Tag: Pre-trade Management

APRA finalises changes to phase out Additional Tier 1 capital instruments

The Australian Prudential Regulation Authority (APRA) has finalised consequential amendments to its bank prudential framework to phase out Additional Tier 1 (AT1) capital instruments – also known as hybrid bonds – as eligible regulatory capital.

Background

On 21 September 2023, APRA had released a discussion paper on the challenges of using AT1 capital instruments in a potential bank stress scenario in an Australian context. This came after the Council of Financial Regulators (CFR) had flagged that ‘international experience has highlighted the importance of crisis management tools, including Additional Tier 1 capital operating as intended and guarantee schemes being able to provide depositors timely access to funds’.

On 10 September 2024, APRA released a discussion paper that outlined potential amendments to APRA’s prudential framework to ensure that the capital strength of the Australian banking system operates more effectively in stress. This included proposing to replace bank-issued AT1 capital instruments with more reliable and effective forms of regulatory capital.

In December of last year, APRA had confirmed its decision to phase out AT1. That was accompanied by a letter whose purpose it was to confirm APRA’s approach, minimise uncertainty, and to support an orderly transition. Among others, APRA made clear that it would further consider the impact of the removal of AT1 on other prudential requirements and determine whether any amendments should be proposed.

On 8 July of this year, APRA had released a consultation paper on implementing APRA’s decision to phase out AT1 capital instruments. The paper also proposed consequential amendments to APRA’s prudential and reporting frameworks.

Today, APRA confirmed that existing AT1 will be phased out gradually to ensure an orderly transition and limit any immediate impacts on issuers or investors. APRA expects all AT1 issued by banks to be phased out by 2032.

There will be no changes to the existing legal terms, including subordination, of these outstanding instruments.

The regulator also made the accompanying changes to its prudential framework to facilitate the transition, including a reduction of the minimum leverage ratio requirement from 3.5 to 3.25%, measured on a Common Equity Tier 1 (CET1) capital basis, in order to avoid consequential tightening of the minimum leverage ratio. The new prudential standards and guidance will come into effect on 1 January 2027. APRA expects banks to be compliant with the updated reporting requirements for the March 2027 quarter reporting period.

The anticipated benefits of the phasing out of AT1 are:

• improved stabilization in a crisis and reduced contagion risk. International experience has shown that AT1 capital does not fulfil a stabilizing function in a crisis due to the complexities of using it and the risk of causing contagion;
• enhanced proportionality by lowering the cost of capital for smaller banks relative to larger banks; and
• reduced compliance costs for banks by simplifying the framework and removing a capital instrument that can impose additional design, marketing and issuance costs, particularly for small banks.

APRA will allow banks to replace AT1 predominantly with cheaper and more reliable forms of capital that would absorb losses more effectively in times of stress.

UAE enacts new AML law

The UAE has issued a new AML/CTF law, replacing the 2018 framework, and introducing significant updates to the UAE’s legal framework on AML/CFT and proliferation financing. It aligns the UAE’s laws more closely with Financial Action Task Force (FATF) standards and addresses identified gaps in risk-based supervision, enforcement powers, and virtual asset regulation. The law strengthens institutional coordination, clarifies liability for legal persons, and enhances the capacity for both domestic and international cooperation.

Key points and proposals

• Broader Definitions: Expanded definitions of money laundering, predicate offences (including tax crimes), and proliferation financing (Art. 2–3).
• Legal Person Liability: Legal persons are now directly liable for AML/CFT offences committed in their name or interest (Art. 4, 27).
• Virtual Assets: Explicit coverage of virtual assets and service providers, including reporting and licensing requirements (Art. 1, 19–20, 30).
• Beneficial Ownership: Strengthened transparency and disclosure obligations for beneficial owners, including criminal penalties for non-compliance (Art. 19, 35).
• Expanded Enforcement Powers: The Financial Intelligence Unit and law enforcement are granted enhanced powers for freezing, seizure, and undercover operations (Art. 5–9).
• Administrative Penalties: Supervisory authorities can impose fines up to AED 5 million per violation, with revocation of licenses for repeat or serious breaches (Art. 17).
• International Cooperation: Provisions facilitate rapid exchange of information and recognition of foreign confiscation orders (Art. 21–22).

