Financial Sector (Collection of Data) (reporting standard) determination No. 9 of 2008 - ARS 114.0 Standardised Approach - Operational Risk
Instruction GuideInstruction Guide
Start here
Get a plain-English read of Instruction Guide
Turn the raw legal text into a practical explanation grounded in Financial Sector (Collection of Data) (reporting standard) determination No. 9 of 2008 - ARS 114.0 Standardised Approach - Operational Risk.
This instruction guide is designed to assist in the completion of the Standardised – Operational Risk form. This form captures the calculation of the capital requirement for operational risk using the standardised approach. In completing this form, authorised deposit-taking institutions (ADIs) should refer to Prudential Standard APS 114 Capital Adequacy: Standardised Approach to Operational Risk (APS 114).
General directions and notes
Reporting entity
This form is to be completed at Level 1 and Level 2[3] by each ADI that satisfies both of the following paragraphs:
(a) it is applying the standardised approach to operational risk to all or part of its business activities for capital adequacy purposes (refer to APS 114 or Prudential Standard APS 115 Advanced Measurement Approaches to Operational Risk, as appropriate); and
(b) it is included in one of the classes of ADI to which this form applies, as set out in the table below.
Class of ADI
Reporting required
Bank – Advanced or Applicant Advanced[4]
Yes
Bank – Standardised
Yes
Branch of a Foreign Bank
No
Building Society
Yes
Credit Union
Yes
Specialist Credit Card Institution (SCCI)
Yes[5]
Provider of Purchased Payment Facilities
No
Other ADI
Yes
If an ADI is a subsidiary of an authorised non-operating holding company (NOHC), the report at Level 2 is to be provided by the ADI’s immediate parent NOHC.[6]
Securitisation deconsolidation principle
Except as otherwise specified in these instructions, the following applies:
Where an ADI (or a member of its Level 2 consolidated group) participates in a securitisation that meets APRA’s operational requirements for regulatory capital relief under Prudential Standard APS 120 Securitisation (APS 120):
(a) special purpose vehicles (SPVs) holding securitised assets may be treated as non-consolidated independent third parties for regulatory reporting purposes, irrespective of whether the SPVs (or their assets) are consolidated for accounting purposes;
(b) the assets, liabilities, revenues and expenses of the relevant SPVs may be excluded from the ADI’s reported amounts in APRA’s regulatory reporting returns; and
(c) the underlying exposures (i.e. the pool) under such a securitisation may be excluded from the calculation of the regulatory capital (refer to APS 120). However, the ADI must still hold regulatory capital for the securitisation exposures[7] that it retains or acquires and such exposures are to be reported in Form ARF 120.0 Standardised - Securitisation or Forms ARF 120.1A to ARF 120.1C IRB - Securitisation (as appropriate). The risk-weighted assets (RWA) relating to such securitisation exposures must also be reported in Form ARF 110.0 Capital Adequacy.
Where an ADI (or a member of its Level 2 consolidated group) participates in a securitisation that does not meet APRA’s operational requirements for regulatory capital relief under APS 120, or the ADI elects to treat the securitised assets as on-balance sheet assets under Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk or Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk, such exposures are to be reported as on-balance sheet assets in APRA’s regulatory reporting returns. In addition, these exposures must also be reported as a part of the ADI’s total securitised assets within Form ARF 120.2 Securitisation – Supplementary Items.
Reporting period and timeframes for lodgement
The form is to be completed as at the last day of the stated reporting period (i.e. the relevant quarter). The table below specifies the number of business days after the end of the relevant reporting period, within which each class of ADI must submit data to APRA.
Class of ADI
Number of business days
Bank – Advanced or Applicant Advanced
30
Bank – Standardised
20
Branch of a Foreign Bank
Not applicable
Building Society
15
Credit Union
15
Specialist Credit Card Institution (SCCI)
15
Provider of Purchased Payment Facilities
Not applicable
Other ADI[8]
20
An immediate parent NOHC must submit data to APRA within the same timeframe as its subsidiary ADI.
Where both "Bank – Standardised" and "Bank – Advanced or Applicant Advanced" reporting requirements and timeframes apply to an ADI
In the following cases an Australian-owned bank or a foreign subsidiary bank must meet reporting requirements and timeframes applicable to both a “Bank – Advanced or Applicant Advanced” and a “Bank – Standardised”:
(a) where the ADI is operating under the standardised approach to operational risk under APS 114, but has applied for AMA approval under APS 115, in which case the ADI will be both a “Bank – Advanced or Applicant Advanced” and a “Bank – Standardised”; and
(b) where the ADI has received AMA approval under APS 115 in respect of most (but not all) of its operations, and has approval for partial use of the standardised approach under APS 114 for the remainder of its operations.
