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Banking (prudential standard) determination No. 5 of 2023

Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk

Banking Act 1959

I, Clare Gibney, a delegate of APRA:

(a)               under subsection 11AF(3) of the Banking Act 1959 (the Act) REVOKE Banking (prudential standard) determination No. 12 of 2022, including Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk made under that determination; and

(b)               under subsection 11AF(1) of the Act DETERMINE Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk, in the form set out in the schedule, which applies to all ADIs and authorised NOHCs to the extent provided in paragraphs 2 to 4 of the prudential standard.

This instrument commences on 1 January 2024.

Dated: 21 November 2023

Clare Gibney

Executive Director

Policy and Advice Division

Interpretation
In this instrument:

APRA means the Australian Prudential Regulation Authority.

ADI and authorised NOHC have their respective meanings given in section 5 of the Act.

Schedule

Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk comprises the document commencing on the following page

Prudential Standard APS 180

Capital Adequacy: Counterparty Credit Risk
Objectives and key requirements of this Prudential Standard
This Prudential Standard requires an authorised deposit-taking institution to adopt risk management practices and hold sufficient regulatory capital for counterparty credit risk exposures arising from over-the-counter derivative transactions, exchange-traded derivative transactions, securities financing transactions and long settlement transactions.
The key requirements of this Prudential Standard are that an authorised deposit-taking institution must:
     * calculate counterparty credit risk exposure amounts according to the standardised approach for measuring counterparty credit risk exposures or the adjusted current exposure method;
     * apply risk weights to counterparty credit risk exposure amounts for capital adequacy purposes;
     * where applicable, calculate and hold a credit valuation adjustment risk capital charge;
     * where applicable, calculate and hold a default fund capital charge for default fund contributions to a qualifying central counterparty; and
     * adopt risk management practices for bilateral and centrally cleared counterparty credit risk exposures.

Table of contents

Authority
Application
Interpretation
Definitions
Key principles
Risk-weighting approach
Historical rate rollovers
Adjustments and exclusions
Previous exercise of discretion
Attachment A — Counterparty credit risk requirements for bilateral transactions
Attachment B — Counterparty credit risk requirements for centrally cleared transactions
Attachment C — Capital charge for default fund exposure to a QCCP
Attachment D — The standardised approach for measuring counterparty credit risk exposures (SA-CCR)
Attachment E — The adjusted current exposure method (adjusted CEM)

Authority
     1. This Prudential Standard is made under section 11AF of the Banking Act 1959 (the Banking Act).

Application
2.             This Prudential Standard applies to all authorised deposit-taking institutions (ADIs) with the exception of:
(a)          foreign ADIs;
(b)          purchased payment facility providers; and
(c)          non-significant financial institutions.