Regulation Impact Statement Updates

Official website for publishing regulatory impact analysis information for regulatory decisions announced by the Australian Government, COAG and COAG Councils.

Revised Framework to Allow Mutually Owned ADIs to Issue Instruments That May Be Included in Common Equity Tier 1 Capital

Aust Gov
19th December 2017

Independent Review – Australian Prudential Regulation Authority

On 30 November 2017, the Australian Prudential Regulation Authority released its revised framework to allow mutually owned authorised deposit-taking institutions (ADIs) to directly issue instruments that may be included in Common Equity Tier 1 (CET1) capital.

The revised Prudential Standard 111 Capital Adequacy: Measurement of Capital (APS 111) allows mutually owned ADIs (credit unions, building societies and mutual banks that are owned by members rather than shareholders) to directly issue mutual equity interests that could qualify as CET1 capital. The revised framework enhances flexibility in capital management for mutually owned ADIs and improves competition by providing mutually owned ADIs with access to an alternative source of CET1-eligible instruments that are equivalent to ordinary shares issued by shareholder-owned ADIs.

APRA certified that its process and analysis in developing the revised framework undertaken through the public discussion paper, Common Equity Tier 1 capital instruments for mutually owned ADIs and subsequent response to submissions paper is an independent review equivalent to a Regulation Impact Statement (RIS) as set out in The Australian Government Guide to Regulation. The Office of Best Practice Regulation (OBPR) does not assess independent reviews.

APRA was assessed as compliant with the Australian Government RIS requirements, but not best practice by the Office of Best Practice Regulation (OBPR). APRA did not follow best practice, because APRA’s self-assessment of the independent review was not submitted to the OBPR before the release of the revised APS 111.

APRA estimated the average annual regulatory cost at $10,000 per annum across all ADIs who choose to issue CET1-eligible capital instruments. The OBPR agreed to APRA’s regulatory burden estimate.

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