APRA wants to update the prudential governance framework for banks, insurers, and superannuation trustees. The move is the first significant update to its governance standards for more than a decade.
It has proposed eight changes it says will ensure APRA’s governance standards reflect contemporary best practice and establish clear benchmarks for regulated entities.
The proposals address what it says are 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 says: “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.”
Lonsdale says that while overall standards of governance have improved over recent years, he sees areas of weakness, including entities treating compliance “as a box-ticking exercise”.
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, says Lonsdale, would be applied proportionately with reduced expectations in some areas for smaller and less complex financial institutions.
Well-governed institutions are likely to be more resilient in times of stress…
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.
The organisation is now putting out its proposed changes for consultation. APRA intends to release updated prudential standards and guidance for formal consultation in the first half of 2026, and aims to publish the updated framework by the beginning of 2027 ahead of it commencing by 2028.
Click here to find out more about the governance review.
