Charles Littrell, the Australian Prudential Regulation Authority executive general manager laid out his expected timetable for reform at the Australian Securitisation Forum in Sydney yesterday.
He told a large audience of industry professionals that changes to securitisation regulation was proceeding "somewhat more slowly than usual" for several reasons.
Topping APRA's list is the need to get the Basel III banking reforms completed; these are largely in place, with several more initiatives expected from Basel in the near future, including a global securitisation framework.
"There is also the local matter of the Financial System Inquiry, and APRA would like to see what the Inquiry has to say, if anything, about securitisation," Littrell said.
As securitisation "is a somewhat complicated proposition", and there is not a well-established global standard to follow, "it behoves both APRA and industry to take our time and get this reform right", he said.
Littrell said his best estimate was for APRA to produce a reformed APS 120 for consultation during 2015, and complete a new APS 120 during calendar 2015, with transitional provisions, summarised below:
- new transactions comply with the reformed rules from issue date;
- older transactions are either run off, closed out, or restructured as quickly as is consistent with reasonable costs; and
- no permanent grandfathering applies.
"The new prudential standard will both facilitate a larger securitisation market, and protect ADIs and depositors from some of the perils that may arise from this market," he said.
"If past experience holds, the transition of legacy transactions will require two to three years from the effective date of the new APS 120."
Littrell suggested that some current transactions may already comply with the reformed prudential standard, particularly if they are funding-only amortising structures.
Nevertheless, this short time-period to run-off securitisations - coupled with Littrell's observation that what APRA considered "reasonable time" was at odds with the industry's view - caused some consternation among the ASF crowd, although none would openly criticise the prudential regulator.