Implications and next steps

The law entered into force two weeks after its publication (i.e. mid-October 2025). Executive Regulations will follow via Cabinet resolution to clarify implementation details. Businesses—especially financial institutions, DNFBPs, and virtual asset service providers—must prepare for stricter supervision, enhanced due diligence obligations, and proactive reporting requirements. Legal entities should update internal controls and compliance programs to align with the new law.

The NZFMA updates insider trading guidance

The FMA issues a revised educational information sheet on insider trading

The revised sheet replaces a previous report dated August 2025 and seeks to support stronger practice on insider trading across the investment industry, following industry engagement.

Further details

In its mid-year Financial Conduct Report, the FMA had signalled its concerns regarding insider trading, following a steady increase in insider trading referrals from NZ RegCo.

The information sheet outlines the view of the FMA on how the statutory prohibitions against insider trading under the Financial Markets Conduct Act 2013 may apply to situations where a person trades in a listed issuer (B) while in possession of non-public information relating to another listed issuer (A) – a practice sometimes referred to as ‘shadow insider trading’.

It replaces a previous report dated August 2025 titled ‘Shadow Insider Trading: Regulatory expectations and emerging conduct risk’.

Stated Louise Unger, Executive Director for Response and Enforcement:

“This information sheet is informed by industry feedback on the FMA’s approach following inquiries made by the FMA earlier in the year into the trading conduct of two institutional investors. The FMA decided to take an educative approach, rather than an intervention, to clarify for industry how the insider trading prohibitions may apply in these types of circumstances. We do not want the safeguards around this type of insider trading to deter legitimate market activity.

The updated November information sheet includes risk mitigation strategies that may help investors manage their risk.”

Key takeaways

• ASIC’s role is to ensure consumer credit protections are universally applied and enjoyed. Therefore, ongoing work to examine compliance across the sector continues to be a priority.
• Specific areas of focus include mortgage brokers, motor vehicle finance, financial hardship, debt management, credit repair and debt collection.
• As a key enforcement priority, ASIC is closing loopholes that enable business models to avoid consumer credit protections and is closing in on the businesses who seek to exploit them.
• ASIC continues to take action across the spectrum, wherever it sees credit-related misconduct. Entities whose conduct causes harm to consumers – or harm to their financial futures – should expect ASIC to take an active interest.
• ASIC’s concern is with outcomes – not the type of credit, or the type of business involved.

South Africa advances OTC derivatives reform with new exemption framework

Summary

South Africa’s twin-peak regulators (the FSCA and PA) have issued Joint Standard 1 of 2025, advancing Phase 2 of OTC derivatives reform. The standard allows recognised foreign CCPs and trade repositories, mainly from equivalent jurisdictions (EU, UK, US), to apply for exemptions from local FMA licensing, avoiding duplicate regulation. It builds South Africa’s central clearing framework, balancing market access with systemic-risk oversight. 

Purpose

• Provides the framework to allow foreign market infrastructures from equivalent jurisdictions (e.g., EU, UK, US) to be exempted from domestic licensing and regulatory requirements.
• The standard is a key step in Phase 2 of the Joint Roadmap for Central Clearing, complementing the broader equivalence framework and licensing regime for both local and external CCPs and TRs. 

Insights from the Consultation Report

The Consultation Report (August 2025) provides transparency on the feedback process and regulator responses, from organisations such as BASA, JSE, and SAIS.

