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APRA announces policy priorities for 2019

The Australian Prudential Regulation Authority (APRA) has released its annual Policy Priorities document, outlining its areas of intended policy focus over the next 12 to 18 months.

As well as building on several substantial pieces of work commenced last year, APRA’s near term policy agenda will be shaped by its response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. It also takes into account major developments including other inquiries, new legislation such as the Banking Executive Accountability Regime (BEAR), and important industry trends.

APRA Chair Wayne Byres said much of APRA’s focus in 2019 would be on strengthening the prudential framework to lift the bar for industry in terms of governance, remuneration practices, and the management of non-financial risks.

“Financial soundness and stability remain at the core of APRA’s objectives. But APRA’s Prudential Inquiry into Commonwealth Bank of Australia (CBA) highlighted the importance of not just having a healthy balance sheet, but also strong governance, a sound culture, appropriate internal controls, and clear accountabilities. These issues were further emphasised during the Royal Commission, where a lack of accountability often lay at the heart of misconduct and poor consumer outcomes,” Mr Byres said.

“To address these issues, we will further strengthen our prudential requirements on executive remuneration, with consultation on a revised prudential standard due to start mid-year. We will also review our cross industry governance and risk management standards this year to ensure they encourage a sharper focus on non-financial risks.”

Today’s document also outlines APRA’s policy priorities for each of the industries it regulates.

For authorised deposit-taking institutions (ADIs), APRA will undertake work including:
  • progressing changes to the ADI capital framework, designed to embed the Basel III reforms, make the framework more flexible and internationally comparable, and ensure ADIs remain on track to meet the “unquestionably strong” capital ratio benchmarks; and
  • updating prudential standard APS 220 on credit risk management, including recommendations relating to valuations as recommended by the Final Report of the Royal Commission.

In superannuation, APRA’s plans include:

  • ensuring superannuation trustees are prepared to implement the new member outcomes assessments from 1 January 2020 (including any amendments required by legislative changes);
  • completing the post-implementation review of the prudential framework introduced in response to 2013’s Stronger Super reforms, and consulting on proposals to address areas where changes are needed; and
  • updating the superannuation data collection, with a particular focus on expanding the information collected on choice products.

Across general, life and private health insurance, APRA intends to:

  • consult industry on plans to apply the capital framework for life and general insurance to private health insurance (PHI), as part of Phase Three of APRA’s PHI Roadmap; and
  • release a discussion paper examining how the prudential framework for insurance may need to be modified in light of the new accounting standard, AASB 17.

Separately, and as previously announced, APRA is reviewing its approach to enforcement in light of the BEAR and the CBA Prudential Inquiry, as well as the Royal Commission’s observations that APRA should develop a stronger appetite for formal enforcement action. The final review will be presented to APRA Members by the end of March and APRA intends to publish a new enforcement strategy shortly afterwards.

Copies of APRA’s Policy Priorities for 2019 are available on APRA’s website at APRA information papers.

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, mutuals, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding around $9 trillion in assets for Australian depositors, policyholders and superannuation fund members.