The Australian Prudential Regulation Authority (APRA) set out its latest view of financial system vulnerabilities and current policy and supervisory priorities, including the publication of its first System Risk Outlook report and plans to activate limits on high debt-to-income home lending from February 2026. The System Risk Outlook groups risks into geopolitical risk, housing risks and risks linked to interconnectivity and the growing systemic importance of superannuation. Work is under way with other Council of Financial Regulators agencies on a dedicated geopolitical risk program, while housing-related vulnerabilities highlighted include high household debt, higher debt-to-income and loan-to-valuation borrowing and increased investor lending. Phase 1 of APRA’s inaugural system risk stress test suggested superannuation can provide capital support to banks but may amplify vulnerabilities in some circumstances; APRA also flagged direct engagement with lagging trustees following the joint APRA and Australian Securities and Investments Commission 2025 Retirement Income Covenant Pulse Check report. Separately, APRA is escalating supervision of superannuation platform trustees’ investment governance following the collapses of First Guardian and Shield, including a November 2025 letter calling for faster safeguards and the potential use of enforcement tools where prudential concerns are elevated. On framework modernisation, APRA has adjusted governance proposals, including extending a proposed non-executive director tenure limit to 12 years and dropping a proposal for significant financial institutions to engage early on responsible person appointments and succession planning, and has commenced banking consultation on a more accessible pathway to the internal ratings-based approach alongside proposals affecting general insurance reinsurance settings and life insurance capital for longevity products. Next steps include the February 2026 activation of the high debt-to-income lending limits, the start of Phase 2 of the system risk stress test, and the launch in the coming days of formal consultation on a third tier in the banking prudential framework to embed greater proportionality and support competition.
Australian Prudential Regulation Authority 2025-12-03
Australian Prudential Regulation Authority releases System Risk Outlook and plans high debt-to-income mortgage lending limits from February 2026
The Australian Prudential Regulation Authority (APRA) has identified financial system vulnerabilities and policy priorities, including its first System Risk Outlook report and plans to limit high debt-to-income home lending by February 2026. Risks are categorized into geopolitical, housing, and superannuation-related areas. APRA is working with other agencies on geopolitical risks and addressing housing vulnerabilities like high household debt. The system risk stress test shows superannuation can support banks but may increase vulnerabilities. APRA is enhancing supervision of superannuation trustees' investment governance and adjusting governance proposals. Upcoming actions include activating lending limits, starting Phase 2 of the stress test, and consulting on a third tier in the banking prudential framework.