APRA to modernise standards amid ‘emerging risks’ including crypto assets and digital ledger technology
The regulator’s plan to ‘modernise’ the prudential framework will see it address emerging risks, including crypto assets and digital ledger technology.
APRA’s plan to ‘modernise’ the prudential framework will see the financial regulator simplify the design of standards while making them clearer for industry and more adaptable for a digital future.
The financial regulator on Monday released an information paper on its multi-year project to reshape the architecture of standards and guidance for the financial services industry, with a focus on a digital-first approach.
“Since APRA’s creation in 1998, the prudential framework has expanded and evolved in response to new risks, changes in legislation and developments in the external environment,” outgoing APRA chairman Wayne Byres said.
“With 140 prudential standards and prudential practice guides now covering the five APRA-regulated industries – as well as letters, information papers and FAQs – the framework has become more complex, and in turn more challenging for entities to follow.”
The modernised framework will need to address a range of emerging risks, the regulator said.
“These include the advent of crypto-assets and digital ledger technology, the financial risks associated with climate change, and the increasingly prevalent risks associated with cyber security.
“In addition, there are innovative business models and changes in group structures that are creating new challenges and accentuating existing risks,” APRA cautioned.
Rather than add to more standards to cater to these new risks and new business models, APRA said it intends to develop a more integrated approach by enhancing existing requirements where possible, as opposed to bolting on new standards.
The regulator is seeking to establish a clear, simple and adaptable framework that will still set minimum standards for banks, insurers and super funds as technology, business models and community expectations change, Mr Byres said.
“Our end-goal is a digital framework that will be easier for industry to understand and comply with, and for APRA to supervise and maintain – and ultimately to better protect Australians’ financial interests,” Mr Byres said.
APRA’s focus on modernising the architecture is on the structure and design of the elements within the prudential framework – standards, guidance and advice – rather than on changes to legislation, the regulator said.
“Navigating the prudential framework and the network of supporting advice can be complex, as it continues to be updated over time,” the regulator said in the paper.
“Complexity makes it difficult for regulated entities to find and understand requirements, complicating risk management and amplifying compliance costs.”
The prudential framework will also need to be more adaptable to cater for new financial activities and risks on the horizon, APRA noted, as it called out three separate challenges: digitisation, new business models and changes expectations.
“Both the financial system and the prudential framework appear to be at an inflection point. While the framework has been effective in supporting safety and stability over the past 20 years, it will need to change and adapt to continue to do so for the next 20 years and beyond,” the regulator warned.
APRA is seeking feedback from industry on the challenges and opportunities posed by the regulatory framework by November 30.
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