On Monday, APRA issued its 2022-23 corporate plan detailing how the regulator intends to ensure Australia’s financial system is stable, competitive and efficient in the years ahead.
The plan retains a focus on the two themes outlined in APRA’s 2021-2025 corporate plan released last year, namely being ‘protected today’ and ‘prepared for tomorrow’.
APRA said that the new plan was designed to respond to the rapid changes in its operating environment, with external environmental factors including rising inflation and interest rates, escalating geopolitical tensions and a range of new technologies.
“Despite the economic challenges of the past two years, Australia’s financial system remains stable and resilient. In part, this is the result of many years of preparatory work by APRA and the institutions we supervise,” said APRA chair Wayne Byres.
“However, we cannot afford to be complacent. Global economic conditions are forecast to deteriorate over the period ahead, exacerbated by the ongoing war in Ukraine, while the increases in cost of living and recent flooding events remind us that Australia is facing its own turbulence.”
To preserve the financial and operational resilience of banks, insurers and super funds, APRA stated that it would continue to target its supervisory and policy activities in a number of areas and also use its suite of regulatory powers when necessary to achieve desired outcomes.
For the super sector, the regulator plans to intensify pressure on trustees to stop offering products with high fees and poor performance while also scrutinising choice super products.
It aims to achieve this through its annual performance tests and heatmaps along with heightened supervision of trustees of products that fail or perform poorly on the tests and by using its prudential powers to take action against trustees when it is warranted.
While recently noting that it does not have an optimal size in mind for the super sector, APRA said it wants to accelerate “beneficial industry consolidation” in order to establish viable and durable business models across the sector.
Additionally, it will seek to continue rectifying substandard practices through robust supervision, the strengthening of prudential standards and reinforcing minimum expectations regarding a number of issues including fund expenditure, investment governance and strategic and business planning.
On the banking sector, APRA stated that it would heighten its vigilance on the flow-through effects from COVID-19, geopolitical tensions, rising inflation and higher interest rates as part of its core supervisory activities to ensure Australia’s banks remain resilient.
The regulator said it would embed key prudential reforms, including ‘unquestionably strong’ capital ratios, Basel III requirements and its prudential standard for remuneration, while also upgrading the business continuity and contingency practices of banks with a focus on recovery planning, operational resilience, and critical function resolvability.
In the insurance sector, strengthening governance, risk management and business strategy practices were outlined as key priorities. According to APRA, this will include addressing deficiencies identified in self-assessments undertaken by general insurers and embedding new capital requirements for private health insurers.
APRA will maintain its focus on promoting the sustainability of insurance products for the long-term benefit of consumers. It also seeks to align the prudential framework with the Australian Accounting Standard Board’s new accounting standard for insurance contracts.
Improving resilience and reducing the risk and impact of a disorderly exit of an insurer by ensuring effective continuity, recovery and resolution plans are also goals for the regulator.
Across the financial system more broadly, strengthening cyber resilience and embedding good governance, risk culture, remuneration and accountability practices were stated as being priorities.
“As Australia’s prudential supervisor, APRA wants to see banks, insurers and superannuation trustees retain their financial and operational strength. That best positions them to support their customers through periods of volatility and disruption,” said Mr Byres.
“Our latest Corporate Plan will help us achieve these objectives by focusing on delivering our existing strategic priorities whilst keeping a watchful eye on changes in our operating environment and responding as needed.”
From APRA, supportive of super consoludation, but no optimal size for super industry; fully priced insurance contracts that are conisderably weaker.
From ASIC, destroy mid-level financial advice. While remediation projects were a worthy achievement, from here-on, Consumers, with 10% of your pay to super, you are on your own.
From the RBA, your interest rates, and cost of owning a home, will rise permanently (talk about sequencing risk!).
From the Government, the highest debt levels in over 20 years, rising rates, and no clear fiscal plan.
We pay full price for the cost of ‘world-class’ regulation. In good times, this is beneficial.
I would argue however that the outlook is for an increasingly poor return.
Insurance? What’s insurance? Haven’t written any in years, and don’t plan to. Takes 5 times the work compared to other advice, yet generates one fifth of the revenue. It’s a broken model.
Not too mention the NDIS now gives out tens of thousands to anyone with a sore toe also.
Then you have providers jacking up my clients “level” premiums in absurd increments after years of selling the concept to us advisers as “premiums will only adjust for inflation, not due to age” (there was no disclaimer of “plus as our actuaries see fit to retain profitability”).
On top of all of that insurance companies are like dealing with Telstra now. Apart from maybe TAL, I’ve had issues with basic admin processes with al the majors, none worse than MLC though.
Insurance requires specialisation these days, too bad the industry got rid of most of those experts.
Yesterday has gone can’t go backwards but you can learn from it…A better plan Wayne would be to first fix the today plan mess that FP has become so the tomorrow FP plan of hope can actually work…Suggest you listen to FP advisers urgently then go and tell Michelle Levy as so many FP futures and related staff are in her hands…
APRA is considering the impact on insurance of interest rates, geopolitical issues, and technology. But there is no mention of them considering the far more immediate and profound impact of regulatory destruction of professional insurance advice.
Life and disability insurance consumers need professional advice to understand the right product types and sums insured for their situation, and to be placed into good quality products. It is too complex for consumers to DIY as they do with car or home insurance. Without advice there will be a huge decline in cover levels, and a migration to cheap junk products that are full of fine print exclusions. This will in turn lead to reduced consumer confidence as more and more claims are rejected, and a continued downward spiral in cover levels.
Regulatory destruction of professional advice has to be the biggest threat by far to sustainability of life and disability insurance, and should be at the top of APRA’s list of priorities to fix. At the very least they need to be actively participating in the QAR and ALRC reviews, in order to reverse the tide on regulatory destruction of advice.
“It is too complex for consumers to DIY as they do with car or home insurance”. APRA actually bother me more than the black-and-white lawyers at ASIC. As far as APRA are concerned, there is no real difference between insurance contracts – one IP is the same as the next ! And APRA wouldn’t know a “stakeholder” if they fell over one in the bright lights of the real world. APRA failed to consult life risk writers when they threw the grenade in the room and closed the door on IP in October 2021. APRA apparently just assumed that advisers would ignore Standard 5 and proceed to replace quality but expensive legacy contracts with the current rubbish. I understand that many insurers were not consulted either, just issued with an edict , floating down from on high.