26 March 2025

Understanding APS 117: Managing Interest Rate Risk in the Banking Book and How Reg360 Enhances Compliance

What is APS 117?

APS 117 (Prudential Standard APS 117: Capital Adequacy – Interest Rate Risk in the Banking Book) is a key regulatory standard issued by the Australian Prudential Regulation Authority (APRA). This prudential standard is designed to ensure that authorised deposit-taking institutions (ADIs) effectively manage interest rate risk in their banking books (IRRBB), thereby maintaining financial stability and protecting depositors.

APS 117 mandates that banks measure, monitor, and disclose their interest rate risk exposures, ensuring they have adequate capital buffers to absorb potential shocks. The regulation aligns with Basel Committee standards and forms part of APRA’s broader framework for prudential risk management.

The Impact of APS 117 on Financial Institutions

Compliance with APS 117 presents several challenges for banks and ADIs, as it requires a sophisticated approach to risk measurement and capital management. Key implications include:

Enhanced Risk Measurement Requirements: ADIs must implement robust models to assess the impact of interest rate fluctuations on their capital and earnings.
Increased Regulatory Scrutiny: APRA requires detailed risk disclosures, and failure to meet compliance expectations can result in penalties and increased supervisory oversight.
Capital Management Adjustments: Banks that fall under the Pillar 1 IRRBB framework must allocate sufficient capital reserves based on their interest rate risk exposure, potentially impacting profitability and lending strategies.
Comprehensive Repricing Analysis: All banks are required to conduct repricing analyses with thorough examination of each contractual term to define repricing behaviour of the bank’s portfolio.
Data and Reporting Complexity: Institutions must collect and process large volumes of financial data to produce accurate risk assessments and regulatory reports.
Ongoing Compliance and Adaptation: As global financial regulations evolve, ADIs must continuously refine their risk management frameworks to align with APRA’s expectations.

APS 117 is a Strategic Opportunity, Not Just Compliance

Banks should view APS 117 as an enhancement to the current risk management capabilities, rather than just a regulatory obligation to avoid missed opportunities.

Behavioral Modeling is key to a long-term strategic advantage. Although not mandatory, incorporating behavioral modeling is highly recommended to strengthen risk management capabilities. By leveraging Non-Maturity Deposit modelling, prepayment modelling, and scenario analysis, banks can gain deeper insights into risk and profitability, enabling better forecasting and more proactive decision-making.

Given these challenges, ADIs need a seamless approach to APS 117 compliance that enhances efficiency while ensuring regulatory adherence.

How Reg360 Helps Simplify APS 117 Compliance

Reg360 partners with ElysianNxt to provide a powerful, technology-driven solution to support ADIs in meeting APS 117 requirements efficiently and accurately. Here’s how it helps:

Automated Risk Measurement and Reporting: ElysianNxt integrates with banking systems to automatically collect, analyse and report interest rate risk data, reducing manual effort and errors.
Regulatory Compliance Framework: The platform is designed to align with APRA’s evolving risk management requirements, ensuring continuous compliance.
Real-Time Risk Insights: ElysianNxt provides real-time analytics and dashboards, enabling ADIs to proactively manage interest rate risks and make informed capital decisions.
Intuitive Modeling and Analysis UI: ElysianNxt provides UI-led scenario analysis and behavioral modeling that enable banks to flexibility configure and stress multiple scenarios needed.
Integrated APRA Reporting: Automated integration between the Risk Analytics and the ARF 117 APRA reports, in APRA Connect-compatible formats through Reg360.
Audit-Ready Documentation: The integrated system ensures all APRA reports are well-documented and easily accessible for regulatory reviews and internal audits.
Efficiency and Cost Savings: By automating compliance workflows, Reg360 minimises operational burden and enhances resource allocation for strategic risk management.

The Future of Risk Management and APS 117 Compliance

As APRA continues to refine banking regulations, ADIs must adopt modern, technology-driven solutions to manage risk and ensure compliance. APS 117 is a fundamental component of the capital adequacy framework, and a proactive approach to interest rate risk management is crucial for long-term financial stability.

For banks looking to streamline their APS 117 compliance processes, Reg360 with ElysianNxt offers a scalable, automated solution that enhances transparency, optimizes capital management, and ensures robust regulatory adherence.

Want to learn more about how Reg360 can help with APS 117 compliance?