Regulator's governance overhaul welcomed by super sector

APRA has softened several governance reform proposals following extensive consultation with banks, insurers and super funds across Australia.

The Australian Prudential Regulation Authority (APRA) has refined its proposed governance reforms for banks, insurers and superannuation trustees after receiving extensive feedback during a three-month consultation process.

In March, APRA outlined eight measures to modernise its cross-industry prudential standards and guidance on governance for the first time in more than a decade. These were skills and capabilities, fitness and propriety, conflict management, independence, board, role clarity, board committee and director tenure and board renewal.

The regulator held 57 meetings and roundtables with more than 150 stakeholder organisations and received nearly 80 written submissions.

While APRA received broad support for initiatives aimed at reducing regulatory burden and overlap, it also heard concerns about the potential impact of some proposals.

After considering this feedback, APRA has written to industry outlining modifications to three of its original measures.

For example, it now proposes a hard 12-year tenure limit for non-executive directors, allowing short extensions only in limited circumstances, replacing the previously suggested 10-year limit with a two-year extension.

A proposal requiring banks and insurers to have at least two independent directors (including the chair) not on other group boards will not proceed, nor will a requirement for significant financial institutions to engage early with APRA on responsible person appointments and succession planning.

The regulator will also clarify or adjust proposals on director skills, potential conflicts of interest, and public registers of relevant interests and duties.

APRA chair John Lonsdale said APRA remains committed to improving governance across the financial system.

“Effective governance is fundamental to financial stability and sound risk management. Across our regulated industries, APRA continues to see cases where deficient governance leads to poor prudential outcomes,” he said.

“However, in strengthening standards of governance, we want to strike a balance between increased prescription in some areas and making sure we retain sufficient flexibility for different business models.

“We have benefited from the range of feedback from consultation, and today’s update demonstrates that we have listened carefully to the views of stakeholders. These changes will still deliver the uplift in governance standards APRA is seeking but we have found an outcome that works better for all parties.”

APRA will continue working with industry ahead of releasing updated prudential standards and guidance for further consultation in the first half of next year.

Superannuation’s peak body, ASFA, welcomed the revisions, saying they reflect a balanced approach to modernising governance requirements across all APRA-regulated entities.

The proposed reforms clarify that directors’ skills and capabilities apply collectively at the board level rather than individually and introduce a voluntary engagement process for responsible person appointments, supporting collaboration between the regulator and industry.

ASFA chief executive Mary Delahunty said superannuation trustees take their governance responsibilities seriously.

“Superannuation trustees take their governance responsibilities seriously. We recognise that APRA’s proposals represent a measured approach to modernising board governance across all APRA-regulated entities,” she said.

“APRA has clearly listened to sector feedback, particularly in recognising that board capabilities should be assessed collectively. We look forward to continuing our constructive engagement as these reforms are implemented.”

ASFA said it will continue to work with APRA as the reforms progress, particularly around guidance on board and management roles and independent third-party performance assessments.