In a speech to the Australian Banking Association Conference 2025, the Australian Prudential Regulation Authority (APRA) set out how it plans to reduce compliance burden and increase proportionality in banking, particularly for small and medium banks, while maintaining “unquestionably strong” resilience settings. The Chair also signalled intensified supervisory focus where risks are rising, notably cyber, operational and geopolitical risk. APRA cited its latest annual authorised deposit-taking institution stress test, modelled on a deep three-year global downturn with Australian gross domestic product falling 4 per cent, unemployment rising to 10 per cent and house prices falling 40 per cent, alongside a cyber incident at a bank-selected service provider causing critical system failure. In the results, the industry aggregate common equity tier 1 ratio fell to a minimum of 9.3 per cent and into regulatory buffers, and banks were assessed as able to meet liquidity obligations as they fell due. Against that backdrop, APRA said it has identified measures from the Council of Financial Regulators’ review of small and medium banks to simplify and better tailor requirements, including formalising a three-tier banking proportionality framework, streamlining and clarifying internal ratings based accreditation, improving communication on Pillar 2 minimum capital decisions, and amending the bank licensing framework to make expectations more transparent and processes more efficient. It also flagged that macroprudential settings remain on hold, with discussions to start on implementation aspects of tools that could include limits on riskier forms of residential lending. Next steps include moving “soon” to the three-tier approach, producing an interim update in the next few months on its governance review consultation (following nearly 80 submissions and more than 50 stakeholder meetings), and conducting a series of prudential reviews of compliance with the operational risk standard CPS 230 starting with significant financial institutions before extending to non-significant institutions. Further reviews are also planned to assess how entities are meeting CPS 234 information security requirements, alongside APRA’s broader work with other regulators on geopolitical resilience.
Australian Prudential Regulation Authority 2025-07-24
Australian Prudential Regulation Authority outlines three-tier bank proportionality reforms and steps up CPS 230 and CPS 234 supervisory reviews
The Australian Prudential Regulation Authority (APRA) plans to reduce compliance burdens and enhance proportionality for small and medium banks, focusing on rising risks like cyber, operational, and geopolitical threats. APRA will implement a three-tier banking proportionality framework, streamline internal ratings-based accreditation, and improve communication on capital decisions, while macroprudential settings remain unchanged. Further reviews will assess compliance with operational risk and information security standards.