The 2023–24 Corporate Plan outlines the Australian Prudential Regulation Authority’s (APRA) priorities for the next four years, which it said would respond to “new and developing risks impacting the global financial system”.
APRA said that rising interest rates and high inflation, geopolitical instability, the growing threat of cyber attacks and scams, and the increased frequency of natural disasters were among the main considerations shaping its updated approach.
APRA chair John Lonsdale said: “Two years after APRA first based its corporate plan around the twin themes of ‘protected today’ and ‘prepared for tomorrow’, that philosophy still underpins our work.
“The actions we take and areas we focus on, however, cannot remain static. As new risks emerge or accelerate, increasingly driven by technological innovation, our agenda continues to evolve in response to the changing operating environment.”
APRA also said it used the corporate plan to respond to lessons learned from the collapse of Silicon Valley Bank and the takeover of Credit Suisse in March.
“Australia’s banks remained resilient due, in part, to many years of work by APRA to maintain a strong and stable banking system, an objective which supports a well-functioning economy. APRA sets strong minimum prudential requirements to protect the safety and resilience of banks, insurers, and superannuation trustees, with this being supported by a rigorous and risk-based approach to supervision,” Mr Lonsdale said.
“Nonetheless, these recent international events offer lessons for policymakers and regulators the world over. For example, the digital connectedness of financial systems – an evolution which has brought tremendous benefits to entities and their customers – also allowed for a bank run at a speed never previously witnessed. Such a possibility on local shores warrants a re-appraisal of liquidity risk settings, among other considerations.”
On the superannuation front, APRA said that over the plan horizon, it will:
- Maintain focus on reducing unacceptable product performance by increasing expectations on trustees to close high fee, poorly performing products.
- Drive trustees to improve member retirement outcomes through targeted supervision of the implementation of the retirement income covenant.
- Increase transparency of performance across the superannuation industry by releasing new and expanded statistical publications and conducting the annual performance test.
- Simplify core superannuation requirements in updates proposed to Prudential Standard SPS 515 Strategic Planning Member Outcomes to foster a culture of continuous improvement for trustees.
- Assess trustee self-assessments against the strengthened Prudential Standard SPS 530 Investment Governance, particularly in respect of the approach taken by trustees to liquidity management, stress testing, and asset valuation.
The regulator also said it would address system-wide risks by “enhancing cross-industry stress-testing, and ensuring macroprudential policy settings remain appropriate for the operating environment”, while also having a “heightened focus” on operational resilience. This includes areas such as cyber resilience, crisis management, and operational risk management, which it said are important to maintaining the continuity of critical financial services.
Climate-related financial risks are also on the agenda, including a climate vulnerability assessment for general insurers and embedding climate risk in APRA’s approach to supervision.
“As the global health and economic challenges of the past few years have demonstrated, threats to financial stability can emerge quickly and in ways we’ve not previously seen,” Mr Lonsdale said.
“By closely monitoring the external environment and adjusting our supervision approach accordingly, APRA aims to ensure Australia’s financial institutions are prepared to withstand severe shocks and remain a source of strength for the community.”
