The Australian Prudential Regulation Authority (APRA) has begun
consulting on new prudential standards to strengthen the preparedness
of banks, insurers and superannuation trustees to respond to future
The two proposed standards are aimed at
ensuring entities are prepared to deal with threats to their
viability, thereby reducing the negative consequences resulting from
failure. CPS 190 Financial Contingency Planning (CPS 190) would
ensure all APRA-regulated entities have plans for responding to severe
financial stress. These plans would set out actions that an entity
would take in stress to restore financial resilience or exit the
industry safely, while protecting depositors, insurance policyholders
and superannuation fund members. Smaller entities will be subject to
less onerous requirements, in line with their size, complexity and
CPS 900 Resolution Planning (CPS 900) would
require large or complex APRA-regulated entities to take pre-emptive
actions so that, in the event of their failure, APRA can resolve them
with limited adverse impacts on the community and the financial
system. This includes ensuring that critical financial services can
continue to be provided with minimal disruption.
APRA is also
finalising requirements for the four major banks to maintain
additional loss-absorbing capacity (LAC). The purpose of the
adjustment is to ensure that, in the unlikely event of a failure, a
major bank could be recapitalised using a large pool of private,
rather than taxpayer, funds.
APRA today wrote to the major
banks confirming that the final setting for loss-absorbing capacity
will be an increase in minimum Total Capital requirements of 4. 5
percentage points of risk-weighted assets, to be met from 1 January
2026. The major banks have already made significant progress towards
meeting this requirement, having met interim targets put in place
following the consultation in 2018.
Deputy Chair John
Lonsdale said the disorderly failure of an APRA-regulated entity could
have a significant impact on the economy and society.
preparedness and resolution planning gets to the very heart of APRA’s
purpose to protect the financial interests of bank depositors,
insurance policyholders and superannuation members.
Australia has one of the strongest and most stable financial systems
in the world, and failures are extremely rare, businesses in any
competitive market can face financial difficulties. Should that
happen, we want to be sure each entity has the capability to either
recover, or manage an orderly exit with the smallest possible impact
on the community and the financial system.
entities have made substantial improvements in contingency planning
over recent years, however there remain large gaps in capabilities
between entities and across industries. By laying out a consistent,
transparent and enforceable framework, APRA will be better able to
strengthen crisis preparedness and close those gaps,” Mr Lonsdale
A five-month consultation on CPS 190 and CPS 900 is now
underway. The consultation closes on 29 April 2022. APRA proposes that
the new prudential standards would come into force from 1 January
2024, and one year later for superannuation trustees for CPS 190 only.
APRA will also consult on supporting guidance material in 2022.
A discussion paper on strengthening crisis preparedness, and
the two draft prudential standards, are available at: Strengthening
A letter to the major banks announcing
the finalisation of the LAC requirements is available here: Finalising
loss-absorbing capacity requirements for domestic systemically
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