APRA Proposes New Governance Standards

Late last week, the Australian Prudential Regulation Authority (APRA) proposed a number of updates to its prudential governance framework for banks, insurers, and superannuation trustees.

"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," said APRA Chair John Lonsdale. "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."

APRA's proposed changes include:

• Lifting requirements for boards to ensure they have the right mix of skills and experience;
• Raising minimum standards around the fitness and propriety of responsible persons;
• Requiring significant financial institutions to engage with APRA on succession planning and potential appointments;
• Extending existing requirements for superannuation trustees regarding conflicts of interest to banking and insurance;
• Strengthening board independence;
• Clarifying APRA's expectations around the roles of boards, chairs, and senior management; and
• Introducing a lifetime tenure limit of 10 years for non-executive directors.

"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," Lonsdale said.

In an article from Starling's 2024 Compendium, Chris Gower, Executive Director of the Cross-Industry Insights Division at APRA, explains why culture and governance are matters that warrant focus from prudential regulators.

"It has long been recognised that deficiencies in governance and risk culture can be early indicators of potential financial risks," Gower writes. "However, in a world where complex non-financial risk is growing rapidly, global regulators are increasingly recognising that the key to viability is not only to require more capital and liquidity, but also for supervisors to require good governance and a sound risk culture." ▸ Read More