Government expectations of APRA

June 2023
 

1) This Statement of Expectations outlines the Australian Government’s expectations for how the Australian Prudential Regulation Authority (APRA) will achieve its objectives, carry out its functions and exercise its powers. It is to be read alongside the laws that apply to APRA and the laws that APRA administers.

APRA’s role
 

2) The Government expects a high-performing and responsive APRA to:

2.1 promote sound prudential outcomes to maintain the strength and stability of the financial system;

2.2 balance the objectives of financial safety, efficiency and competition, contestability and competitive neutrality and, in balancing these objectives, promote financial system stability in Australia;

2.3 facilitate the flow of finance to support strong, sustainable economic growth;

2.4 require that regulated entities implement prudent practices in relation to risk management;

2.5 promote an efficient superannuation system that delivers for members and holds trustees to account for performance outcomes;

2.6 take a risk-based approach to prudential regulation, with the goal of a low incidence of failure in a competitive, efficient financial system and the understanding that APRA cannot and should not seek to guarantee a zero failure rate;

2.7 promote a viable, competitive and innovative insurance industry;

2.8 ensure macroprudential policy measures anticipate and appropriately respond to financial stability risks in coordination with relevant agencies, including the Reserve Bank of Australia; and

2.9 collect, analyse and publish data, to enable APRA to perform its functions, to support innovation and competition, to provide information to the public, to assist the Minister to formulate financial policy, and to support other financial sector agencies to perform their functions.

The Government’s policy priorities
 

3) The Government’s goal is for a stable and robust financial system, capable of adjusting to evolving economic conditions, withstanding global volatility and other external shocks, and supporting sustainable economic growth, while facilitating innovation and competition in the economy and ensuring consumer needs are met.
 

4) The Government expects APRA to identify and pursue opportunities to contribute to this goal. In doing so, the Government expects APRA to:

4.1 promote the stability of the financial system for the benefit of the community;

4.2 act independently in its supervisory and regulatory functions;

4.3 minimise the costs and burdens of regulatory requirements for regulated entities, including by applying proportionate requirements, considering different businesses models, and taking a principles-based approach to regulation, ultimately to benefit consumers;

4.4 promote prudent practices and transparency in relation to climate-related financial risks and the adoption of climate reporting standards by regulated entities;

4.5 bring to bear expertise on insurance affordability and availability, including through the collection of insurer data to support the Government to make data-informed decisions;

4.6 ensure increased transparency of performance and expenditure in the superannuation sector;

4.7 encourage regulated entities to create robust cybersecurity measures to ensure the safety of Australians’ money and data, as well as the financial and operational resilience of those entities;

4.8 work closely with the Government, the Treasury and other members of the Council of Financial Regulators (CFR) on the design and implementation of reforms to modernise the payments regulatory framework;

4.9 take a supervision-led and preventative approach, underpinned by a willingness to escalate to use of formal powers and enforcement action where needed to achieve prudential outcomes and deter unacceptable practices; and

4.10 contribute expertise to relevant policy issues being considered by the Government.

Relationships with external stakeholders

5) With regard to relationships with stakeholders, the Government expects APRA to:

5.1 ensure that its actions are not inconsistent with the policies of the Government, in accordance with section 21 of the Public Governance, Performance, and Accountability Act 2013;

5.2 work closely with the Government and Treasury, including through the provision of information to Ministers in accordance with subsection 10(2) of the Australian Prudential Regulation Authority Act 1998;

5.3 ensure visibility and awareness for the Government and Treasury in exercising its policy-related functions;

5.4 consult and provide appropriate guidance so that regulated entities have clarity and certainty about how APRA will exercise its powers;

5.5 coordinate regulatory activities with other agencies to avoid duplication, including through sharing information where possible;
 
5.6 work cooperatively with the other members of the CFR and other agencies, such as the Australian Competition and Consumer Commission and the Australian Transaction Reports and Analysis Centre; and

5.7 engage with APRA’s counterpart regulators in overseas jurisdictions and with relevant international standard-setting bodies.

Organisational matters

6) With regard to organisational matters, the Government expects:

6.1 the Chair to have responsibility for the executive management of APRA, consistent with the Chair’s role as APRA’s Accountable Authority;

6.2 the Chair to delegate executive management functions to APRA staff wherever the Chair considers that this would benefit the executive management of APRA;

6.3 APRA’s Executive Board to act collectively under the leadership of the Chair; and

6.4 APRA to publish its Statement of Intent in response to this Statement of Expectations on its website, and subsequently incorporate the statements of expectations and intent in its Corporate Plan.

June 2023
 

1) This Statement of Intent outlines the response of the Australian Prudential Regulation Authority (APRA) to the Government’s Statement of Expectations (SoE).