Main Issues Raised

• Fairness to local entities: Stakeholders questioned whether foreign CCPs/TRs could operate on lighter terms than domestic ones.
  • The FSCA/PA clarified that foreign entities face equivalent or stricter requirements, as exemptions only apply after formal equivalence assessments and compliance with international standards.
• Local presence concerns: Some advocated that external CCPs/TRs maintain a South African legal presence to mitigate systemic risk.
  • The Authorities disagreed that this should be a blanket requirement but noted they could impose local presence conditions on a case-by-case basis.
• Systemic risk and oversight: JSE and SAIS raised concerns about loss of supervisory control, regulatory arbitrage, and data privacy.
  • The regulators emphasized that MOUs and continuous monitoring mechanisms under the FMA will ensure cooperation, data exchange, and oversight parity.
• Timing and coordination: Some argued the framework was premature given pending reforms under the proposed COFI Bill and the FMA Review.
  • The regulators responded that this Joint Standard was a G20-mandated prerequisite and part of a phased rollout of South Africa’s central clearing regime.
• Market fragmentation: Concerns that multiple CCPs might fragment liquidity or create unequal competition.
  • The regulators replied that competition could instead enhance efficiency and reduce concentration risk, provided consistent regulation is applied.

The RBNZ opens a consultation on the use of the word ‘bank’ under the Deposit Takers Act 2023 (DTA)

The consultation paper proposes expanding the use of the word ‘bank’ to all deposit takers that become licensed under the DTA. This could include entities that are currently licensed as non-bank deposit takers (NBDTs). 

Background

• The DTA modernises New Zealand’s regulatory framework for deposit takers. The DTA will replace existing prudential legislation with a single regulatory regime for all deposit takers.
• Its standards are expected to come into effect on 1 December 2028. 
• The Reserve Bank of New Zealand (Reserve Bank) has the power to authorise persons to use a restricted word in their name or title. Restricting the use of the word ‘bank’ is a standard feature of prudential regulation for deposit taking activity internationally.
• The paper seeks feedback on:
  • a proposal to authorise the use of the term ‘bank’ by all licensed deposit takers under the DTA
  • continuing our current approach to authorising the use of the word ‘bank’ in New Zealand for overseas banks not licensed by the Reserve Bank.

• Proposals for a second tranche of DTA regulations have been released for consultation alongside the consultation paper. These include proposed regulations that will affect the ‘perimeter’ of the DTA, which determines the types of entities that can become licensed deposit takers and therefore, subject to final policy decisions, potentially be authorised to use a restricted word in their name. 

Next steps

Submissions will close at 5PM on 24 November 2025. Final decisions are expected to be announced in early 2026.

Canadian Superintendent outlines priorities for financial regulation

Canadian Superintendent of Financial Institutions (OSFI) Peter Routledge gave a speech highlighting the resilience of Canada’s financial system as evidenced by significant capital buffers while emphasising the role OFSI plays to promote innovation and ease burdens in the Canadian market. 

Context

The speech comes as OSFI continues to recalibrate its regulatory approach post-pandemic, balancing resilience with competitiveness. Routledge stated that Canada has not had a deposit-taking institutional fail since 1996 while the U.S. banking system has absorbed over 500 failures in the same period, giving OFSI room to adjust its risk appetite. 

Key takeaways

• Resilience: Canadian banks’ CET1 ratios average 13.7%, leaving ~$500bn in lending headroom before breaching capital minimums; insurers’ core capital ratios are up 13% in six years.
• Proactive Supervision: OSFI will continue modernizing its framework, rescinding outdated guidelines, adjusting risk-weightings, and consulting on capital treatment of certain loans to support business lending.
• Competitive Balance: OSFI paused increases in the Basel III output floor earlier in 2025 to aid international competitiveness and announced a reduction in capital requirements for Canadian infrastructure debt and equity investments made by OFSI-regulated life insurers. 
• Innovation and Market Entry: OSFI will revamp its approvals process to ease entry for new banks and support digital innovation (e.g., stablecoins, distributed ledger products) under the principle of “same activity, same risk, same rules.”

Next steps

OFSI will provide further details in November 2025 on easing burdens for smaller institutions.

• OSFI will consult on the capital treatment of certain loans to encourage business lending by banks.
• A streamlined approvals process for new banking entrants will be developed, alongside a risk-based framework for digital financial innovations.