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Introduction
FINANCIAL SERVICES LEGISLATION
RULES
BANKING BUSINESS PRUDENTIAL RULES
Initial and ongoing capital requirements
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Introduction

Guidance

(1) This Chapter deals with management of Group Risk exposure of a Bank. Group Risk refers to the risk of potential losses incurred by a Bank on account of its relationship with other members of its Financial Group, if it were to be part of one.

(2) This Chapter includes requirements that a Bank implement:

(3) This Chapter also includes requirements limiting Financial Group exposures.

(4) The detailed requirements specifying the calculation methodologies, parameters, and guidance in respect of the primary rule requirements outlined in this Chapter are provided in Chapter 10 of the Banking Prudential Guideline (BPG) issued by the AFSA. It is suggested that this Chapter of the BBR, be read in conjunction with Chapter 10 of the BPG issued by the AFSA, to facilitate understanding of the regulatory requirements and compliance with them.

10.1 Financial Group – definition

(1) The AFSA may require a Bank to:

  • (a) form a Financial Group with any other entity within its Group; or
  • (b) include within its Financial Group any other entity within its Group;where the AFSA considers it necessary or desirable to do so in the interests of effectivesupervision of the Bank.

(2) A Bank may, for the purposes of this section, exclude from its Financial Group any entity the inclusion of which would be misleading or inappropriate for the purposes of Financial Group supervision, provided the Bank has obtained the AFSA’s prior written approval.

(3) A Bank must provide to the AFSA, if requested, any of the following information in relation to its Group or Financial Group:

10.2 Group Risk – Systems and Controls

(1) A Bank that is a member of a Group must establish and maintain systems and controls for the purpose of:

  • (a) monitoring the effect on the Bank of:
  • (i) its relationship with other members of its Group;
  • (ii) its membership in its Group; and
  • (iii) the activities of other members of its Group;
  • (b) monitoring compliance with Financial Group supervision requirements below, including systems for the production of relevant data;
  • (c) monitoring funding within the Group; and
  • (d) monitoring compliance with Financial Group reporting requirements.

(2) A Bank must have systems and controls to enable it to determine and monitor:

(3) Such systems and controls referred in (2), must include an analysis of:

(4) A Bank’s Governing Body must ensure that the Bank’s group risk management policy addresses, on a group-wide basis, all risks arising from the Bank’s relationship with every other member of its group.

10.3 Financial Group Capital Requirement

(1) The Financial Group Capital requirements specified in this rule does not apply to a Bank if:

  • (a) the Bank’s Financial Group is already the subject of Financial Group prudential supervision by the AFSA as a result of the authorisation of another Financial Group member;
  • (b) the AFSA has confirmed in writing, in response to an application from the Bank, that it is satisfied that the Bank’s Group is the subject of consolidated prudential supervision by an appropriate regulator; or
  • (c) except where the AFSA has directed the inclusion of an entity pursuant to Rule 10.1, the percentage of total assets of Banks and Financial Institutions in the Financial Group is less than 40% of the total Financial Group assets.

(2) If a Bank receives confirmation in writing from the AFSA in accordance with (1)(b) above, it must immediately advise the AFSA in writing if there is any change in the circumstances upon which such a confirmation was based.

(3) The regulatory capital ratios specified in Rule 4.12, which applies to a Bank, also apply to its Financial Group. A Bank forming part of a Financial Group, must ensure that its Financial Group meets or exceeds the minimum level of regulatory capital ratios, as defined in Rule 4.12, calculated on a consolidated basis for the entire Financial Group.

(4) A Bank must ensure at all times that its Financial Group capital resources exceed its Financial Group capital requirement.

(5) For the purpose of (3) above, Financial Group capital resources and Financial Group capital requirement must be calculated for the Financial Group as a whole, using the methods specified in Chapter 4 of BBR.

(6) An Bank must calculate its Financial Group Capital Requirement by applying the accounting consolidation method, which calculates the Capital Requirement of the Financial Group based on the Financial Group’s consolidated financial statements, and using applicable prudential rules in BBR. For the purposes of this rule, the consolidated financial statements of the Financial Group must be prepared in accordance with International Financial Reporting Standards.

(7) A Bank must calculate its Financial Group Capital Resources by applying either of the following methods:

(a) the accounting consolidation method, which calculates the Capital Resources of the Financial Group based on the Financial Group’s consolidated financial statements; or

(b) the aggregation method, which is the sum of:

(8) In calculating its financial group capital resources, the Bank must not include capital resources or adjusted capital resources (as the case may be) of subsidiaries or participations of that group to the extent that those capital resources or adjusted capital resources exceed the capital requirement for that Subsidiary or participation and are not freely transferable within the group.

(9) Deductions for Qualifying Holdings under Rule 4.29 may be calculated based on the Financial Group’s total T1 and T2 Capital.

10.4 Financial Group Concentration Risk limits

(1) Unless the AFSA directs otherwise, a prudential limit imposed in the BBR rules that applies to a Bank, also applies to the Bank’s Financial Group.

(2) A Bank must ensure that its Financial Group’s Exposure, to a Counterparty or group of Closely Related Counterparties does not exceed 25% of its Financial Group’s Capital Resources.

(3) A Bank must ensure that the sum of its Financial Group Large Exposures, to a Counterparty or group of Closely Related Counterparties does not exceed 800% of its Financial Group’s Capital Resources.