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APRA releases framework for supervising conglomerates but defers implementation

Wednesday 29 November 2017

 

14.15

The Australian Prudential Regulation Authority (APRA) has today released its planned framework for the supervision of conglomerate groups, but will defer a decision on its final implementation until the recommendations of the Financial System Inquiry (FSI), and the Government’s response to them, have been announced.

Conglomerate groups, referred to as Level 3 groups, comprise APRA regulated institutions that have material operations across more than one APRA-regulated industry and/or in one or more non-APRA-regulated sector. The planned framework has been designed to assist APRA to ensure that its supervision adequately captures the risks to which APRA-regulated institutions within conglomerate groups are exposed and which are not adequately covered by existing prudential arrangements for stand-alone entities (Level 1 supervision) and single industry groups (Level 2 supervision).

When implemented, APRA intends to apply the Level 3 framework to the following conglomerate groups:

  • AMP Limited;
  • Australia and New Zealand Banking Group Limited;
  • Challenger Limited;
  • Commonwealth Bank of Australia;
  • Macquarie Group Limited;
  • National Australia Bank Limited;
  • Suncorp Group Limited; and
  • Westpac Banking Corporation.

APRA Chairman Mr Wayne Byres said, in light of the broader review of regulatory arrangements being undertaken by the FSI, APRA has decided not to set an implementation date for the framework at this time.

‘The eight conglomerate groups to which APRA intends to apply the planned Level 3 framework control approximately 80 per cent of the assets of all APRA-regulated institutions. The importance of strong group-wide governance, risk management and capital adequacy is therefore critical not just to these groups, but to the stability of the financial system more broadly.’

‘Release of the planned framework is intended to inform the financial industry of APRA’s conclusions following the most recent consultation process, and enable interested stakeholders to make informed second-round submissions on the issue to the FSI. The decision to defer any decision on implementation acknowledges that revisions to the framework may be required in light of the Government’s response to the FSI’s recommendations.’

The package released today includes updated prudential standards in relation to governance, exposure management, risk management and capital adequacy, as well as a response paper that addresses the submissions APRA has received on the December 2012 and May 2013 Level 3 consultation packages. The package also contains a number of draft prudential practice guides that, when finalised, are intended to accompany the prudential standards.

APRA is committed to ensuring the affected groups have a minimum of 12 months transition time before any new standards come into force. However, as currently proposed, the conglomerate groups to which APRA intends to apply the Level 3 framework will not need additional capital to meet the planned new requirements.

The Level 3 package can be found on the APRA website.

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6 trillion in assets for Australian depositors, policyholders and superannuation fund members.