APRA published its annual report for the financial year 2018-19. The Australian community continued to benefit from a sound, stable, and resilient financial system during the year. APRA has been applying more of its resources to issues outside of the traditional realm of financial risks and delving more deeply into so-called non-financial risks such as culture, remuneration, and governance. It has also increased its attention on matters such as competition and contestability in the financial system.
Critical to the success of APRA is ensuring that the prudential supervision and framework are effective and responsive to the environment in which they, and the financial services sector more broadly, are operating. During 2018-19, the following significant pieces of work were started or completed:
- Mortgage Lending—APRA has overseen a substantial strengthening of mortgage lending standards across the prudentially regulated sector. This allowed APRA to remove the temporary mortgage lending benchmarks on investor and interest-only lending that it had instituted during the preceding years. APRA also amended its guidance on the minimum interest rate floor in Prudential Practice Guide APG 223 on residential mortgage lending.
- Information Security—APRA developed and finalized an important new prudential standard focused on information security management, CPS 234, and updated guidance on cloud computing services in Prudential Practice Guide CPG 234 on information security.
- Remuneration—After a thorough development process in early 2019, APRA issued a draft prudential standard CPS 511 on remuneration (July 2019) aimed at clarifying and strengthening remuneration and accountability requirements in APRA-regulated entities, responding, among other things, to the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The consultation on the remuneration package is due to close in late October 2019.
- Superannuation—Building on APRA’s efforts over the last few years to manage under-performing funds and products, APRA worked to finalize a new prudential standard imposing stronger requirements on superannuation trustees to demonstrate how they are delivering good outcomes for their members. During the year, APRA also announced plans to enhance the consistency and granularity of its superannuation data collection, especially for choice products.
- Unquestionably Strong Capital Ratios—APRA’s program of work to embed unquestionably strong capital ratios in the authorized deposit-taking institution sector, as recommended by the 2014 Financial System Inquiry, continued with the release of additional discussion papers on the proposed new framework. However, it is important to note that APRA has ensured that the authorized deposit-taking institution sector by and large already meets these new requirements in aggregate, with risk-based capital ratios at an all-time high.
- Loss Absorbing Capacity—The APRA work on capital strength was supplemented by the completion of another Financial System Inquiry recommendation. APRA released a discussion paper in November 2018 that proposed to increase the total capital requirement for the largest banks as the means of delivering extra loss-absorbing capacity. APRA will now require, as an interim measure, the major banks to hold additional Total Capital equivalent to three percentage points of risk weighted assets by January 01, 2024. APRA’s long-term target of an additional four to five percentage points of loss-absorbing capacity remains unchanged.
The annual report also notes that APRA’s multi-year data modernization program is well underway, with the biggest component being the new Data Collection Solution, scheduled to replace the existing "Direct to APRA" system next year. The new online platform is a key enabler for the strategic priority of APRA to improve data-enabled decision-making and will be a more effective and efficient means for entities to submit regulatory data. It will also enable easier changes to reporting requirements as they evolve. The annual report highlights that during the financial year, IMF completed a Financial Sector Assessment Program report on Australia, which concluded that the Australian financial system has been further strengthened since the previous IMF assessment in 2012. The IMF assessment underscored the strength and resilience of the Australian financial system. As part of the review by IMF, APRA was subject to a comprehensive assessment of its supervisory approach and capabilities in banking and insurance supervision.
Keywords: Asia Pacific, Australia, Banking, Insurance, Securities, Annual Report, Mortgage Lending, Superannuation, Loss-Absorbing Capacity, Risk-Weighted Assets, Reporting, Data Collection Solution, D2A, FSAP, IMF, APRA
Previous ArticleUS Agencies Publish Notice to Extend Form FFIEC 102 for Three Years
BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.
The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.
HKMA, together with the Banking Sector Small and Medium-Size Enterprise (SME) Lending Coordination Mechanism, announced a ninety-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme.
The Advisory Scientific Committee of ESRB published a response, in the form of an Insights Paper, to the EBA proposals for reforms to the stress testing framework in EU.
MAS announced several initiatives to support adoption of the Singapore Overnight Rate Average (SORA), which is administered by MAS.
BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.
PRA published the policy statement PS19/20 on the final policy for extending coverage under the Financial Services Compensation Scheme (FSCS) for Temporary High Balance.
EBA published the final draft implementing technical standards for disclosures and reporting on the minimum requirements for own funds and eligible liabilities (MREL) and the total loss-absorbing capacity (TLAC) requirements in EU.
EBA published an erratum for the phase 2 of technical package on the reporting framework 2.10.
EC published the Implementing Regulation 2020/1145, which lays down technical information for calculation of technical provisions and basic own funds.