The Council of Financial Regulators' quarterly statement said Australia's financial system has remained resilient, with banks holding strong capital and liquidity positions and lending standards remaining prudent, but judged that financial stability risks still require close monitoring. The Council backed the Australian Prudential Regulation Authority's decision to leave macroprudential settings unchanged after its May review, while stressing that heightened geopolitical uncertainty and a more complex operational risk environment are keeping global risks elevated. A central focus of the meeting was preparedness for geopolitical disruption and the impact of frontier artificial intelligence on cyber risk. The Council said direct Australian financial system exposures to the Middle East are limited, but recent developments reinforce the need for stronger contingency planning, including back-up payments arrangements, security controls and communication protocols. It also said frontier AI models have intensified cyber risk in an already elevated threat environment, and discussed with the Department of Home Affairs and the Australian Signals Directorate how regulators and security agencies can strengthen incident-response coordination, manage third-party risk and encourage faster patching, reduced attack surfaces and stronger baseline cyber practices across financial institutions. Separately, the Council discussed the progress of Australia's 2026 Financial Sector Assessment Program with the International Monetary Fund, with the final Financial System Stability Assessment due later this year. It also reviewed implementation of actions from the review into small and medium-sized banks, considered Treasury's completed consultation on a cash distribution regulatory framework, and noted ongoing cross-agency work under the Better Regulation Roadmap, including an implementation plan to streamline data collection and sharing.

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