidiaries of parent.
The following instructions are applicable to Part C of this form.
- Name of entity
Report in column 1 the name of the entity to which the Australian branch has exposures to.
- On-balance sheet exposures
This includes all loans and advances and all other claims on the entity noted in column 1. Any accrued interest associated with the exposure should also be included.
Report in column 2 the book value of all on-balance sheet exposures to the entity on a net basis. Net basis means net of the following exposures:
- exposures to the extent that they are secured by cash deposits (subject to satisfying the criteria set out in Attachment B to AGN 112.1);
- exposures to the extent that they are guaranteed by governments, or secured by government securities (subject to satisfying the conditions set out in paragraphs 9, 12, 13, 14 and 15 of AGN 112.1);
- exposures arising in the course of settlement of market-related contracts; and
- exposures to the extent that they have been written off or specifically provided for.
- Off-balance sheet exposures
3.1 Non-market related
Include:
- all commitments, whether revocable or not, which have been advised to the entity reported in column 1 (see Attachment A to AGN 112.2 for examples of these commitments).
Exclude:
- internal limits that have not been formally advised to the entity and may be cancelled at the branch’s discretion.
Report in column 3.1 the value of all unused commitments to the entity (do not apply credit conversion factors or risk weightings to the value) on a net basis (i.e. net of exposures detailed in point 2 above).
Exposures arising from repos (i.e. sale and repurchase agreements) and reverse repos (i.e. purchase and resale agreements) of securities should be reported as exposures to the issuer of the securities and collateralised loans to the counterparty respectively.
3.2 Market related
Include:
- all exposures arising from off-balance sheet market related contracts with the entity reported in column 1 (see AGN 112.2 for examples of these contracts).
Report in column 3.2 the credit equivalent amounts of all market related contracts on a net basis (i.e. net of exposures detailed in point 2 above). The credit equivalent amounts of these contracts are to be calculated in accordance with AGN 112.2 or AGN 112.3 where netting applies. Netting by novation and close-out netting are permissible for market related contracts provided all the requirements set out in AGN 112.3 for bilateral netting are met.
- Total exposures
This represents the total of column numbers 2, 3.1 and 3.2.