APRA has set out the policy and supervisory priorities for financial sector for 2021. The key focus areas in terms of banking sector policies include working on prudential standards on remuneration, resolution and recovery planning, operational risk, and governance and risk management; completing the ongoing review of the capital framework; and consulting on guidance for climate change financial risk. APRA also plans to introduce APRA Connect, the new data collection solution, to enable APRA to collect more granular data, strengthen data-driven decision-making, and enable enhanced data submission capabilities. The key supervisory priorities focus on actions on crisis readiness, including recovery, resolution planning, and stress testing; increased scrutiny of cyber-security capabilities of entities; and initiatives in the area of governance, risk culture, remuneration, and accountability—also known as GCRA.
Consistent with the strategic priorities outlined in the Corporate Plan for 2020-2024, the policy and supervisory priorities for the financial sector aim to deliver four key outcomes: maintaining financial system resilience, improving outcomes for superannuation members, improving cyber-resilience, and transforming GCRA across all regulated institutions. APRA has set out the following the key policy priorities for the banking sector:
- Capital requirements. The finalization of revisions to the capital framework for authorized deposit-taking institutions is a key policy priority for 2021. The draft prudential standards for the revised capital framework will be finalized by the end of 2021, along with the requirements for interest rate risk in the banking book. This timeline will provide the industry with a 12-month implementation period before the revised framework comes into effect on January 01, 2023. APRA will also consult on the updated prudential practice guides and reporting standards to accompany the revised capital standards in 2021. Consultation on consequential amendments to other prudential standards is expected to commence in the second half of 2021. APRA also intends to consider policy options for the fundamental review of the trading book in 2021 and for the role of Additional Tier 1 instruments in providing loss-absorbing capacity. APRA intends to finalize the changes to Prudential Standard APS 111 on capital adequacy in 2021, with the revised standard expected to take effect from January 01, 2022.
- Disclosure requirements. APRA intends to consult on a draft APS 330 on public disclosure in the second half of 2021. The consultation will include a proposal to reduce the disclosure burden for smaller authorized deposit-taking institutions through centralized publication by APRA.
- Credit risk requirements. APRA may consult on minor amendments to the Prudential Practice Guide APG 223 on residential mortgage lending and anticipates releasing the finalized APG 220 on credit risk management in the first half of 2021. APRA also plans to finalize the proposed Reporting Standard ARS 220.0 on credit exposures and provisions in 2021.
- Crisis management framework. As part of strengthening the crisis preparedness, APRA will develop a new prudential standard for recovery and resolution planning. APRA expects to progress the development of the prudential standard in the year ahead and plans to consult on this standard in late 2021 or early 2022.
- Operational resilience. APRA plans to consult on new and revised standards for operational resilience. This is expected to include the introduction of a new prudential standard focused on operational risk management, revisions to the existing prudential standards CPS 231 on outsourcing and CPS 232 on business continuity management, and guidance for entities.
- Stress testing. Building on lessons learned from the recent and previous supervisory industry exercises, APRA intends to consult on new guidance for entities on stress testing in late 2021.
- Climate-related financial risk. APRA plans to consult , in the first half of 2021, on the guidance on developing frameworks for assessment and monitoring of climate-related financial risks. This includes governance, strategy, risk management, scenario analysis, and disclosure. The guidance is expected to be released for consultation in the first half of 2021 and finalized before the end of the year.
- Governance, risk culture, remuneration, and accountability. The review of the governance and risk management prudential standards will continue in 2021. APRA intends to consult on revised versions of CPS 510 on governance and CPS 220 on risk management in 2022. APRA intends to finalize and release the new standard on remuneration in mid-2021, ahead of a phased implementation from 2023. CPS 511 on remuneration will be supported by a new prudential practice guide and reporting and disclosure requirements, which will be consulted on in mid to late 2021.
One of the key supervisory priorities for this year involves review of climate change issues, including climate change vulnerability assessment. As part of APRA’s actions to both uplift the scenario analysis capability and strengthen the understanding and management of climate-related risks within the financial sector, APRA, along with the Council of Financial Regulators (CFR), is leading the work on a climate vulnerability assessment. Beginning with large authorized deposit-taking institutions in 2021, through the climate vulnerability assessment, APRA will explore the potential financial exposure and macroeconomic risks, from both physical and transition risks, to large authorized deposit-taking institutions, the financial system, and the economy. This exercise will help APRA to understand how the large authorized deposit-taking institutions might adjust their business models in response to different climate change scenarios. APRA is in the process of designing the climate vulnerability assessment and expects to engage with the authorized deposit-taking institutions participating in the assessment in 2021.
Keywords: Asia Pacific, Australia, Banking, Policy Priorities 2021, Basel, Resolution Framework, Operational Risk, Credit Risk, ESG, Climate Change Risk, Regulatory Capital, Interest Rate Risk, Reporting, Disclosures, Stress Testing, APRA
Previous ArticleIFRS Sketches Next Steps for Work on Global Sustainability Standards
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)
The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)