APRA Chair John Lonsdale emphasized the need for adaptability in the face of unprecedented global challenges. He stated, “Threats to financial stability can emerge quickly and in ways we’ve not previously seen.” To mitigate these risks, APRA will closely monitor the external environment and adjust its supervision approach accordingly.
The new plan takes into account recent events such as rising interest rates, inflation, geopolitical instability, and the increased frequency of natural disasters. APRA aims to enhance stress testing across regulated industries to ensure that macroprudential policy settings remain appropriate. Additionally, there will be a heightened focus on improving cyber resilience and crisis management.
By prioritizing cybersecurity and climate risk, APRA seeks to ensure that Australia’s financial institutions are well-prepared to withstand severe shocks and continue to serve as a source of strength for the community. The regulator’s comprehensive approach reflects its commitment to safeguarding the stability and integrity of the financial system in an evolving landscape.
APRA Focuses on Operational Resilience
Climate-Related Financial Risks for Insurance Companies
For insurance companies, APRA will specifically address climate-related financial risks. A climate vulnerability assessment will be conducted for general insurers to evaluate the impact of climate risk on the accessibility and affordability of general insurance. Additionally, the regulator will review the prudential requirements for insurance to tackle reinsurance challenges effectively.
Sharpening Focus on Retirement Incomes for Pension Funds
Pension funds will see a sharper focus on retirement incomes from APRA. The regulator aims to improve transparency regarding investment performance for members. APRA will closely scrutinize any poor product performance.
Inflationary Pressure and Geopolitical Tensions
APRA’s outlook includes expectations of continued elevated inflation over the next year. Higher interest rates are predicted to create financial pressures for households and businesses. Geopolitical tensions may affect supply chains and trading patterns, potentially disrupting global trade flows and reducing global growth.
Meeting Environmental, Social, and Governance Expectations
APRA acknowledges the increasing expectations surrounding environmental, social, and governance issues from both the community and investors. Regulated entities are expected to adapt their corporate strategies and practices in response to climate change and other pressing concerns.