The Australian Prudential Regulation Authority (APRA) has released a discussion paper on adding a third tier to its banking prudential framework to support competition from small and medium banks.
Under the existing framework, banks are classified as either significant or non-significant financial institutions.
Significant financial institutions (SFIs) must comply with additional or heightened requirements in some areas relative to non-SFIs.
APRA has proposed creating a new tier of Most Significant Financial Institutions (MSFIs) for banks with more than $300 billion in assets. This would currently comprise the four major banks and Macquarie Bank.
The second tier would cover all other banks that are SFIs, with the SFI threshold raised from $20 billion to $30 billion.
The third tier, being non-SFIs, would include all remaining banks.
Non-SFIs would be given additional time to comply with new or revised requirements, where appropriate, compared to banks in the other tiers.
APRA is also working closely with Treasury on a possible special regime for the smallest ADIs (a fourth tier), which would further reduce regulatory requirements for this cohort.
APRA also recognises that banks move between tiers from time-to-time whether through growth or merger and acquisition. APRA proposes to provide all banks a transition period of at least 12 months to comply with higher prudential settings should they move to a higher tier.
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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.
