The latest policy and supervision priorities from APRA has recently been released outlining their direction for 2022-2023. Both documents outline progress being made on APRA’s long term strategy, changes to their direction, how they are responding to external drivers, and updates on key priorities.
Aligned with the 2021-2025 Corporate Plan, the policy and supervision agenda include the priorities:
- ensuring resilient and prudently managed financial institutions
- promoting the stability of the Australian financial system
- contributing to the community’s ability to achieve good financial outcomes.
In this summary, we take a look at each of the priorities and provide an overview. We’ve provided a helpful list to help you navigate the priorities.
|You can also view both standards in full on the APRA website.|
APRA’s Policy Priorities for 2022
- Modernising the architecture
- Cross-industry policy
- Banking policy
- Insurance policy
- Superannuation policy.
APRA’s Supervision Priorities for 2022
- Cross industry
Modernising the architecture
APRA’s kicks off their policy priorities by outlying how they will modernise their existing prudential architecture. This year they will focus “largely on progressing initial steps and scoping the longer-term path ahead”.
APRA says they will also focus on better regulation, including making sure ensure the prudential standards and guidance are easy to understand, find and navigate.
They are currently investigating how regtech and suptech “such as machine-readable regulation to facilitate compliance systems” can be used. APRA says they will be engaging an advisory panel of experts and industry stakeholders to explore the potential for the tech in their regulation architecture.
The regulator also mentions they are also working closely with other agencies, including the Council of Financial Regulators (CFR) to “understand and assess industry trends and emerging risks, and the regulatory implications of new forms of finance”.
APRA covers key reforms and outlines plans to review authorisation guidelines for nonoperating holding companies (NOHCs) in 2022 and has updated guidance on capital management and stress testing in 2023.
APRA has also tabled a list of policy priorities, including objectives, focus and next steps for supporting the Treasury in the development of the Financial Accountability Regime (FAR). A Bill was introduced in late 2021 that will provide the legislative framework for the FAR, with proposed application to ADIs in 2022 and insurers and super funds in 2023.
APRA’s key focus for 2021 in the banking industry will be:
- implementing the bank capital reforms, including finalising guidance and progressing revisions to the market risk standards
- review the prudential standard for purchased payment facilities (also referred to as stored value facilities), in the context of the recent payments system review and other recommendations.
They have outlined specific policy priorities for the year and next steps, including:
- Capital reforms: APRA will work on finalising the PPGs for capital adequacy, the standardised approach to credit risk and the internal ratings-based approach to credit risk. In the second half of 2022, APRA also plans to finalise Prudential Standard APS 117 Interest Rate Risk in the Banking Book (APS 117), and consult on revisions to the market risk capital standards to implement the Basel Committee’s fundamental review of the trading book
- Macroprudential policy: finalise its response to the current consultation on the proposed attachment to Prudential Standard APS 220 Credit Risk Management (APS 220) in the first half of 2022
- Disclosure requirements: APRA intends to consult on draft Prudential Standard APS 330 Public Disclosure APS 330 in the first half of 2022. APRA is developing a centralised publication that will provide entity-level key prudential and financial data
- Liquidity review: the regulator plans on consulting with industry as part of the post-implementation review in early 2022. The review will aim to understand the costs and benefits of the liquidity coverage ratio and net stable funding ratio and evaluate the need to update and revise Prudential Standard APS 210 Liquidity APS 210 in 2023.
For 2022, APRA intends to release several integrated standards related to the insurance sector. This includes AASB 17 and LAGIC updates and the capital standards for private health insurers (PHI). In 2023, APRA also plans to “review prudential requirements and guidance on insurance risk management”.
Specific policy priorities for the year include:
- AASB 17 and LAGIC updates: APRA will consult with industry on integrating AASB 17 with APRA’s standards. APRA plans to release final standards in the second half of 2022, which would come into effect from 1 July 2023
- PHI capital standards: APRA intends to release final standards around PHIs in the second half of 2022, coming into effect 1 July 2023. The PHI standards will be aligned with the broader AASB 17 and LAGIC capital reforms
- Offshore reinsurance: APRA plans to release Prudential Standard LPS 117 Capital Adequacy: Asset Concentration Risk Charge standard in the first half of 2022, which is expected to come into effect from 1 July 2023
- Insurance risk management: plans to consult on potential changes to the prudential framework for insurance risk management in 2023. APRA will also consider whether similar expectations should apply to PHI.
