APRA getting tougher on securitisation rules

The Australian Prudential Regulation Authority (APRA) has warned Australian banks, insurance companies and superannuation funds that it has become "considerably less tolerant" of their use of securitisation transactions.

APRA general manager policy, research and statistics Charles Littrell has used an address to the Australian Securitisation Forum this week to make clear the regulator's concern, but adding that APRA believes securitisation is "more useful than dangerous".

"But we have become considerably less tolerant of the over-complication that crept into this financial product," he said. "We also observe that some ADIs have developed the habit of following the letter, not the spirit, of the prudential requirements applicable to securitisation."

Littrell said APRA had undertaken a review of industry compliance with the requirements around securitisation and what it had found was not pleasing, with some in the market appearing to have adopted an approach of "what the rules allow" rather than "what is economically sensible".

"APRA regards the basic concessions in securitisation, the ability to remove all capital requirements on the underlying assets, and the permission to pledge assets, as extraordinary benefits," he said. "We do not propose to award these benefits to structures and issuers that do not merit them."

Littrell pointed to APRA next year carrying out a complete review of its arrangements around securitisation. It suggested that any reforms were likely to feature a simpler approach but with more supervisory flexibility.