The Australian Prudential Regulation Authority (APRA) has set out its policy and supervision priorities for the next 12 to 18 months with an emphasis on fulfilling the four strategic goals of its Corporate Plan: maintaining financial system resilience; improving outcomes for superannuation members; improving cyber-resilience in the financial sector; and transforming governance, culture, remuneration and accountability (GCRA) across all APRA-regulated institutions.
Consistent with previous years, APRA’s Policy Priorities document gives industry a forward view of APRA’s planned changes to the prudential framework. This is now being supported by the publication of APRA’s Supervision Priorities, outlining how the regulator’s supervision function will be directed towards significant risks within the financial system, and acting to ensure those risks are well managed and mitigated.
Among APRA’s key cross-industry policy priorities for 2020 are initiatives aimed at driving improvements in GCRA, including finalising a more robust prudential standard on remuneration, and updating prudential standards on governance and risk management.
APRA will also work closely with Treasury and the Australian Securities and Investments Commission in expanding the Banking Executive Accountability Regime to the insurance and superannuation sectors.
Among APRA’s other policy priorities are:
- strengthening crisis preparedness, including the development of a new prudential standard on resolution and recovery planning;
- completing the current review of the capital framework for authorised deposit-taking institutions to implement “unquestionably strong” capital ratios and the Basel III reforms;
- progressing a range of enhancements recommended by APRA’s post-implementation review of the original superannuation prudential framework introduced in 2013; and
- continuing work on strengthening the capital framework for private health insurers.
In the supervision arena, APRA’s 2020 priorities include:
- maintaining financial resilience, including through increased focus on recovery and resolution planning and stress testing;
- conducting a range of GCRA-related supervisory reviews and deep dives, and using entity self-assessments to drive greater accountability;
- encouraging underperforming superannuation funds to urgently improve member outcomes or exit the industry;
- and more closely assessing institutions’ capability to deal with emerging and accelerating risks, such as cyber-security and climate change.
Further, as flagged in APRA Insight last month, APRA intends to roll out a new prudential risk rating system to replace its long-standing PAIRS and SOARS1 models mid-year.
APRA Chair Wayne Byres said it was essential that both APRA, and the industries it regulates, continue to adapt to changing circumstances and new challenges.
“As a risk-based and preventative regulator, APRA must continually reassess its priorities not just in response to past events, but also to risks and vulnerabilities that may be on the horizon.
“APRA’s priorities in both our policy and supervisory functions are therefore a mix of ensuring shortcomings that have been identified in the financial system, particularly in relation to non-financial risks, are adequately addressed, as well as devoting attention to potential vulnerabilities that could jeopardise resilience within the financial system if not given sufficient attention today.
“APRA is also committed to enhancing its own capabilities, in line with the findings of the Royal Commission2 and Capability Review. In particular, 2020 will see us lift the resourcing and expertise dedicated to supervising GCRA and cyber-security, and strengthening our preparedness to deal with possible entity failures.
“Publishing our supervision priorities for the first time is intended to create greater public awareness of the types of activities our supervisors undertake, and supports our commitment to greater transparency and accountability. Our new Year in Review publication will be used to report at the end of the year on our progress against the priorities we have identified,” Mr Byres said.
Copies of the Policy Priorities and Supervision Priorities documents are available below:
Accessible versions of APRA's Policy Priorities and APRA's Supervision Priorities are available.
1Probability and Impact Rating System and Supervisory Oversight and Response System
2Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry