Examining the Australian Prudential Regulation Authority’s policy priorities for 2020

At the beginning of this year, the Australian Prudential Regulation Authority (APRA), an independent statutory authority that supervises institutions across banking, insurance and superannuation and promotes financial system stability in Australia, published an information paper outlining its policy agenda for the next 12 to 18 months.

Given APRA’s supervisory regime covers 91 banks, 47 credit unions, 29 life insurance companies, 96 general insurance companies, 37 health insurance companies, 2215 superannuation funds, and 12 friendly societies with a combined assets totalling close to AU$7.2 trillion, any significant changes in policy have the potential for far-reaching ramifications.

APRA’s paper identifies relevant industry trends and issues to include:

• the need to improve operational resilience across regulated entities;
• the need for regulated entities to prioritize risk and other data management systems;
• climate change financial risk considerations for regulated entities;
• access and sustainability of insurance; and
• innovation and competition, particularly in retail banking and payments.

Additionally, APRA has signalled its intent to consult on a revised version of Prudential Standard CPS 220 Risk Management in the second half of 2020. This Prudential Standard requires an APRA-regulated institution and a Head of a group to have systems for identifying, measuring, evaluating, monitoring, reporting, and controlling or mitigating material risks that may affect its ability, or the ability of the group it heads, to meet its obligations to depositors and/or policyholders.

These systems, together with the structures, policies, processes and people supporting them, comprise an institution’s or group’s risk management framework.

A wave of modernisation to risk management frameworks is already apparent within the financial services industry. Regulators charged with promoting financial system stability must continuously review and update the standards to which they hold institutions accountable; changes to the external environment in which all businesses operate are a given.

The goal of prudent management teams will be to design and build resilient and adaptable operating models. Institutions that implement digital operating models in their risk management functions gain agility to minimize disruption to their business operations while moving quickly and at little expense to satisfy the developing standards of industry regulators.

These innovators put themselves at an advantage to competitors labouring under the weight of outdated, inflexible manual risk operations.