Our thoughts on the Revised APS 120

On 11 July 2007 APRA released a final draft of APS 120 which aims to incorporate the Basel II Framework and other market-related amendments into the existing prudential framework for securitisation.

In summary, some of the changes APRA has made in the revised draft are positive and address a number of the comments made in submissions to APRA on the November 2006 draft. Highlights include:

• the introduction of a self assessment regime for ADIs involved in securitisation
• a narrowing of the scope of the "originating ADI" concept
• changes made to the application of a maximum capital charge in relation to securitised pools
• a clarification of the requirements in relation to the replacement of ADIs providing facilities or services to an SPV
• a clarification of the treatment of cash collateral facilities; and
• removal of the requirement for certain legal opinions to be obtained in connection with a securitisation.

A number of new provisions have been inserted or provisions from the November 2006 draft retained which, if introduced without amendment, will present real challenges to ADIs involved in securitisation. Examples of these provisions include:

• the limited transitional arrangements proposed by APRA
• the treatment of warehouse facilities
• the still expansive definition "originating ADI"
• the new restrictions on threshold rate provisions
• the tightening of restrictions on clean-up calls; and
• the prohibition on the subordination of servicing or management fees.

Attached is the briefing paper we have prepared in relation to the revised draft.