Such an ADI must report under ARF 114.0 (the form) as follows:
<table cellspacing="0" cellpadding="0" style="border:0.75pt solid #000000; border-collapse:collapse"><tbody><tr><td style="width:142.2pt; border-right:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="page-break-inside:avoid; page-break-after:avoid; font-size:12pt"><span style="font-weight:bold">Description of bank</span></p></td><td style="width:147.45pt; border-right:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="page-break-inside:avoid; page-break-after:avoid; font-size:12pt"><span style="font-weight:bold">Reporting requirement</span></p></td><td style="width:98.65pt; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="page-break-inside:avoid; page-break-after:avoid; font-size:12pt"><span style="font-weight:bold">Timeframe</span><span style="font-weight:bold">s for lodgement</span></p></td></tr><tr><td style="width:142.2pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="page-break-inside:avoid; page-break-after:avoid"><span></span></p><p style="page-break-inside:avoid; page-break-after:avoid"><span>ADI</span><span> is operating under Basel II</span><a id="_ftnref9"></a><a href="#_ftn9" style="text-decoration:none"><span class="FootnoteReference" style="font-size:6.67pt; color:#000000">[9]</span></a><span> APS 114 standardised approach, but has applied for AMA approval for </span><span style="text-decoration:underline">all</span><span> its operations</span></p><p style="page-break-inside:avoid"><span></span></p></td><td style="width:147.45pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="page-break-inside:avoid"><span></span></p><p style="page-break-inside:avoid"><span>Report under the </span><span>f</span><span>orm (for purposes of calculating operational risk component of regulatory capital</span><span> for all of its operations</span><span>)</span></p><p style="page-break-inside:avoid"><span></span></p></td><td style="width:98.65pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="page-break-inside:avoid"><span></span></p><p style="page-break-inside:avoid"><span>“Bank – Standardised” timeframe (within 20 business days)</span></p></td></tr><tr><td rowspan="2" style="width:142.2pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="page-break-inside:avoid"><span></span></p><p style="page-break-inside:avoid"><span>ADI</span><span> is operating under Basel II APS 114 standardised approach, but has applied to adopt AMA approach for most (but not all) of its operations (or APRA has indicated that it does not propose to grant AMA approval in respect of all of the </span><span>ADI</span><span>’s operations)</span></p></td><td style="width:147.45pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="page-break-inside:avoid"><span></span></p><p style="page-break-inside:avoid"><span>Report under the </span><span>f</span><span>orm (for purposes of calculating operational risk component of regulatory capital</span><span> for all of its operations</span><span>)</span></p><p style="page-break-inside:avoid"><span></span></p></td><td style="width:98.65pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="page-break-inside:avoid"><span></span></p><p style="page-break-inside:avoid"><span>“Bank – Standardised” timeframe (within 20 business days)</span></p><p style="page-break-inside:avoid"><span></span></p></td></tr><tr><td style="width:147.45pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p><span></span></p><p><span>Separately report under the </span><span>f</span><span>orm in respect of operations that will remain under the standardised approach (i.e. partial use) after AMA approval given (for purposes of assessing prospective operational risk component of regulatory capital calculation after AMA approval</span><span> (i.e. “parallel run” of data)</span><span>)</span></p><p><span></span></p></td><td style="width:98.65pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p><span></span></p><p><span>“Bank – Advanced or Applicant Advanced” timeframe (within 30 business days)</span></p></td></tr><tr><td style="width:142.2pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p><span></span></p><p><span>ADI</span><span> </span><span>has AMA approval, but some operations remain under Basel II standardised approach</span></p><p><span></span></p></td><td style="width:147.45pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-left:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p><span></span></p><p><span>Report under the </span><span>f</span><span>orm in respect of operations that remain under standardised approach </span><span>(for purposes of calculating partial use operational risk component of regulatory capital)</span></p><p><span></span></p></td><td style="width:98.65pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p><span></span></p><p><span>“Bank – Advanced or Applicant Advanced” timeframe (within 30 business days)</span></p></td></tr></tbody></table>
These ADIs will also have certain reporting obligations under Forms ARF 115.0A to ARF 115.0C Advanced Measurement Approaches to Operational Risk.
Unit of measurement
This form should be completed in Australian dollars (AUD) and in accordance with the units set out for each class of ADI in the table below.
Class of ADI
Units
Bank – Advanced or Applicant Advanced
Millions of dollars rounded to one decimal place
Bank – Standardised
Millions of dollars rounded to one decimal place
Branch of a Foreign Bank
Not applicable
Building Society
Whole dollars with no decimal place
Credit Union
Whole dollars with no decimal place
Specialist Credit Card Institution (SCCI)
Whole dollars with no decimal place
Provider of Purchased Payment Facilities
Not applicable
Other ADI
Whole dollars with no decimal place
An immediate parent NOHC must complete this form in AUD and in accordance with the same units as its subsidiary ADI.
Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates.
Specific instructions
The following instructions are applicable at Level 1 and (where relevant) Level 2.
