The Australian Prudential Regulation Authority (APRA) has released today eight proposals to strengthen its prudential governance framework for banks, insurers and superannuation trustees.
This represents the first significant update to APRA's governance standards for more than a decade.
The proposals will ensure that APRA's governance standards reflect contemporary best practice and establish clear benchmarks for regulated entities. The proposals address current areas of poor practice and will help ensure that all regulated entities are governed by leaders with the skills, experience and character needed for today's complex risk environment.
APRA Chair John Lonsdale said effective governance is fundamental to financial stability and sound risk management.
"The boards of Australia's banks, insurers and superannuation trustees have enormous responsibilities when it comes to protecting the financial interests of households and businesses. Well-governed institutions are likely to be more resilient in times of stress, while poor governance can create weakness that leads to misconduct, losses and failures. It is no coincidence that almost 80 per cent of entities subject to heightened risk-based APRA supervision have underlying governance problems.
"While overall standards of governance have improved over recent years, we still see areas of weakness, including entities treating compliance with some requirements as a box-ticking exercise.
"By articulating our expectations more clearly and strengthening our capacity to ensure compliance with them, we aim to lift governance standards among entities that are lagging best practices and bring them into line with contemporary expectations."
APRA's proposed changes include:
- lifting requirements for boards to ensure they have the right mix of skills and experience to deliver the entity's strategy
- raising minimum standards around the fitness and propriety of responsible persons, and requiring significant financial institutions to engage with APRA on succession planning and potential appointments
- extending existing requirements for superannuation trustees in relation to managing conflicts of interest to banking and insurance
- strengthening board independence, especially in relation to entities that are part of a group
- clarifying APRA's expectations around the roles of boards, the chair and senior management
- introducing a lifetime tenure limit of 10 years for non-executive directors at an APRA-regulated entity
The changes would be applied proportionately with reduced expectations in some areas for smaller and less complex financial institutions. APRA is also seeking to streamline its governance framework by stripping away duplicative or unnecessary requirements and developing a single set of prudential standards for all APRA-regulated industries.
"In developing these proposals, we aim to lift higher standards without adding undue cost burden. Most proposals will involve little change for entities with mature governance practices. Clarifying the role of the board should help to ease the workload for directors and enable them to focus on the most important strategic issues", Mr Lonsdale said.
During the three-month consultation period, APRA will seek perspectives from a wide range of stakeholders including banks, insurers and superannuation trustees and their respective directors, industry bodies and consumer representatives.
Equipped with this feedback, APRA intends to release updated prudential standards and guidance for formal consultation in the first half of 2026. APRA aims to publish the updated framework by the beginning of 2027 ahead of it commencing by 2028.
Today's discussion paper is available on the APRA website at: Governance Review - Discussion Paper.
