APRA outlines plans to ‘modernise’

In an information paper, the Australian Prudential Regulation Authority (APRA) outlined plans to modernise the architecture of prudential standards and guidance for banks, insurers and superannuation funds.

The program, which commenced last year, is intended to ensure the framework continues to underpin financial safety and stability in a rapidly changing economic and technological environment.

The watchdog said it would achieve this through “better regulation”, such as ensuring prudential standards and guidance are easier to navigate, understand and implement.

It also planned on exploring how to use technology to support better regulation, and to develop new approaches to tackle emerging risks and new business models on the regulatory perimeter.

Over the past 20 years APRA has built a comprehensive prudential framework, but recognises the economic volatility, in the past few years, and the boom in digital technology has posed some risks.

The information paper highlighted the increasing use of digital technology brings both risks and opportunities, as well as new business models testing traditional regulatory boundaries.

Further, it noted the financial risk from climate change and advent of new products, such as crypto assets was “giving rise to novel risks”, which need to be carefully managed.

APRA chair Wayne Byres said its aim is to make the framework more cohesive; easier to understand and navigate; and cater for new risks from digitisation.

“As financial system risks have evolved, the prudential framework has grown. In total, we now have around 150 prudential standards and practice guides, supported by a myriad of information papers, industry letters and FAQs. It could do with an overhaul,” Mr Byres said.

“The framework has become more complex, and in turn more challenging for entities to follow.

“Our end-goal is a digital framework that will be easier for industry to understand and comply with, and for APRA to supervise and maintain — and ultimately to better protect Australians’ financial interests.”

Over 2022, APRA has been building the foundations for the program and engaging with international regulatory peers.

This includes several modernisation initiatives that are already underway, such as APRA’s first prudential standard to strengthen operational resilience (which will replace five current standards).

Mr Byres said the watchdog needs to be clear in order to be effective in setting minimum standards for banks.

The information paper set out what banks, insurers and superannuation licensees can expect from the program over coming years, which includes an upcoming new guide for directors on bank boards.

It also outlined APRA’s intention to shortly begin industry engagement on key initiatives in the program through workshops and surveys, commencing with the main industry associations.

[Related: APRA to outline crypto expectations]