APRA to simplify mortgage securitisation rules

The prudential regulator has revealed its plan to revise the prudential requirements by establishing a simplified framework.

APRA yesterday released a draft Prudential Standard APS 120 Securitisation (APS 120), which takes into account global reform initiatives and the lessons learned from the global financial crisis.

“One of these lessons was that securitisation structures had become excessively complex and opaque, and that prudential regulation of securitisation had become similarly complex,” the regulator said in a statement.

APRA first consulted on initiatives to simplify its prudential framework for securitisation in April 2014. Following consideration of the issues raised in submissions, APRA has amended its proposals in some areas.

The amended proposals include dispensing with a credit risk retention or ‘skin-in-the-game’ requirement, allowing for more flexibility in funding-only securitisation, and removing explicit references to warehouse arrangements in the prudential framework.

APRA said these amended proposals are expected to assist Australian banks to further strengthen their funding profile and provide clarity for banks that undertake securitisation for capital benefits.

“In December 2014, the Basel Committee on Banking Supervision (Basel Committee) released its updated securitisation framework (Basel III securitisation framework),” APRA said.

“The changes aim to enhance the Basel Committee’s existing securitisation framework and to strengthen regulatory capital standards.”

APRA’s latest proposals incorporate the new Basel III securitisation framework, with appropriate adjustments to reflect the Australian context and APRA’s objectives, and will be applicable equally to all Australian banks.

Subject to consultation on this discussion paper and draft prudential standard, APRA proposes to implement these changes in line with the Basel Committee’s effective date of 1 January 2018.

[Related: Mortgage group announces securitisation plans]

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