APRA’s policy priorities in the superannuation sector are focused on “strengthening financial resilience” and “improving outcomes for members”. This includes:
- Audit: APRA released proposed amendments to Prudential Standard SPS 310 Audit and Related Matters (SPS 310) late last year. A consultation on these amendments will wrap-up in March 2022. Following consultation, final requirements will be released and come into effect from 30 June 2022
- Investment governance: updates are being made to Prudential Standard SPS 530 Investment Governance SPS 530. Consultation on the proposed amendments are expected to be completed February 2022
- Successor fund transfers and exits: APRA intends to refresh the superannuation prudential framework. This will include a review of the Prudential Practice Guide SPG 227 Successor Fund Transfers and Wind-ups. They will also look to develop new requirements to apply in the event of cancellation of an authority to offer a MySuper product
- Retirement incomes: last year the Government progressed legislative reforms placing greater focus on the needs of members in retirement. APRA plans to support the implementation subject to legislative timeframes
- Strategic planning and member outcomes: APRA will review Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515). They will then consult on this review and proposed enhancements and finalise the standard in 2023
- Financial resilience in superannuation: APRA will conclude a consultation after the release of a discussion paper in November 2021 seeking feedback on RSE licensees’ plans. Results of the consultation will be used as the basis for developing potential enhancements to the prudential standards for superannuation.
APRA remained committed to improving cyber resilience. Over the next year, the regulator will focus on a number of specific activities to help withstand “new and more sophisticated cyber-attacks”. This includes:
- independent compliance assessments
- collecting data to be more informed
- share insights with industry
- work with industry and government agencies to expand the cyber information sharing community.
APRA will also focus on operational resilience, particularly from the effects of COVID-19. APRA will continue to monitor regulated entities’ improvements in contingency planning, business continuity arrangements, and management and oversight of third-party providers. They will also develop a non-financial risk data collection this year to provide data-driven insights.
During the peak of COVID-19, many sectors were affected by drastic changes in an effort to curb the pandemic. APRA says they are upgrading contingency and continuity frameworks within the banking sector to strengthen resilience.
APRA will work with peer regulators and large ADIs to develop enhanced crisis response plans for cyber risk to payments systems. APRA goes on to mention that the “crisis response work will continue in 2022, along with a focus on concentration of third-party providers to the banking sector”.
This year APRA will focus on reviewing credit risk models ahead of the 2023 implementation of the updated APS 113 Internal Rating-based Approach to Credit Risk. This includes reviewing capital resilience through an industry stress test and will be incorporated into the revised capital standards. They will also review Prudential Capital Requirements (PCR) for a range of individual entities.
APRA says they also expect the industry to “continue to undertake preparatory contingency measures to ensure readiness for zero or negative rates, should they arise”.
The regulator will continue to actively monitor new and evolving developments such as cryptocurrencies, banking-as-a-service providers, and non-bank payments providers.
Over the next 12 months, APRA will continue to assess how insurers are addressing availability, affordability, and sustainability. APRA will provide insights and advice to inform decision makers, including on the risks that exacerbate these challenges.
APRA is also focusing on a number of different areas across insurance including:
- Reinsurance pool: APRA has provided advice on the design and prudential implications of the reinsurance pool after the government announced the scheme last year. The pool is expected to ease premium pressure on households, strata-owners, and small businesses in areas more vulnerable to cyclone and related flood damage
- Strengthening insurance risk management: APRA will review self-assessments from insurers who are significantly exposed to BI. APRA will work with insurers to ensure areas identified by the assessments are addressed
- Sustainable products: APRA continues to keep a close eye on individual disability income insurance (IDII), in particular the new generation of products released late last year. APRA will work with life insurance companies and other industry stakeholders towards long-term product sustainability, both for IDII and other product lines
- Friendly societies: Over the first half of 2022, APRA will finalise its work on a stress test of friendly societies. A review of risk management and governance practices will also be undertaken
- Private Health insurance: APRA will focus on the unwinding of the Deferred Claims Liability. In June 2020, APRA issued PHIs with guidance on how to treat the liability arising for claims deferred due to COVID-19. APRA reports of continued uncertainty in the ultimate number of claims.
APRA has two key objectives for its supervision of superannuation. This includes:
- Rectifying sub-standard industry practices: APRA will focus their attention on funds with sub-standard practices that were previously identified in a review late last year. The regulator says they will ensure funds implement changes in a “timely and prudent manner”. APRA will also follow up on their Prudential Standard SPS 515 Strategic Planning and Member Outcomes and look at where improvements have been made across the sector
- Eradicating unacceptable product performance: Last year, APRA found that 13 MySuper products have failed the 2021 annual performance test as part of the Your Future, Your Super reforms (YFYS). With the recent publication of the inaugural Choice Heatmap in December 2021, this year the regulator will set its sights on non-My Super products to help improve member outcomes through fee reductions and improved investment performance.
- Modernising the regulatory approach to retirement prosperity: Under Government proposals, all funds will be required to “formulate and give effect to a retirement income strategy”. APRA will work with funds to ensure there is a focus on members’ characteristics and needs.
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