APRA's plan for the next four years: Mitigating against immediate risks and working to progress other key community outcomes 

The Australian Prudential Regulation Authority (APRA) has released an updated Corporate Plan – Corporate Plan 2020-24 – incorporating adjustments to priorities and timelines made in response to the changed external environment including the financial and economic impacts of COVID-19.  

APRA's key priority over the next 12-18 months is maintaining financial sector resilience

In light of the changed operational environment and the 'increasing risk of failure of one or more APRA-regulated institutions, APRA's priority over the next 12-18 months is to maintain financial system resilience by protecting the safety and soundness of APRA-regulated institutions, fostering their operational resilience during a period of significant disruption and enhancing contingency plans for adverse events'.  

The four key focus areas identified in the previous plan are unchanged 

APRA states that the revised plan continues to be grounded in the delivery of the same four community outcomes that underpinned the previous plan (Corporate Plan 2019-23) over the longer term, namely: 1) 'maintaining financial sector resilience; 2) improving outcomes for superannuation members; 3) transforming governance, culture, remuneration and accountability across all regulated institutions; and 4) improving cyber resilience across the financial system'.

In addition, APRA states that its commitment to implementation of the Hayne Commission recommendations and the recommendations of the capability review 'as soon as is practicable' remains unchanged as is its commitment to lifting its internal capabilities.  

APRA states that it will continue to respond to approximately 40% of remaining recommendations from various reviews in the immediate term, with the remainder implemented over the full period of the plan.

An infographic at p15 of the report provides a snapshot of how APRA's immediate and longer term priorities fit together.  

Further detail: Some key actions and timeframes

In his introduction to the plan, APRA Chair Wayne Byres comments that due to the current level of uncertainty, the plan is 'pays particular attention to clearly articulating the immediate priorities over the next 12-18 months' with more flexibility factored into the timing of deliverables in 2022-23.  In addition, the regulator will continue to review its priorities  'to ensure APRA remains responsive to risks and vulnerabilities in the financial system that could impact financial institutions and the broader Australian community'.  

[Note: The report includes a 'roadmap for change' (at p26) identifying some specific actions under each of the four focus areas and giving indicative milestones/completion timeframes.  This can be accessed on the APRA website: APRA 2020-2024 Corporate Plan]

1.  Maintain financial system resilience

Overall, APRA is looking to achieve three outcomes under this objective: 1) that APRA-regulated institutions maintain their 'balance sheet strength'; 2) to keep the number of failed APRA-regulated institutions low; 3) for APRA-regulated institutions to be in a position to participate of institutions in the economic recovery.  

Banking

• The key risk areas on which APRA will focus include: capital, liquidity and finding, credit and operational risk.  
• To protect the stability of the broader financial system, APRA will assess the impact of loan repayment deferrals and 'determining appropriate regulatory responses'.  
• APRA will also improve transparency by providing data and insights on the Australian banking sector.

Insurance

• The key risk areas on which APRA will focus include: capital, the sustainability of insurance products and 'responding to material risks and issues that could impact the viability/solvency of insurers'. 
• 'APRA will continue to focus on influencing the direction of the insurance industry in Australia to address sustainability and affordability issues and poor customer outcomes'.
• Finally, APRA will continue to review reinsurance arrangements by undertaking an analysis of the impact of COVID-19 and the associated economic downturn on the stability of reinsurers.  APRA states that it will take regulatory action were required. 

Superannuation

• APRA will focus on 'key areas of liquidity and investment risk, defined benefit funds, vulnerabilities arising from loss of member accounts and changing member activity and the operational resilience of key service providers including superannuation administrators'.  
• APRA will also assess the impact of the pandemic on funds and their members through undertaking industry-wide data collection and monitoring the impact of the early release of superannuation scheme.  

