APRA has proposed further changes to its own prudential standard on leverage ratio requirements for Australia's authorised deposit-taking institutions. As APRA explained in a letter sent yesterday to Australia's ADIs: "The leverage ratio requirement is a key component of the global bank capital reforms and is designed to complement the risk-based capital framework by limiting the amount of debt that can be used to fund bank lending."The proposals outlined in the letter relate solely to the leverage ratio requirement for those ADIs that apply the internal ratings-based approach to credit risk. This follows a year-long consultation over a draft prudential standard on capital adequacy and a draft leverage ratio reporting standard, released in November 2018. APRA's letter to ADIs yesterday also set out further amendments that incorporated recent technical changes to the Basel Committee on Banking Supervision's leverage ratio standard. Australia's prudential regulator said it was proposing to adopt the Basel Committee's revised treatment for client cleared derivatives, and has explained how it believes these changes will apply in this jurisdiction. Here, the most noteworthy point for ADIs is that the revised treatment from the BCBS allows banks to apply the standardised approach to measuring counterparty credit risk to their client exposures (known as SA-CCR). From 1 July 2019, SA-CCR replaced CEM for the purpose of calculating counterparty credit risk capital requirements in the risk-based capital framework.The amendment therefore aims to simplify the leverage ratio calculation, so as not to discourage banks from providing client clearing services. In effect, the calculation of the leverage ratio as a minimum capital requirement requires IRB ADIs to calculate counterparty credit risk for derivative exposures using a modified version of SA-CCR. APRA has stated it will allow IRB ADIs to adopt modified SA-CCR early for the purpose of their leverage ratio disclosures under Prudential Standard APS 330, in order to avoid the need to run two series of calculations. ADIs that intend to adopt modified SA-CCR early will need to seek APRA's prior approval, and provide APRA with an outline of their implementation and testing process. "This is a transitional issue that will be resolved from 1 January 2022, at which time all IRB ADIs will be required to use modified SA-CCR to meet both the minimum capital and public disclosure leverage ratio requirements," APRA stated. APRA had previously proposed that IRB ADIs report their leverage ratios to APRA on the basis of a daily average of all exposure measure components. This proposal sought to reduce any incentives IRB ADIs might have to engage in window-dressing behaviours - that is, artificially increasing reported leverage ratios at the end of the quarter by temporarily reducing transaction volumes in financial markets (particularly derivative and securities financing transaction markets). Industry respondents were not supportive of APRA's proposal, claiming that this introduced a disproportionate regulatory burden relative to the stated aims of the leverage ratio as a backstop measure.APRA's response has been to follow the BCBS approach, which requires banks calculate daily average values for SFTs only; all