What we do
APRA regulates entities in the banking, superannuation and insurance industries via three core functions: Policy, Supervision and Resolution.
APRA’s policy function designs and maintains the prudential framework, which includes relevant legislation, prudential standards and guidance. The prudential framework sets the minimum requirements that APRA-regulated entities must meet, and provides the baseline for APRA’s supervision activities. When APRA proposes amendments to the prudential framework, there is typically a period of formal, public consultation with industry and other stakeholders about the proposals. APRA then considers the feedback from these consultations when finalising its policy positions.
APRA’s policy agenda recognises that APRA must respond to an external environment that continues to evolve according to developments in international standards, as well as shifts in Government priorities and community expectations.
Consistent with APRA’s strategic priorities, policy priorities are focused on maintaining financial system resilience, improving outcomes for superannuation members, improving cyber-resilience across the financial system, and transforming governance, culture, remuneration and accountability across all regulated institutions.
APRA continually oversees the activities of the entities it regulates, to ensure these entities are complying with the requirements of the prudential framework, as well as encouraging entities to adopt better practices. This function is known as ‘supervision’, and it is carried out via direct, often face-to-face, interaction between APRA supervisors and their regulated entities.
APRA’s vision is based on excellence in supervision, and its supervision function empowers APRA supervisors to identify significant risks to entities and to the wider financial system, and to respond to those risks quickly and effectively.
APRA takes a proportionate approach to supervision, meaning that entities which pose greater risks to the financial system are subject to more intense levels of supervision. This is important to help smaller entities to compete, without threatening APRA’s prudential objectives. For example, smaller entities usually have simpler regulatory requirements and a reduced reporting burden.
The data that entities report to APRA – for example, in relation to their financial position – is a key part of APRA’s supervision process. APRA supervisors analyse the data to work out where entities are strong, and where risks may lie. APRA also undertakes regular reviews and assessments of regulated entities.
If APRA identifies any risks during the supervision process, it will intervene early to find a solution before an entity’s ability to meet its financial obligations to its customers is threatened.
However, given that no supervisory process can guarantee there will be no problems, APRA’s supervision function includes a focus on strengthening entities’ own crisis-readiness. Effective crisis recovery plans are critical to making sure that entities are prepared for periods of financial stress, and can recover from financial loss without the support of the taxpayer.
Licensing and Enforcement also form part of APRA’s Supervision function.
Before an entity can conduct banking, insurance or superannuation business in Australia, it must be licensed by APRA. The process of granting an APRA licence is intended to ensure that the entity has the financial and operational strength to meet APRA’s regulatory requirements, and that the entity will – under all reasonable circumstances – be able to meet its financial promises to customers. As part of the licensing process, APRA seeks to ensure that it balances financial safety with allowing for a competitive and innovative system, both for new entrants and established market participants.
The rules and requirements for starting an APRA-regulated entity in Australia vary depending on the type of business that’s being established. Details about APRA’s licensing process can be found here.
The effectiveness of prudential supervision depends on regulated entities knowing that APRA is prepared to take firm action where prudential risks are not being properly addressed. Enforcement is therefore a key part of APRA’s regulatory toolkit. APRA’s enforcement powers range from information collection powers to more coercive and intrusive measures.
In most situations where an entity is not meeting APRA’s requirements, APRA is able to use non-formal tools to achieve its prudential outcomes, such as requiring additional reporting to assist APRA’s understanding of the issues, or conducting an onsite review at the entity. The use of non-formal tools is particularly effective where regulated entities are willing to work openly and cooperatively with APRA to promptly fix problems or address concerns.
At the same time, APRA has a range of tougher, formal powers it can use to address problems when entities or individuals are not being cooperative. APRA’s enforcement powers can also be used to hold entities and individuals to account for their conduct. For example, APRA can conduct investigations, direct entities to take or refrain from particular actions, impose conditions on the way a business operates, ban individuals from working in an APRA-regulated industry, commence civil proceedings or refer matters for criminal prosecution.
APRA can use its formal enforcement powers well before any risk – whether financial, operational or behavioural – poses an imminent threat to an entity’s financial operations. APRA also uses formal enforcement powers to set a public example in order to deter unacceptable behaviour from happening in the future and to encourage compliance across the wider industry.
APRA can use one or any combination of its powers, and won’t hesitate to take enforcement action when appropriate, including where the use of non-formal tools is not producing satisfactory outcomes.
You can find out more about APRA’s enforcement approach here.
The failure of an APRA-regulated entity is very rare. However, APRA cannot guarantee a zero failure rate, as to do so would put severe limitations on an entity’s ability to take risks, such as lending or investing money.
In the unlikely event that a regulated entity does fail, one of APRA’s core functions is to ensure it can be exited from the industry in an orderly manner, with little or no loss to customers, and minimal disruption to the financial system. This orderly exit of a failing entity is known as “resolution”.
APRA’s goal during resolution is to limit the financial impact of an entity’s failure. APRA regularly tests and continually improves its capacity to resolve failures and near-failures in an orderly manner.
In the unlikely event that an entity fails, the Australian Government provides an extra layer of protection to depositors of banks, credit unions and building societies, as well as most policyholders of general insurers, via the Financial Claims Scheme (FCS). You can find out more about the FCS here.
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6 trillion in assets for Australian depositors, policyholders and superannuation fund members.