Financial services sector braces for APRA governance overhaul spanning key appointments, conflicts

Super funds, banks and insurers may face tougher governance requirements, including stricter fit and proper person provisions, as the prudential regulator readies a sweeping consultation paper.

APRA, led by John Lonsdale, is preparing to release a detailed paper as part of a sweeping review of the governance framework. Picture: Chris Pavlich

Superannuation funds, banks and insurers may face tougher governance requirements, including stricter provisions around whether key appointments are fit and proper persons, as the prudential regulator readies a sweeping consultation paper.

The Australian Prudential Regulation Authority is planning to release the detailed paper proposing a refresh to the governance framework in coming months, according to sources, with the intention to engage more closely with industry on draft standards in the latter months of 2025. They said implementation of a new regime and standards would probably occur next year.

An APRA spokesman declined to comment on the timetable for the governance review and its outcomes.

However, the potential for more stringent Australian governance requirements would come as financial institutions in markets including the US prepare for a deregulation push and cuts to red tape.

APRA is believed to be taking a closer look at governance in light of controversy last year surrounding industry fund giant Cbus and its links to the embattled Construction Forestry and Maritime Employees Union. An independent review at the time concluded that the current and nominated directors on the Cbus board met the fit and proper test.

The independent assessment was triggered by APRA imposing additional licence conditions on Cbus’s trustee, forcing it to review the fit and proper standard and their compliance with a duty to act in the best financial interests of fund beneficiaries.

The APRA review this year will look at refreshing the prudential standards that cover governance, conflicts of interest and the fit and proper test, which have not been the subject of substantial revision in about a decade.

The review is being spearheaded by APRA’s policy division and will span all the industries the regulator oversees, including banking, insurance and super, while also assessing governance models employed offshore.

APRA is believed to be taking a closer look at governance in light of controversy last year surrounding industry fund giant Cbus and its links to the CFMEU. Picture: David Clark

APRA chair John Lonsdale last year indicated a review of the governance framework would occur, but did not provide detail around the timing or specifics.

“Our goal is to create a single cross-industry standard that strengthens our expectations on directors’ skills and integrity to ensure boards are better positioned to respond to uncertainty and shocks in the operating environment,” Mr Lonsdale said in a speech in November.

Ashurst partner Scott Charaneka on Wednesday said he expected part of APRA’s review to centre on the potential to limit a superannuation trustee’s discretion in making key appointments, particularly if a director or executive had an adverse finding or ruling against them.

“It is a very healthy debate and I think most trustees would welcome the certainty or clarity,” Mr Charaneka said.

Under the current standard, the “ultimate responsibility” for ensuring the fitness and propriety of responsible persons lies with the financial institution’s board of directors or equivalent. APRA’s standard requires those caught by it to have “appropriate skills, experience and knowledge, and act with honesty and integrity”.

The fit and proper test was also drawn on heavily in 2024 at Bendigo and Adelaide Bank. Its board conducted a formal assessment last year into whether non-executive director and former Star Entertainment executive chairman David Foster was a fit and proper person to oversee a deposit-taking institution.

Mr Foster, who was entangled in damaging revelations around Star, took a leave of absence from Bendigo Bank’s board in April and resigned from the role in September.

The NSW casino regulator eventually made a spate of adverse compliance findings against Star, but did not take ­action against Mr Foster.

Ashurst’s Mr Charaneka said with regards to APRA’s conflicts of interest standard that he thought the current regulation was sufficient.

“We already have a lot of regulation of this space. I can’t see a case for further reform,” he said, noting legislative covenants in superannuation as well as other requirements, including that funds act in members’ best financial interests.

Morgan Stanley Australia equity strategist Chris Nicol highlighted deregulation as a prominent financial markets theme in 2025, particularly given Donald Trump’s second term as US President.

“We’re definitely focusing on the deregulation aspects that the new administration could bring. You’ve seen that reflected in global banks and US banks,” he said.

“Deregulation can bring animal spirits into the largest economy in the world.”

Morgan Stanley’s global research has noted banks may see significantly lower capital requirements following Mr Trump’s ascendancy.

The research relates to the latest Basel update to global capital standards. Morgan Stanley’s analysts noted that, while prior indications suggested a 9-19 per cent rise in capital requirements for banks, Mr Trump’s presidency could see the Federal Reserve put the measures on ice or implement a “capital neutral” version.

Separately, Commonwealth Bank, ANZ, Macquarie Group, Westpac and National Australia Bank this week came under pressure from a rump of Coalition MPs and New Zealand Resources and Regional Development Minister Shane Jones to exit the Net Zero Banking Alliance.

That follows decisions by a spate of US banks – including Citigroup, Bank of America, Goldman Sachs and Morgan Stanley – to exit the alliance.

Originally published as Financial services sector braces for APRA governance overhaul spanning key appointments, conflicts