APRA’s role

2) APRA protects the Australian community by establishing and enforcing prudential standards and practices designed to ensure that, under all reasonable circumstances, financial promises made by institutions it supervises are met within a stable, efficient and competitive financial system.

1. APRA’s supervision seeks to identify and respond to significant risks in financial institutions and the financial system in a timely and effective manner, while recognising that management and boards are ultimately accountable for the prudent operation of their institutions;
    
2. APRA’s policy and supervisory approaches are risk-based and proportionate to the size, complexity and business model of supervised institutions, while implementing international standards in a manner that is appropriate for Australian circumstances;
    
3. APRA as resolution authority and administrator of the Financial Claims Scheme requires supervised institutions to be well-positioned to recover from events that may impact their financial viability. While APRA seeks to reduce the likelihood of a financial institution failing, it does not seek to guarantee a zero-failure rate
    
4. APRA collects, analyses and publishes data for the Australian financial sector. APRA’s strategic initiative to enable data-driven decision-making will support enhanced insights, improved data sharing and reduced reporting burden over the long-term; and
    
5. APRA uses formal enforcement powers where appropriate to achieve prudential outcomes and deter unacceptable practices.

3) In exercising its functions, APRA is required to balance the objectives of financial safety and efficiency, competition, contestability and competitive neutrality, and in doing so, APRA is to promote financial system stability in Australia.

4) APRA will continue to strive to be a high-performing and responsive prudential regulator for the ultimate benefit of the Australian community. As the prudential regulator for the Australian financial system, APRA has a key role enabling Australia to achieve and maintain:

1. a strong and stable banking system able to facilitate the flow of finance to support sustainable economic growth;
    
2. a viable, competitive and innovative insurance industry that sustainably assists individuals and businesses to manage risks; and
    
3. an efficient and transparent superannuation system in which trustees are held to account for performance outcomes for members.

The Government’s policy priorities

5) APRA notes the Government’s goal for a stable and robust financial system, capable of adjusting to evolving economic conditions, withstanding global volatility and other external shocks, and supporting sustainable economic growth, while facilitating innovation, competition and ensuring consumer needs are met. APRA will continue to provide expert advice and work collaboratively with the Government, Treasury and other stakeholders to identify opportunities within APRA’s role as prudential regulator to contribute to this goal.

1. APRA will maintain a core focus on the ongoing resilience of the banking, insurance and superannuation industries for the benefit of depositors, policyholders and superannuation fund members;
    
2. APRA will continue to promote prudent practices and transparency in relation to climate-related risks in the Australian financial system, consistent with the Government’s sustainable finance reforms;
    
3. APRA will continue to bring to bear expertise on insurance availability and affordability, including collection of data to support data-informed decisions;
    
4. APRA will require continued improvement in superannuation transparency and efficiency, and seek to reduce the level of exposure of superannuation members to underperforming funds and funds with sub-standard practices including in relation to expenditure;
    
5. APRA will through its cyber security strategy – and working collaboratively with government agencies, industry and international counterparts – take steps to improve the resilience of the financial system to cyber threats, to seek to safeguard Australians’ money and data; and
    
6. APRA is committed to understanding and responding to the impact of new financial activities and participants on the Australian financial system. APRA will continue to engage with the Government, Treasury and other members of the Council of Financial Regulators (CFR) on reforms to modernise the payments regulatory framework.

Relationships with external stakeholders

6) Consistent with the SoE, APRA will act independently in its supervisory and regulatory functions. In doing so, APRA will work closely with the Government, Treasury and other stakeholders. APRA will provide information to Ministers in accordance with subsection 10(2) of the Australian Prudential Regulation Authority Act 1998. APRA will also provide visibility to the Government and Treasury on the exercise of APRA’s policy-related functions.
 
7) APRA will maintain its close working relationships with CFR members and other stakeholders including other agencies to coordinate regulatory activities and minimise undue costs and regulatory burden. APRA will continue to engage closely with CFR members in connection with macroprudential policy measures designed to anticipate and respond to financial stability risks.

8) APRA will continue to provide clarity to supervised institutions regarding APRA’s principles-based prudential requirements and approach to exercising its powers, and consult with industry and broader stakeholders on proposed changes to APRA’s prudential framework. Through its Modernising the Prudential Architecture strategic initiative, APRA will take steps to make it easier for supervised institutions to understand and comply with APRA’s prudential framework.

9) APRA will work with international standard setting bodies and regulatory counterparts with a view to promoting financial stability in Australia.

Organisational matters

10) APRA will meet the Government’s expectations on organisational matters as set out in the SoE.