Document ID: chunk:federal_register_of_legislation:F2022L01576:body:0:p18
Version: federal_register_of_legislation:F2022L01576
Segment Type: other
Provision Reference: 
Character Range: 48533–51650

provide a report to APRA on all or a particular aspect of the ADI's credit risk management, including provisioning practices. APRA may, however, request such a report without prior consultation with an ADI. APRA may set the terms of the review and at the ADI's expense.

Attachment A – Collateral valuation
     1. Collateral can include guarantees, insurance arrangements and, importantly, security held over various forms of assets. This Attachment applies to all forms of collateral, including all types of assets taken as security. An ADI must apply this Attachment, having regard to the nature and type of security held.
     2. An ADI must ensure that assets to be taken as security are accurately identified and documented in exposure documentation. An ADI must ensure that the relevant legal requirements are met to maintain the ADI's security position and to provide for its enforcement. This includes the ADI confirming that:
       (a)          the borrower has, or will have when the exposure is extended, clear title to the assets;
       (b)          the characteristics of the collateral are as they have been represented; and
       (c)          assets serving as collateral, where relevant, are appropriately insured at the time of origination and this insurance is maintained under the contractual terms of the exposure.
3.             Valuation of security must be undertaken on any exposure prior to drawdown and, where appropriate, an on-going basis.
4.             In the event that the fair value of security is based on observable market values, an ADI's policies and processes must have regard to:
       (a)          when observable market prices would be used;
       (b)          the basis for selecting the market prices to be used;
       (c)          the impact of market liquidity on the pricing of assets and the timing of their disposal; and
       (d)          costs which would arise in accessing and disposing of assets held as collateral.
5.             In determining the fair value of security, an ADI may utilise the valuations of suitably qualified internal appraisers, external valuers or automated valuation methods. Policies and processes covering the fair value of security must address the circumstances in which such valuations would be sought.
6.             Where an ADI uses valuations from internal appraisers, it must have policies and processes which address:
       (a)          when valuations would be provided by internal appraisers to remove the potential for real or perceived conflicts of interests which may affect the valuations; and
       (b)          the qualifications and experience required of internal appraisers when undertaking valuations.
7.             If an ADI relies on external expertise for its security valuation needs, it must establish robust selection and review mechanisms. Factors that must be considered in the selection process include:
       (a)          professional qualifications required;
       (b)          relevant experience, including local knowledge;
       (c)          breadth of expertise to cover both standard and