Regulator outlines focus on lending practices, climate risks, and superannuation oversight
The Australian Prudential Regulation Authority (APRA) has emphasised the strength and stability of Australia’s financial system, while outlining key challenges facing the sector.
Speaking on APRA’s priorities, John Lonsdale (pictured above), APRA chair, reaffirmed the regulator’s commitment to maintaining financial resilience in the face of a complex risk landscape shaped by economic uncertainty, geopolitical tensions, cost-of-living pressures, and increasing cybersecurity threats.
“The financial system remains strong and stable,” Lonsdale said, attributing this to years of enhanced prudential regulation and policy settings. He said that APRA-regulated entities — banks, insurers, and superannuation funds — have sufficient financial resources to meet their obligations and support economic stability.
Lonsdale also highlighted APRA’s continued work with banks to ensure lending standards remain robust amid an uncertain economic environment. While housing credit is growing at rates consistent with long-term averages and arrears remain low, he acknowledged a slight upward trend in delinquencies. Business lending, particularly among medium-sized enterprises, has shown solid growth.
Lonsdale assured the Senate Economics Legislation Committee that APRA continues to assess macroprudential policy settings, including the mortgage serviceability buffer and the counter-cyclical capital buffer, to safeguard financial stability. A regular update on these tools is expected later this year, he added.
In 2023, APRA’s stress-testing of major banks confirmed their ability to withstand severe economic shocks. Proposed changes to replace Additional Tier 1 (AT1) capital with more reliable alternatives are also under consideration, with industry updates expected before year-end.
APRA is working closely with insurers, government agencies, and stakeholders to address affordability challenges in the insurance market, particularly through its collaboration with the Hazards Insurance Partnership.
In the superannuation sector, APRA has intensified its scrutiny of trustee expenditure following the introduction of the best financial interests duty (BFID). A data collection exercise revealed over 40,000 expenditure items, which APRA has made public to enhance transparency. Supervisory focus is now on discretionary spending, outliers in expenditure, and payments lacking clear benefits to members.
While trustees retain responsibility for compliance with BFID, Lonsdale stressed that APRA would take strong enforcement action where necessary, with several cases currently before the courts.
Looking ahead, APRA plans to release a discussion paper on governance standards, covering board accountability, skills, and renewal practices. It is also preparing for the implementation of the Financial Accountability Regime (FAR) for superannuation trustees and insurers in March 2024.
APRA’s second voluntary climate risk self-assessment survey found progress among regulated entities in managing and disclosing climate-related risks. However, Lonsdale stressed the importance of aligning practices with APRA’s guidance on climate change financial risks.
In addition, APRA is prioritising cyber resilience and operational risk management. A new operational risk management standard, CPS 230, will take effect in July 2025 to ensure organisations can sustain critical operations during disruptions.
The regulator is also developing Australia’s first system-wide stress test, designed to assess how risks can propagate between banks, superannuation funds, and the broader financial system. The hypothetical exercise, planned for 2024, will examine interconnections within the financial sector.
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