APRA moves to finalise Basel

The new deputy chairman of the prudential regulator John Lonsdale said with banks well on track to meet their “unquestionably strong” increased capital levels, 2019 will see APRA finalise the so-called Basel IV regulatory framework.

“Where unquestionably strong is about “how much?”, the revised capital framework seeks to ensure the composition of banks’ capital appropriately targets the risks they face, including in relation to housing lending,” he told a FINSIA Regulators’ event in Sydney on Thursday.

“This is a complex piece of work with many moving parts.”

At the conference, Lonsdale outlined APRA’s top priorities for first three months of 2019 saying next year will see APRA develop a formal prudential framework for recovery and resolution.

Legislation expanding the regulator’s crisis management powers was recently pushed through paving the way for prudential standards on resolution.

“These are powers APRA hopes never to need however possessing a strong framework to manage failures and crises is a critical component of a resilient financial system.”

APRA last week proposed that the banks raise more loss-absorbing capital to cushion the impact of a shock.

The prudential regulator said it plans to increase the total capital requirement for the major banks by 4 to 5 percentage points of risk-weighted assets within five years.

Consultation for the new framework will commence next year.

Following the announcement of the terms of reference for a review of APRA’s enforcement strategy, the deputy chair argued that APRA will remain a supervision-led, rather than enforcement-led regulator, with a focus on pre-emptively tackling problems before they occur.

APRA keenly awaits the final report of the Royal Commission following criticisms of its weak regulation and enforcement of the banking sector.

“Both the report, and the Government’s subsequent response to its recommendations, will become high priorities for us once they are made known,” Lonsdale told the conference.

“We are also re-examining cases of potential misconduct by regulated entities raised during the Royal Commission where the evidence presented was either new to APRA or contradicted what we had previously been told.

“That process will continue into 2019, and may well lead to formal enforcement action, should we deem it warranted.”

Regarding superannuation, Lonsdale confirmed that the delivery of quality, value-for-money outcomes to members will be an ongoing focus in 2019.

“We remain engaged with the trustees of underperforming funds, and our position will be enhanced with passage of the legislation before Parliament giving us the power to direct licensees to take specific actions at an earlier stage – including merging or winding up should that be in the best interests of their members.”

Next year, APRA will also move towards further aligning the capital framework for private health insurance with that used in life and general insurance.

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