Finalising a third tier in the banking framework
APRA is finalising changes to formalise a three-tiered approach to proportionality in the banking framework, aimed at delivering clearer, more tailored prudential requirements that better reflect differences in the size and complexity of regulated entities. The new third tier builds on existing proportionality to provide greater clarity, reduce unnecessary regulatory burden and support sustainable competition and growth, while maintaining prudential outcomes.
APRA will, as proposed:
- introduce a third tier for authorised deposit-taking institutions (ADIs) with total assets greater than $300 billion (Most Significant Financial Institutions (MSFIs))
- raise the asset threshold for ADIs to qualify as Significant Financial Institutions (SFIs) from $20 billion to $30 billion
- automatically provide a 12-month transition when an ADI moves to a higher tier.
In addition to these updates to the framework, APRA also commits to providing non-SFIs with additional time to comply with new and revised prudential requirements when it is appropriate to do so. APRA will continue to actively identify opportunities to explicitly differentiate prudential requirements by tier, including in future changes to the prudential framework and as part of APRA’s supervisory practices.
These changes address APRA’s commitment in response to the Report to Government of the Review into Small and Medium-sized Banks by the Council of Financial Regulators, in consultation with the ACCC, to formalise a three-tiered prudential framework. They also reiterate APRA’s ongoing work to ensure a balanced and proportionate regulatory framework.
Consultation response
On 5 December 2025, APRA published a discussion paper proposing to introduce a third tier in the banking prudential framework. APRA received 11 submissions in response to the consultation. Non-confidential submissions are available on APRA’s website.
Respondents were supportive of all proposed changes, though some bank submissions suggested a higher SFI threshold. APRA’s response to consultation feedback can be found in Attachment A.
APRA has made changes to Prudential Standard CPS 001 Defined terms (CPS 001) to update the definition of SFI and include the MSFI definition and related transition provisions. Consequential changes have also been made to Prudential Practice Guide CPG 511 Remuneration (CPG 511) to reflect changes to the SFI threshold. To assist with clarity, APRA has moved the footnotes from CPG 511 to the definitions in CPS 001 that state which reporting forms total assets are sourced from for determining an entity’s SFI tier.
These changes take effect from 1 July 2026.
Yours sincerely
Therese McCarthy Hockey
APRA Board Member
Attachment A – Response to key comments
| Proposal | Comments received | APRA response |
|---|---|---|
Introduce a third tier – MSFI (most significant financial institution) | Submissions were supportive of APRA introducing a third tier in the banking prudential framework. One submission suggested the threshold could be set as a percentage of system assets (e.g. 5 per cent) instead of a dollar amount. | APRA considered setting the threshold as a percentage of system assets. However, a dollar figure is considered a simpler and more transparent approach. As noted in the discussion paper, the MSFI threshold of $300b is equivalent to around 5 per cent of system assets. APRA will review the threshold on a regular basis to ensure it remains appropriate. |
| Raise the SFI asset threshold from $20b to $30b | Submissions supported increasing the existing SFI threshold and most supported the proposed new threshold of $30b. Some submissions argued the threshold should be raised to between $40b and $60b. They argued a higher threshold would better delineate between medium-sized and smaller ADIs. Some responses worried about implications for ADIs whose assets might fluctuate around $30b. One submission argued for a threshold set at 1 per cent of system assets | The increase in the threshold to $30b represents a significant increase in the threshold. ADIs with total assets greater than $30b are significant businesses. The issue of ADIs fluctuating around $30b would exist regardless of where the threshold is set. APRA considers a dollar figure threshold is simpler and more transparent than a threshold based on system assets. |
| More time for non-SFIs to comply | Submissions supported this proposal. One submission suggested the minimum additional time should be set at 18 months when introducing new requirements. | APRA agrees that smaller entities should generally have more time to implement changes, however, the exact period will depend on the nature of the changes and the materiality of the risk that they are seeking to address. |
| Provide transition of at least 12 months on moving to a higher tier | Submissions supported this proposal. One submission suggested additional time be provided where individual circumstances warrant. | As noted in the discussion paper, APRA will have discretion to extend transition beyond 12 months where it considers that circumstances warrant a longer transition period. |
| Further embedding proportionality in APRA’s policy development protocol | Submissions commenting on this matter supported APRA exploring opportunities to explicitly differentiate prudential requirements by tier. | APRA will consider how it can further differentiate ADI prudential requirements by tier when opening standards for review and making new prudential standards. APRA notes suggestions in some submissions on where there may be scope to further distinguish requirements across the three tiers. |