What Is the Australian Prudential Regulation Authority?

Lauren Mcmenemy
6 min read
With the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry taking over headlines in Australia, some of the country's more obscure regulators had some time in the limelight. And while most in Australia will have heard of ASIC ' the Australian Securities and Investment Commission, the body often mentioned in news dispatches relating to financial misconduct and complaints ' a different body was right there alongside it this time, one that is usually less newsworthy.

The role of the Australian Prudential Regulation Authority, or APRA, was called into question during the Banking Royal Commission, with both regulatory bodies coming in for some particularly brutal words from the Royal Commission's leader, Justice Hayne. As the findings were handed down, industry bodies such as the Australian Institute of Company Directors backed calls for the roles of ASIC and APRA to be clarified, for regular capability reviews of both bodies to be held, and for a new oversight authority to be established to make sure each regulator discharges its functions and meets its statutory objects.

The Royal Commission believes this body isn't doing its job well enough. But what is the Australian Prudential Regulation Authority? And what role does it play in the Australian financial and banking sector?

An Introduction to the Australian Prudential Regulation Authority

The Australian Prudential Regulation Authority is an independent statutory authority that supervises institutions across banking, insurance and superannuation (pensions) across Australia. Its role is to promote financial system stability by keeping a close eye on how certain financial services businesses operate within the Australian system.

APRA is accountable to the Australian parliament, having been set up by the Australian Prudential Regulation Authority Act 1998 in response to the Wallis Royal Commission, the previous investigation into Australia's financial services sector, which looked at the impact of deregulation. APRA was predated by the Insurance and Superannuation Commission (ISC), a body that was absorbed into the newly established agency in 1998.

Under the legislation, APRA is tasked with protecting the interests of depositors, policyholders and superannuation fund members. It cannot, however, guarantee that no financial institution will ever fail. If a regulated institution does fail, the Australian Prudential Regulation Authority then takes on the role of administering the Financial Claims Scheme once it is activated by the Australian Government. This allows those with money in the failed institution to access their funds (up to a limit) in a timely manner, and/or provides general insurance policyholders with access to funds (up to a limit) to meet an eligible claim.

The Role of the Australian Prudential Regulation Authority

Prudential regulation, says APRA, 'is concerned with maintaining the safety and soundness of financial institutions, such that the community can have confidence that they will meet their financial commitments under all reasonable circumstances.' It is a type of financial regulation that requires financial firms to control risks and hold adequate capital as defined by capital requirements.

This means that the Australian Prudential Regulation Authority's regulatory scope includes oversight of banks, credit unions, building societies, friendly societies, general insurance, health insurance, reinsurance and life insurance companies, and most members of the superannuation industry. Its role is to make sure that these institutions keep their financial promises ' that they will remain financially sound and able to meet their obligations to depositors, fund members and policyholders. It also regulates the licenses required by these bodies to operate, and provides official statistics on the Australian financial sector to the government and other interested bodies.

The Australian Prudential Regulation Authority currently supervises institutions holding around A$5.4 trillion in assets for Australian depositors, policyholders and superannuation fund members. Those member institutions are required to report to APRA on a regular basis, with the reporting requirements differing between institution type. In-house compliance teams must be aware of these requirements to ensure that the institution doesn't fall into non-compliance, as APRA's enforcement powers include the ability to levy fines and commence formal legal action against individuals or whole companies.

The Difference Between ASIC and APRA

While the Australian Prudential Regulation Authority is responsible for ensuring that Australia has a stable, efficient and competitive financial system, the Australian Securities and Investments Commission (ASIC) has responsibility for market integrity and consumer protection. It also regulates investment banks and finance companies.

In crude terms, ASIC is the more consumer-facing regulatory body, and it oversees the Financial Ombudsman Service, which received more than 30,000 complaints per year, and the Credit and Investment Ombudsman. It's an Australian Federal Government agency that enforces laws relating to companies, securities, financial services and credit in order to protect consumers, investors and creditors.

While things are more nuanced and there is some overlap between various regulators, it's simple to think of ASIC as the consumer and investor protection agency and APRA as being responsible for the licensing and prudential supervision of authorized deposit-taking institutions, life and general insurance companies, and superannuation funds.

When Governance Meets the Australian Prudential Regulation Authority

The Australian Prudential Regulation Authority does demand that member institutions provide it with certain information on a regular basis, and is in that sense an essential partner to compliance and governance teams in the Australian financial services sector. This relationship has become increasingly important following the Banking Royal Commission, which did not have good things to say about how APRA has conducted its regulatory oversight role in the past.

That Banking Royal Commission has important ramifications for governance:

  • Increased regulatory scrutiny is expected, so commentators are expecting both ASIC and APRA to step up the pressure on all financial services players from here on in.
  • As part of that increased regulatory scrutiny, organizational structures need to be clear. It's likely APRA will want to look closely at the relationships between parent entities and their subsidiaries to ensure that there's no unauthorized or pressure-driven cross-selling or board-related interference in subsidiary operations.
  • The role of the Board came into question, with the boards and senior management of institutions taken to task for their role in setting a culture of sales at all costs from the top. Boards must be clear on what's expected of them, and must have enough time to scrutinize operations and prepare properly for meetings.

To ensure that your organization does not fall afoul of the Australian Prudential Regulation Authority, instill a culture of modern governance in your organization. This means harnessing the power of entity management software, board portals and secure document-sharing systems to increase security, communication and transparency within the organization.

Governance software, such as Diligent's seamlessly integrated Governance Cloud solution ' provides a central repository for your entity documentation. As it's cloud-based, it allows for easy collaboration and sharing of documents, and it establishes a single source of truth for all data, from director information to entity diagrams and reporting.

Get in touch and schedule a demo to see how Diligent's Governance Cloud can help keep your corporate record up to date so you're ready if the Australian Prudential Regulation Authority shines its light on your processes.
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Lauren McMenemy

Lauren has been writing about the world of compliance and governance for half a decade, but she's been a journalist and copywriter for longer '' that's 20 years spent writing for media, for agencies and for businesses across sectors including finance, professional services, healthcare, technology, energy and entertainment. As an editorial strategist, she has set the tone for national and multinational companies, and loves nothing more than getting to the heart of great stories. An Aussie in London for 13 years, and married to a true English eccentric.