Opening Statement to the House of Representatives Standing Committee on Economics - June 2023

John Lonsdale, Chair - Australian Prudential Regulation Authority

Thank you for the opportunity to appear here today to discuss APRA’s 2021-22 Annual Report.  

Since our last appearance before this committee in October 2022, there has been a leadership change at APRA with the appointment of new members to the Executive Board.  

In addition, in February, we announced an internal reorganisation which saw the creation of a new Technology and Data division, as well as a Chief of Staff division. This reorganisation is aimed at ensuring our leadership structure better aligns with our strategic priorities and the accountabilities for delivering on them.     

Clearly, since we published the 2021-22 annual report in October there have been several developments in the Australian financial system.  

One of the key constants in our updates to the committees we appear before and our message to the Australian community is that the Australian financial system is fundamentally sound. However, in these uncertain times, APRA needs to be extra vigilant in managing the resilience of the system to protect depositors, insurance policyholders and superannuation members.  

Earlier this week, APRA appeared before the Senate Estimates Economics Committee where we made detailed comments on the strength and safety of the Australian banking system and what APRA has been doing to maintain that system resilience, particularly in the light of offshore banking failures. 

I want to emphasise again to this Committee the importance of a strong and safe financial system to the effective functioning of the economy. Maintaining and building on this safety and addressing and mitigating risks to it is the primary focus of APRA’s work and planning.  

To that end, earlier this year, we published our short-term supervision and policy priorities to ensure we are delivering on our primary financial safety mandate at a time of global economic uncertainty. 

APRA’s current agenda focuses on embedding recent regulatory reforms, as well as bolstering operational resilience and ensuring entities have sufficient financial strength to act as a buffer against any emerging financial stresses.  

Key policy priorities include: 

• completing key reforms to strengthen the financial and operational resilience of APRA-regulated entities, including in areas such as operational risk management and remuneration; 
  
   
• continuing focus on transparency and efficiency in superannuation, with the annual performance test (which this year will incorporate hundreds more products compared with last year), alongside longer-term consideration of retirement income frameworks, with ASIC; 
  
   
• progressing APRA’s plan to modernise the prudential architecture, a core strategic initiative designed to make the framework clearer, simpler and more adaptable; and 
  
   
• reviewing core standards, including governance and the regulation of conglomerate groups. 

Key supervision priorities include: 

• heightened supervision of cyber resilience through detailed assessments and rigorous pursuit of breaches; 
  
   
• embedding the capital reforms for banks and insurers; 
  
   
• continuing to hold trustees to account to improve outcomes for superannuation members; and 
  
   
• ongoing work to address challenges in the availability, affordability and sustainability of insurance. 

Delivering on these priorities is well underway. Earlier this month, we finalised new requirements and guidance aimed at strengthening the preparedness of banks, insurers and superannuation funds to respond to a crisis. The reforms are the culmination of several years of policy development to ensure the financial system is better prepared to manage periods of stress. 

In addition, we expect to publish a new cross-industry standard on operational risk management in the next month or so. This standard, CPS 230, is designed to strengthen the management of operational risk in the banking, insurance and superannuation industries, including the management of contractual arrangements with service providers.  

These initiatives, alongside our broader direction in preserving the safety, resilience and community confidence in the system will be detailed further in our updated Corporate Plan and Annual Report, due out in August and October respectively.  

Finally, I want to acknowledge Deputy Chair Helen Rowell’s impending retirement from APRA at the end of June after 21 years of dedicated service. Helen held a number of senior roles at APRA before becoming an executive Board Member in 2013.  

Helen has made a significant contribution to APRA in her time here, especially in superannuation where she oversaw the creation and implementation of APRA’s prudential framework for that industry.  

Helen was the first woman appointed as an APRA Executive Director, Member and Deputy Chair. She will be greatly missed by all who worked with her here, and we wish Helen all the best wherever the next stage of her career takes her. 

On that note, we are happy to take your questions.