New APRA expectations will level the playing field: Non-majors

Customer-owned lenders and non-major banks have welcomed the new provisions in the government’s updated statement of expectations for the Australian Prudential Regulation Authority (APRA).

On Wednesday (7 June), the federal Treasurer, Jim Chalmers MP, released the statement outlining how the government expects the prudential authority to carry out its responsibilities in regulating banks, insurance companies, and superannuation funds.

For the first time, the government has said it now expects APRA to:

• Be mindful of the relative size and business models of regulated entities (recognising that regulations can be more burdensome for small businesses).
• Consider risks related to climate change (including promoting transparency in relation to climate-related financial risks and the adoption of climate reporting standards) as part of its work.

For example, the statement of expectations said the government expects APRA to “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”.

Treasurer Chalmers commented: “Our priority is to ensure Australia’s financial system remains stable and robust and that the regulator is responsive to changing economic conditions.

“The statement focuses on APRA’s role in ensuring a safe, resilient and competitive financial system.”

In response, several banks have said the move is a win for smaller businesses.

The chief executive and managing director of Bendigo and Adelaide Bank, Marnie Baker, said the lender supports the shift in language and looks forward to seeing the revised expectations in practice.

“This updated Statement of Expectations is a step in the right direction in ensuring new regulation is applied fairly and proportionate to the size and complexity of the financial services entity,” she said.

“Proportionate regulation of the financial sector will enhance competition in a sector dominated by a small number of large institutions, by ensuring new regulation meets policy objectives without disproportionately penalising smaller institutions, improving innovation and customer outcomes.”

Similarly, the Customer Owned Banking Association (COBA), which has been advocating the mutual banking structure to be recognised in regulator mandates, stated the changes marked “a crucial step towards ensuring that customer-owned businesses, including customer-owned banks, are considered by default in policy and decision making”.

Mike Lawrence, the CEO of COBA, said this would “further prevent assumptions of an investor-owned business model during regulation development and will support a stronger customer-owned banking sector that offers market-leading customer satisfaction and support beyond its size to communities around Australia”.

COBA flagged that the increasing pace, volume, and complexity of regulatory change have posed challenges for all financial services entities but added that smaller lenders, including mutuals and customer-owned banks, had been “disproportionately impacted”.

As such, Mr Lawrence flagged that the customer-owned model needs “effective recognition and understanding” to compete on a level playing field with investor-owned banks in Australia.

“COBA has been advocating for this recognition for some time, and we are pleased that the government has taken this important step,” he said.

“Embedding the knowledge of the customer-owned model into regulator decision making and applying principles of proportionality to regulation will benefit the broader population and promote business model diversity as a source of systemic stability and resilience in the banking sector.”

COBA concluded that the government’s announcement would help ensure that Australia “recognises the value of business model diversity in the banking sector”, with both COBA and Bendigo and Adelaide Bank outlining that they look forward to continuing to work with the government and regulators on the design and implementation of proportionate regulatory requirements.

[Related: Treasury urged to prioritise regulatory road map: COBA]