The Australian Prudential Regulation Authority (APRA) has set out its key policy and supervisory objectives for the next 12 to 18 months, with an emphasis on fulfilling its four strategic goals of:
- maintaining financial system resilience;
- improving outcomes for superannuation members;
- improving cyber resilience in the financial sector; and
- transforming governance, culture, remuneration and accountability (GCRA).
According to APRA, its commitment to transforming GCRA would involve finalising a more robust prudential standard on remuneration and updating prudential standards on governance and risk management.
The regulator added that it would also work closely with Treasury and the Australian Securities and Investments Commission (ASIC) to expand the Banking Executive Accountability Regime (BEAR) to the insurance and superannuation sectors.
APRA’s other policy priorities include:
- 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.
Meanwhile, APRA’s stated supervisory 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.
In addition, APRA revealed that it intends to roll out a new prudential risk rating system to replace its Probability and Impact Rating System (PAIRS) and its Supervisory Oversight and Response System (SOARS) models in mid-2020.
Following the publication of APRA’s stated priorities for 2020, chair Wayne Byres said it was “essential that the regulator and its counterparts “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,” he said.
“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.”
Mr Byres added that APRA would also look to strengthen its internal capabilities to address shortcomings highlighted by the banking royal commission and the 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,” he said.
Mr Byres concluded: “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.”
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