A Basel IV-Based Credit Risk Management Standard
With a focus on credit risk, the Australian Prudential Regulation Authority is revising the APRA Prudential Standard APS 220 to make the classification of credit exposures consistent with the updates planned under Basel III – often referred to as ‘Basel IV’. Under APRA Prudential Standard APS 220, authorized deposit-taking institutions (ADIs) must set a strategy that reflects their credit risk appetite and profile and maintain policies and processes for controlling or mitigating credit risk over the full credit lifecycle. The Standard also covers such areas as:
- Managing problem exposures
- Maintaining appropriate risk practices
- Reporting credit risk-weighted assets (RWA)
- Provisioning credit losses (ECL)
A New Complex Framework
In line with the global adoption of Basel IV, APRA is introducing an intricate credit-risk framework. Based on the draft version of the Standard, locally incorporated ADIs will need to calculate RWAs.
With reporting starting in April 2022, ADIs face a daunting task. They need to attain the necessary granular loan-level data and update their systems to perform the required calculations while taking into consideration the Basel credit risk framework, IFRS 9 movement attribution, and deal-level reporting with end-to-end traceability.
Amalgamation of Risk and Finance Data
Under the Standard, APRA requires ADIs to report credit-risk RWAs together with IFRS 9 ECL movements across similar reporting dimensions.
To comply, ADIs aggressively and strategically need to de-silo their risk and finance data and change their practices related to credit-risk management and reporting by: collecting larger volumes of data, increasing data granulation, sourcing and streamlining data definitions; and boosting the transparency of their calculations and traceability of their data.
Digging Deeper Into APRA Prudential Standard APS 220 – A Radical Change For ADIs
AxiomSL’s Ecosystem for APRA Prudential Standard APS 220
Automated | Modular | Transparent
Seamlessly ingests large volumes of granular data without transformation
Via the CapitalView data dictionary – Australia edition, accommodates APRA’s validation and calculation rules
Aggregates cross-functionally with detailed views on multiple criteria
Exposes complex RWA and ECL calculation and movement outputs at each step
Enables flexible model management and execution, scenario analysis, and stress testing
Complies with APRA Connect submission requirements
APRA Prudential Standard APS 220 Solution Features
Modular Flexibility
Multiple entry points enable users to flexibly align with their APS 220 evolution. ADIs already using AxiomSL’s IFRS 9 solution will be able to accelerate their APS 220 solution implementation.
Sets a foundation for ADIs to strategically transition from Basel III to Basel IV.
Data Clarity
Enables seamless ingestion of high volumes of original granular source data from upstream systems for IFRS 9 and credit RWA calculations without need of transformation.
The extensible CapitalView data dictionary architecture – Australia edition – easily accommodates client’s data.
Transparent Processes
Enables full end-to-end traceability from the source to the cells on reports. Complete data lineage enables compliance with APRA’s data quality standard RPG 702.
Process steps, business rules, and calculation logic are codified with visible regulatory rule references.
User Managed
Business and IT can adjust logic preserved in shorthand and configure business rules and calculation nuances.
Controls and permissions are found at every level, including configurable record-level data permissions.
Auditable Control
Ubiquitous data and rule drilldown allow granular inspection. Dashboards and custom reporting on calculation outputs enable monitoring and transparent analysis.
Delivers submission histories, daily point-in-time datasets, and lineage for required compliance and audit defense.
RegCloud Efficiency
Secure, scalable RegCloud provides a fully managed service that ensures ADIs have the latest regulatory rules and software.
Eliminates technology infrastructure burdens, enables operational efficiency, and reduces total cost of ownership (TCO).
APRA’s Data Modernization Program Is Moving Full Steam Ahead: It Is High Time To Prepare
By: Jessica Qiu, Vice President, Client Engagement and Su Jean Song, Product Manager, AxiomSL Australia...
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APRA Prudential Standard APS 220 Solution
Digging Deeper Into The Strategic Framework Of APS 220 – A Radical Change For ADIs
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