{"id":38950,"date":"2025-12-24T16:58:05","date_gmt":"2025-12-24T16:58:05","guid":{"rendered":"https:\/\/naijaglobalnews.org\/?p=38950"},"modified":"2025-12-24T16:58:05","modified_gmt":"2025-12-24T16:58:05","slug":"december-global-regulatory-brief-risk-capital-and-financial-stability-insights","status":"publish","type":"post","link":"https:\/\/naijaglobalnews.org\/?p=38950","title":{"rendered":"December Global Regulatory Brief: Risk, capital and financial stability | Insights"},"content":{"rendered":"

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APRA finalises changes to phase out Additional Tier 1 capital instruments<\/h2>\n

The Australian Prudential Regulation Authority (APRA) <\/span>has finalised<\/span> consequential amendments to its bank prudential framework to phase out Additional Tier 1 (AT1) capital instruments \u2013 also known as hybrid bonds \u2013 as eligible regulatory capital.<\/span><\/p>\n

Background<\/p>\n

On 21 September 2023, APRA had released a <\/span>discussion paper<\/span> on the challenges of using AT1 capital instruments in a potential bank stress scenario in an Australian context. This came after the Council of Financial Regulators (CFR) had <\/span>flagged<\/span> that \u2018international experience has highlighted the importance of crisis management tools, including Additional Tier 1 capital operating as intended and guarantee schemes being able to provide depositors timely access to funds\u2019.<\/span><\/p>\n

On 10 September 2024, APRA released a <\/span>discussion paper<\/span> that outlined potential amendments to APRA\u2019s prudential framework to ensure that the capital strength of the Australian banking system operates more effectively in stress. This included proposing to replace bank-issued AT1 capital instruments with more reliable and effective forms of regulatory capital.<\/span><\/p>\n

In December of last year, APRA had <\/span>confirmed<\/span> its decision to phase out AT1. That was accompanied by a <\/span>letter<\/span> whose purpose it was to confirm APRA\u2019s approach, minimise uncertainty, and to support an orderly transition. Among others, APRA made clear that it would further consider the impact of the removal of AT1 on other prudential requirements and determine whether any amendments should be proposed.<\/span><\/p>\n

On 8 July of this year, APRA had released <\/span>a consultation paper<\/span> on implementing APRA\u2019s decision to phase out AT1 capital instruments. The paper also proposed consequential amendments to APRA\u2019s prudential and reporting frameworks.<\/span><\/p>\n

Today, APRA confirmed that existing AT1 will be phased out gradually to ensure an orderly transition and limit any immediate impacts on issuers or investors. APRA expects all AT1 issued by banks to be phased out by 2032.<\/span><\/p>\n

There will be no changes to the existing legal terms, including subordination, of these outstanding instruments.<\/span><\/p>\n

The regulator also made the accompanying changes to its prudential framework to facilitate the transition, including a reduction of the minimum leverage ratio requirement from 3.5 to 3.25%, measured on a Common Equity Tier 1 (CET1) capital basis, in order to avoid consequential tightening of the minimum leverage ratio. The new prudential standards and guidance will come into effect on 1 January 2027. APRA expects banks to be compliant with the updated reporting requirements for the March 2027 quarter reporting period.<\/span><\/p>\n

The anticipated benefits of the phasing out of AT1 are:<\/span><\/p>\n