2 June 2014

Providing certainty for contractual loss absorption provisions in regulatory capital

The Government is today releasing a discussion paper on the technical amendments required to enable the effective operation of prudential requirements on loss absorption provisions.

These provisions ensure capital instruments are able to absorb losses in the unlikely event a financial institution enters into financial distress and reduce the need for taxpayer support.

As part of the Basel III capital reforms, the Australian Prudential Regulation Authority introduced new loss absorbency criteria for regulatory capital instruments in January 2013.

This discussion paper proposes technical amendments to the Corporations Act 2001 required to ensure these regulatory capital instruments operate as intended.

The discussion paper also seeks comment on the proposed approach to removing potential limitations on triggering contractual loss absorption provisions.

The discussion paper is available on the Treasury website.

Submissions close on 30 June 2014.