When revisiting the efforts made by his agency and securitisation industry representatives, Patrick Brennan (executive general manager of APRA's Policy and Advice Division) was not expecting such lively criticism of a process he clearly thought had gone over very well.As he noted, earlier this month the Australian Prudential Regulatory Authority released what it said was the 'final form' of the Australian prudential standard on securitisation, and an associated prudential practice guide. Yesterday, at the annual Australian Securitisation Forum Conference in Sydney, Brennan outlined the main points of the revised standard, usually referred to as APS 120.He described the final APS 120 as the culmination of some five years of policy formulation, "greatly assisted by the active engagement of industry in the consultation process," both through formal submissions and informal meetings.  There were several principles underlying the discussions with industry and the final rules.One of these foundation principles is funding only securitisation. It is not designed to assist an authorised deposit-taking institution seeking capital relief, as the focus is on accessing term funding to support their lending activities. APRA "had serious reservations" over date-based calls combined with a bullet maturity structure, said Brennan, as "such a feature may create an expectation that repayment will definitely occur on the stated date regardless of circumstances."He said this represented a prudential risk, which was managed by adding a requirement that an issuer make it clear a call was optional - that is, it would only exercised when the underlying assets were performing. Another point of debate was over what Brennan characterised as APRA's "early aspiration" for a simple, two-class structure with substantially all the credit risk contained in the lower ranking tranche. "Such a structure would avoid the problems of complexity and opaqueness associated with securitisation - problems that manifested so clearly through the global financial crisis," said Brennan.But industry feedback - including from investors - was strongly against this, so APRA has relaxed its approach regarding the number of tranches. "Though we hope industry will not pursue complexity for complexity's sake," Brennan warned. Risk retention was another area where consultation changed APRA's thinking. "We proposed a level of 20 per cent," Brennan said. Ultimately, APRA "placed greater weight on efficiency considerations" and hence did not implement a risk retention requirement.When it comes to capital requirements, APRA has shunned the use of internal models for setting regulatory capital requirements. Instead it has implemented the remaining two approaches from the Basel framework: an approach based on external ratings and a standardised approach. A second adjustment is APRA's requirement that an ADI deducts holdings of subordinated tranches from its own capital. APRA also proposed to remove the current warehouse arrangements, as the regulator saw these as directing capital out of the banking system with no reduction in risk in the system. This proposal proved unpopular with industry, so the final APS 120 accommodates warehouses, but with no special treatment when compared to other forms of securitisation.In the Q&A segment that followed, it was pointed out that