On the back of recent US regional banks’ failures and an increasingly complex economic environment for banks to navigate, the Australian Prudential Regulation Authority (APRA) has refreshed their policy priorities for Authorised Deposit-taking Institutions (ADIs) in Australia.
These changes were made in the spirit of reviewing pressing policy reform areas, prioritising immediate actions to strengthen standards for banks and providing ADIs with the tools to enhance operational resilience and crisis preparedness.
Updates to APRA policy priorities
APRA will consult on targeted changes to Prudential Standard APS 210 Liquidity (APS 210), focused on the treatment of liquid assets for ADIs on the minimum liquidity holdings approach. Consequently, APRA will move the comprehensive review of APS 210 to 2024.
Interest rate risk
To further consider consultation feedback from industry and lessons learned from banking stress events overseas, APRA will take additional time to finalise Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (APS 117). The revised standard will be released in late 2023 and its effective date will be moved back to ensure sufficient implementation time for ADIs. APRA will also extend the scope of the review of APS 117 to consider the treatment of smaller ADIs (non-significant financial institutions).
Additional Tier 1 (AT1)
The Council of Financial Regulators (CFR) discussed the challenges faced by policymakers in responding to bank stress, as highlighted during the recent bank crisis events in the United States and Switzerland. The CFR noted the importance that crisis management tools, including AT1, should operate as intended. APRA will issue a Discussion Paper to explore options for, and seek feedback from stakeholders on, improving the effectiveness of AT1 capital in Australia, ahead of potential consultation in 2024.
Capital framework updates
Industry have raised a number of issues for consideration by APRA during the implementation of the capital reforms earlier this year. APRA will consult on minor updates to the bank capital framework in relation to these issues.
2023 policy priorities
What is it?
The APRA CPS 230 Operational Risk Management is a new operational risk standard designed to ensure all APRA-regulated entities are prepared for risk events and have resolution management plans in place to respond to these events and minimise the impact of failure. ADIs will need to strengthen their operational risk standards in line with updated APRA policy priorities.
- Be prepared for risk events
- Be resilient
- Protect the entity and the community
What is it?
The CPS 900 is a resolution planning framework to help organisations strengthen their abilities to withstand stress and reduce their need for taxpayer-funded support in the event of a crisis.
Key requirements for ADIs
Under these APRA standards, APRA-regulated entities must:
- conduct a resolvability assessment to identify any barriers to resolution management
- develop and implement a crisis preparedness plan to minimise barriers to resolution
- establish and maintain capabilities to support APRA in effecting a resolution
- review and update the resolvability assessment at least every three years.
How will the policy priorities updates affect your organisation?
KPMG can help you navigate APRA’s new prudential standards.
The team at KPMG has deep expertise in supporting organisations in resolution planning, crisis management and operational risk management as APRA prudential standards evolve. We can assist you in responding to the policy priorities annual updates and help you understand what they mean for you.