The new report for 2019-23 sets out a roadmap, outlining a timeline for its strategy for the next four years.
APRA has four key goals: maintain financial system stability, improve outcomes for superannuation members, transform governance, culture, remuneration and accountability across financial institutions and improve cyber resilience across the financial system.
As part of the plan, APRA is lifting its capabilities across its risk-based supervision, making resolutions, external engagement and collaboration, boosting its data-based decision making and updating its staffing and culture.
APRA’s strategy was informed by the findings of six reviews and inquiries over the last 18 months, which looked into the body’s approach and performance, including the royal commission and recent capability review.
The reviews, the government body said, “bring to the fore the need for APRA to continue to step beyond its traditional areas of focus and respond to an operating environment that is rapidly evolving and becoming increasingly complex.”
“In particular, they have emphasised that APRA needs to sharpen its focus on superannuation, and engage more forcefully in areas of so-called ‘non-financial risk’ if it is to continue to be successful into the future,” the regulator said.
APRA Chair Wayne Byres said the new corporate plan was designed to ensure APRA could respond faster and more effectively to meet the challenges of a rapidly evolving financial environment.
“Australia’s financial system remains in good health, but we can’t take that for granted,” Mr Byres commented.
“As macroeconomic and geopolitical risks play out, as technological innovation transforms the industry, and as new risks such as cyber and climate change grow, we must have the right skills and resourcing to continue protecting bank depositors, insurance policyholders and superannuation members.
“Among other things, we will place greater emphasis on the supervision of non-financial risks such as culture and accountability, and take a constructively tough enforcement approach when breaches of our prudential standards occur.”
APRA’s funding over the period has increased by an estimated $210 million, resulting from boosts from the 2018 Mid-Year Economic and Fiscal Outlook and this year’s federal budget.
The regulator is using the extra money for its new and expanded functions, including rolling out the Banking Executive Accountability Regime (BEAR).
The government has indicated it will consider the need for any further funding as part of the 2020-21 budget process.
Super police
The prudential regulator zoomed in on its new role looking over the super sector, continuing on its memo to weed out underperforming funds.
The report noted among its duties it will facilitate the resolution or exit of persistently floundering funds.
APRA is planning to also tighten governance and risk management practices in the super industry.
Yesterday, APRA said it would start publishing data about the performance of funds by the end of the year, in terms of investment returns, insurance, costs and sustainability.
From 2020, it will be requiring fund trustees to conduct an annual review on member outcomes.
“A lack of comparable and transparent information makes it difficult for superannuation members to make informed decisions and there are few products available in the market to manage longevity risk,” APRA noted in its corporate plan.
Restoring community trust
Mr Byres said APRA is well aware of the heightened expectations it is being held to, with the watchdog to regularly report on its progress across its four goals.
“Although it is ultimately up to financial institutions to strengthen community trust in the industry, regulators have an important role to play,” Mr Byres said.
“In delivering on this corporate plan, APRA will be better equipped to ensure the entities we regulate are not only financially resilient, but also have frameworks, systems and cultures in place designed to reduce the risk of misconduct and poor consumer outcomes.”
By next year, APRA aims to have ADIs move from stress testing capital requirements every three years to once annually. In 2021, the regulator is planning to have completed the external audit review of ADIs covering the management of problem assets.
The four-year plan has already taken effect.