Specific actions and indicative completion dates under this objective 
By (roughly) the end of 2021, APRA plans to: 

• Address material risks/issues resulting from COVID0-19 at regulated entities as well as issues at 'industry hot spots'
• Review APRA's prudential framework in the immediate term in line with policy priorities published in August 2020
• Collect industry wide data and monitor the impacts of early release of superannuation benefits

In the longer term APRA plans to: 

• Finalise the ADI capital regime (July 2022 – June 2023)
• Release a framework on sustainable life insurance products and transform APRA's life insurance data collection (end of 2022)
• Have recovery/merger plans in place for all private health insurers (end of 2022)
• Continue to undertake regular stress testing (June 2024)

2.  Improve outcomes for superannuation fund members

Key focus areas under this objective include:

• Enhancing the prudential framework and strengthening a number of prudential standards applicable in the superannuation context including standards relating to insurance, investment governance and operational risk; 
• 'Sharpen[ing]' the supervisory focus (eg through conducting thematic reviews) into key issues such as outsourcing and conflicts of interest; trustee board capabilities and governance and unlisted asset valuations conducting thematic reviews 
• Pushing ahead with transforming data collections to address gaps in coverage and quality issues with the information being reported
•  Publishing heatmaps and benchmarking fund performance in key areas including: investment performance, fees, and insurance
• Facilitating the 'resolution or exit of persistently underperforming superannuation funds by using data driven insights and effective supervision'.

Specific actions and indicative completion dates under this objective

• Developing an implementation plan for the review of trustee board capability and unlisted asset valuations and completing the thematic review of outsourcing is planned for the second half of 2021.  
• Publishing the enhanced MySuper heatmap, Insurance heatmap and Choice Heatmap is planned for the first half of 2022
• The release reporting standards and delivery of phase one of the data transformation project is planned for July 2022
• Strengthening SPS 250 Insurance and SPS 530 Investment Governance is planned for the end of 2022.

3.  Improving cyber resilience across the financial system

In line with this objective APRA has been developing its 2020-2024 Cyber Security Strategy which is aimed at 'influencing the financial system more broadly' rather than being limited to APRA-regulated entities.  APRA seeks (resource levels permitting) to progress from its current focus on cyber supervision to this more 'expansive approach'.  

In the short term APRA will prioritise: executing the existing program of work/activity and translating its 2020-2024 Cyber Security Strategy into an actionable work program.  

Indicative timeline:  APRA observes that improving cyber resilience will necessarily be an ongoing task, with no end-state but that there are a number of actions that can be taken to reduce the impact of cyber incidents and the financial system, with the aim of 'continuously strengthening cyber resilience'. 
The plan indicates that APRA intends to have implemented its new and more expansive strategy by the end of 2024.  

4.  Transform governance, culture, remuneration and accountability (GCRA) across APRA regulated entities

Key short term actions under this objective include: 

• Improving accountability through working with the government to extend the Financial Accountability Regime to all APRA-regulated institutions in line with timelines to be advised by Treasury 
• Finalising and implementing Prudential standard CPS 511 Remuneration (the indicative timeframe for release of the standard is the first half of 2021)
• Undertaking a risk culture survey with a pilot group of regulated institutions in the first half of 2021, with the aim of developing a 'tool to benchmark and assess trends in risk culture across regulated institutions'.
• Continuing risk culture 'deep dives' at large Australian financial institutions, undertaking risk governance self-assessment follow up work and 'regular' prudential engagements (the indicative timeframe given is the end of the plan, June 2024).

Lifting APRA internal capability

As in the previous Corporate Plan, APRA notes that the execution of the strategy will require lifting internal capability at the regulator in key areas.  These include: a) improving and broadening risk-based supervision; b) improving APRA's resolution capability; c) improving APRA's external engagement and collaboration; d) data enabled decision making; and e) transforming APRA leadership, people and culture.

However, due to the changed environment, APRA has revisited and adjusted its priorities with a view to creating to 'capacity for APRA to deliver on its immediate priorities in response to the economic, financial and social impacts of COVID-19'.  Accordingly, APRA is focused in the short term on improving 'resolution capability and transforming leadership, culture and ways of working'.

Performance measures

Chapter 4 of the plan sets out the measures against which APRA will report on its own performance.  This can be accessed on the APRA website: APRA 2010-2024 Corporate Plan.   

[Sources: APRA media release 01/09/2020; 2020-2024 Corporate Plan]