APRA to focus on four areas as it maps four-year plan

The Australian 12:00am August 30, 2017

Richard Gluyas

The Australian Prudential Regulation Authority has outlined four key areas of focus in its corporate plan, as it responds to heightened public scrutiny of conduct across the financial sector by increasing its emphasis on risk culture and governance practices.

A day after APRA announced it would appoint an independent panel to investigate Commonwealth Bank’s culture and governance, the regulator released its four-year plan for 2017-21.

APRA said it would seek to improve housing lending standards, build crisis readiness across multiple industries through resolution and recovery plans, address profitability challenges in the life insurance industry, and enhance governance and risk management practices in the superannuation industry.

The agency’s budget for the 2018 financial year is $141.6 million, up from $131.9m in 2017.

The CBA inquiry, in response to allegations by Austrac of multiple breaches of anti-money laundering legislation, will be paid for by the bank.

A two to three-member panel of experts will be appointed in the coming weeks, with the final report to be delivered to APRA in about six months. CBA has pledged its full co-operation.

Despite the CBA inquiry, APRA said Australia continued to benefit from a financial system that was fundamentally sound, reflecting a long period of relatively consistent economic growth.

“However, risks to institutions or financial stability can emerge quickly and APRA needs to be proactive and positioned to respond,” the agency said.

Globally, it said, regulators had to devote greater time and attention to technology-related matters, given the claimed benefits of fintech and the risks of cyber crime.

APRA was examining the challenges and opportunities of fintech, and was reviewing its licensing processes to examine how the benefits could be harnessed without unduly elevating risk in the system.

It was also continuing to review how cyber-security risks were being addressed, and improving its own processes for effective mitigation of those risks.

On climate change, APRA noted its public warnings about the associated risks.

“APRA encourages institutions to assess the impact of climate change to their business as part of prudent risk management,” the regulator said.

More broadly, policy and political uncertainty remained “elevated”. This reflected a new administration in the US, the ongoing Brexit negotiations, and several elections in Europe during the year. There were also challenges in managing the transition of China’s economy, particularly with the large stock of debt built up in recent years.

APRA’s work practices were changing, reflecting the “significant uplift” in infrastructure over the last year and the move to more contemporary work environments and modern technology.