The Australian Prudential Regulation Authority (APRA) used remarks to the customer-owned banking sector to underscore that “strategic risk” is becoming a more acute driver of long-term sustainability for mutual banks and to share findings from APRA’s thematic review of recovery and exit planning ahead of the commencement of CPS 190 Recovery and Exit Planning at the start of 2025. APRA linked strategic risk to shifts in customer behaviour and technology, rising fraud and cyber threats, and the need to meet operational resilience expectations set out in CPS 230 Operational Risk Management, as well as potential spillovers from overseas shocks. It also highlighted governance and capability pressures, noting that almost 80 per cent of APRA-regulated entities under heightened risk-based supervision have underlying governance problems, and pointed to its recently released governance consultation as aiming to modernise expectations, streamline where possible and clarify what boards can delegate and what senior executives must do to support them. For mutuals specifically, APRA pointed to gaps in board skills, particularly technology, and longstanding tenure issues. On recovery and exit planning, APRA said its thematic review found triggers were often set too late and too close to regulatory minimums for capital and liquidity, were overly complex or ambiguous, and frequently lacked non-financial triggers; proposed recovery and exit actions were often not credible or readily executable, with limited preparatory measures and, in some cases, no preferred exit option. Better practice cited included earlier warning indicators with cascading triggers, quantified impacts of recovery options, and more execution-ready exit preparations such as due diligence and approvals planning for business transfers, with the “gold standard” being a signed, non-binding agreement with a potential partner. APRA positioned CPS 190 as a board tool to retain control in a crisis, warning that weak preparation increases the likelihood of supervisory intervention to protect depositors and financial stability. It also pointed to ongoing work through the Council of Financial Regulators Review of Small and Medium Banks, alongside peer regulators and the Australian Competition and Consumer Commission, to consider changes that support competition and consumer choice without undermining safety and stability.
Australian Prudential Regulation Authority 2025-03-14
Australian Prudential Regulation Authority flags weaknesses in mutual banks’ recovery and exit planning and calls for stronger strategic risk management
APRA stressed the growing importance of strategic risk for mutual banks due to customer behavior shifts, technology, and cyber threats. Its review of recovery and exit planning, before CPS 190's 2025 implementation, found issues like late triggers and complex plans without non-financial indicators. APRA noted governance challenges in board skills and tenure, aiming to modernize expectations. It warned that inadequate CPS 190 preparation could prompt supervisory intervention and is working with the Council of Financial Regulators to boost competition and consumer choice while ensuring stability.