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) (AGN 120.3) 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.
Note: ADIs should consult APRA in case of doubt as to whether a subsidiary or controlled entity that engaged in non-financial operations should be consolidated at Level 2 for capital adequacy purposes.
'Controlled entities’
This is defined in accordance with accounting standard AASB 127 Consolidated and Separate Financial Statement (AASB 127) and AASB 3 Business Combinations (AASB 3).
The basis of consolidation required in this form is in accordance with the prudential Consolidated ADI group. The prudential consolidated group should also be determined in accordance with Australian accounting standards, notably AASB 127 and AASB 3:
- Include the following:
- all controlled banking entities, securities entities and other financial entities (e.g. finance companies, money market corporations, stockbrokers and leasing companies).
- Exclude subsidiary entities involved in the following business activities:
- insurance businesses (including friendly societies and health funds);
- acting as manager, responsible entity, approved trustee, trustee or similar role in relation to funds management or the securitisation of assets;
- non-financial (commercial) operations; and
- special purpose vehicles whose assets have satisfied the clean sale requirements set down in AGN 120.3 (refer Securitisation deconsolidation principle).
Reporting period
The form is to be completed as at the last day of the stated reporting quarter. Locally incorporated banks, special service providers (SSPs), Credit Unions, Cairns Penny Savings & Loans Limited and Building Societies should submit the completed form to APRA within 20 business days after the end of the relevant reporting quarter.
Unit of measurement
Banks, SSPs, Building Societies, Credit Unions and Cairns Penny Savings & Loans Limited are asked to complete the form in millions of Australian dollars rounded to two decimal places.
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;[3]
- 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;[4]
- 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.
- 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.
Basis of preparation
Capital charges for each relevant component of the market risk capital charge should be reported on this form. The total capital charge for each asset class assessed using the standard method is then calculated by summing the various components. Finally, the total market risk capital charge is to be entered as the sum of the standard method charges for each asset class plus any charge reported under the Value at Risk (VaR) or Internal Limit approaches. The total market risk capital charge must then be multiplied by a constant factor of 12.5 and reported on ARF 110.0 Capital Adequacy.
References in this Instruction Guide to a Prudential Standard are references to Prudential Standard APS 113 Capital Adequacy: Market Risk and associated guidance notes. For commentary purposes, a box labeled “Comments” has been added to every table.