Section A: Operational risk regulatory capital for retail banking
The operational risk regulatory capital for the retail banking area of business is determined using a proportion of an ADI’s total gross outstanding loans and advances for retail banking as an indicator of the area’s operational risk exposure.
1.1 Total gross outstanding loans and advances for retail banking
Report the last six consecutive half-yearly balances[10] of total gross outstanding loans and advances for the retail banking area of business.
Total gross outstanding loans and advances for this area of business is calculated as the total of on-balance sheet exposures to the following items:
(a) cash holdings of notes and coins; and
(b) loans to households comprising:
(i) housing loans;
(ii) revolving credit;
(iii) credit cards;
(iv) leasing; and
(v) other personal term loans (including margin lending facilities).
For reporting at Level 2, an ADI may map these data items to the relevant on-balance sheet items reported in the version of Form ARF 112.1A Standardised Credit Risk – On-balance Sheet Assets (ARF 112.1A) designated for an ADI reporting at Level 2.
Exclude the balances of loans and advances that meet the operational requirements for regulatory capital relief outlined in APS 120, and are therefore excluded from the calculation of RWA under APS 120.
1.2 Total operational risk regulatory capital for retail banking
Derived field that calculates the total operational risk regulatory capital for the retail banking area of business, in accordance with APS 114.
Section B: Operational risk regulatory capital for commercial banking
The operational risk regulatory capital for the commercial banking area of business is determined using a proportion of an ADI’s total gross outstanding loans and advances for commercial banking as an indicator of the area’s operational risk exposure.
2.1 Total gross outstanding loans and advances for commercial banking
Report the last six consecutive half-yearly balances[11] of total gross outstanding loans and advances for the commercial banking area of business.
Total gross outstanding loans and advances for this area of business is calculated as the total of on-balance sheet exposures to the following items:
(a) amounts, including all deposits, due from financial institutions including:
(i) Reserve Bank of Australia, central banks, banks, other ADIs, Registered Financial Corporations.
(b) gross book value of securities (including all debt securities) held in the banking book (refer to APS 114); and
(c) commercial lending, comprising loans and advances to:
(i) private and public trading corporations;
(ii) private unincorporated businesses and community service organisations;
(iii) ADIs and other financial institutions; and
(iv) government.
For reporting at Level 2, an ADI may map these data items to the relevant on-balance sheet items reported in the version of ARF 112.1 designated for an ADI reporting at Level 2.
Exclude:
(a) funded positions with respect to corporate finance activities (refer to APS 114);
(b) the balances of loans and advances that are excluded from risk-weighted assets under APS 120; and
(c) the gross book value of securities arising from the ADI’s involvement in corporate finance related activities and those that are deducted from capital pursuant to Prudential Standard APS 111 Capital Adequacy: Measurement of Capital.
2.2 Total operational risk regulatory capital for commercial banking
Derived field that calculates the total operational risk regulatory capital for the commercial banking area of business, in accordance with APS 114.
Section C: Operational risk regulatory capital for all other activity
The operational risk regulatory capital for the all other activity area of business is determined using a proportion of an ADI’s gross income, adjusted to exclude income primarily relating to retail banking and commercial banking (adjusted gross income)[12] as an indicator of the area’s operational risk exposure.
An ADI must include, in the all other activity area of business, income (including net interest income and servicing activities) from its involvement in securitisation, trading and corporate finance activities. For trading activities, net income includes profits and losses on instruments held for trading purposes, net of funding costs, plus fees from wholesale broking.
Report the last six consecutive half-yearly amounts[13] for the following items:
3.1 Total operating income from continuing operations
Report the amount for total operating income from continuing operations, as reported on Form ARF 330.0 Statement of Financial Performance (Licensed or Consolidated).
LESS
In this section, items 3.1.1 and 3.1.2 are deducted from item 3.1 to arrive at an adjusted gross income figure in item 3.2.
3.1.1 Adjustments relating to the retail banking and commercial banking areas of business
Include adjustments primarily relating to the retail banking and commercial banking areas of business. Refer to Prudential Practice Guide APG 114 Standardised Approach to Operational Risk for examples of the types of adjustments that may be made in relation to the retail banking and commercial banking areas of business.
3.1.2 Other adjustments
Include any other adjustments not already included in item 3.1.1.
3.2 Adjusted gross income
Derived field calculated as item 3.1 less items 3.1.1 and 3.1.2.
3.3 Total operational risk regulatory capital for all other activity
Derived field that calculates the total operational risk regulatory capital for the all other activity area of business, in accordance with APS 114.
Section D: Operational risk regulatory capital summary
Total operational risk regulatory capital
Derived field that totals the operational risk regulatory capital for the retail banking, commercial banking and all other activity areas of business, in accordance with APS 114.
RWA equivalent amount for operational risk regulatory capital
Derived field that converts the total operational risk regulatory capital to a RWA equivalent amount by multiplying the Total operational risk regulatory capital by 12.5.