The Australian Prudential Regulation Authority (APRA) has proposed a series of governance reforms for banks, insurers, and superannuation trustees, marking the first major update to its governance standards in over a decade.
The changes are intended to clarify regulatory expectations, address existing weaknesses, and ensure financial institutions are led by individuals with the necessary skills and experience to navigate an increasingly complex risk environment.
APRA Chair John Lonsdale noted that institutions with strong governance structures are better equipped to handle periods of stress, while those with governance failures are more vulnerable to misconduct, financial losses, and operational weaknesses.
“It is no coincidence that almost 80% of entities subject to heightened risk-based APRA supervision have underlying governance problems. While overall standards of governance have improved over recent years, we still see areas of weakness,” Lonsdale said.
“By articulating our expectations more clearly and strengthening our capacity to ensure compliance with them, we aim to lift governance standards among entities that are lagging best practices and bring them into line with contemporary expectations.”
Among APRA’s key proposals include strengthening board requirements to ensure directors possess the expertise needed to oversee an institution’s strategy. The regulator also aims to raise minimum standards for the fitness and propriety of responsible persons, requiring significant financial institutions to engage with APRA on succession planning.
In addition, APRA wants to extend existing conflict-of-interest management requirements for superannuation trustees to banks and insurers, enhance board independence in group structures, and introduce a maximum tenure of 10 years for non-executive directors at regulated entities.
Although most proposals would not significantly impact institutions with mature governance practices, Lonsdale stressed the need to improve compliance among entities that view regulatory requirements as a mere “box-ticking exercise.”
APRA said that the reforms will be applied proportionately, with less complex institutions facing lower compliance expectations. It also plans to consolidate governance standards across industries, removing duplicative or unnecessary regulations.
“In developing these proposals, we aim to lift higher standards without adding undue cost burden,” Lonsdale said.
A three-month consultation period has been opened to gather feedback from financial institutions, industry bodies, and consumer representatives. APRA expects to release updated prudential standards and guidance for further consultation in the first half of 2026, with the revised framework set to take effect in 2028.
