Mackay Chapman December 2024 APRA Update

In this month’s APRA update:

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• APRA keeps macroprudential policy settings steady amid economic uncertainty;
• APRA highlights key priorities for improving retirement outcomes at the Senate Inquiry;
• Updates to FAQs on capital measurement for ADIs and insurers;
• APRA updates reporting guide for EFS data collection; and
• Release of inaugural fund-level expenditure data.

APRA Keeps Macroprudential Policy Settings Steady Amid Economic Uncertainty

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APRA has decided to maintain its current macroprudential policy settings, following its regular review of both domestic and global economic conditions. 

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APRA's tools are designed to safeguard the financial system's stability, helping households and businesses borrow, save, and invest with confidence.

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The decision to keep settings unchanged takes into account several key factors, including the ongoing pressure from high household debt, an uptick in credit growth, the persistent cost-of-living challenges, a softening jobs market, and heightened geopolitical risks. 

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Despite these concerns, APRA highlighted that lending standards in the banking sector remain solid, and the rate of non-performing loans continues to be low.

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Specifically, APRA has confirmed that:

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• The mortgage serviceability buffer will stay at 3 percentage points.
• The countercyclical capital buffer will remain at 1% of risk-weighted assets.
• No new limits on lending or restrictions on capital distributions will be introduced.

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Looking ahead, APRA will continue to monitor the situation closely. Lonsdale said that while the current policy settings will remain in place for now, the authority is prepared to adjust them if necessary as the economic environment evolves.

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For further details, APRA has published an information paper outlining the rationale for keeping its macroprudential settings steady.

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APRA Highlights Key Priorities for Improving Retirement Outcomes at Senate Inquiry

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On 14 November 2024, APRA appeared before the Senate Economics References Committee inquiry into improving consumer experiences, choices, and outcomes in Australia’s retirement system. 

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APRA first acknowledged its ongoing focus on improving retirement outcomes, particularly through the implementation of the Retirement Income Covenant. This initiative remains a priority for 2024-25, as Australia prepares for a significant increase in the number of people transitioning into retirement in the next decade. 

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APRA also shared findings from a joint thematic review with ASIC on the Retirement Income Covenant’s implementation. 

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This review revealed substantial variability in how trustees have approached the covenant, with some lagging in adopting it effectively. 

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APRA pointed out that while trustees have engaged in areas identified for improvement, there has been insufficient progress in measuring and tracking the success of retirement income strategies. Many trustees have yet to define specific success metrics, a critical gap in ensuring better retirement outcomes for members.

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One area of interest to the Committee was the potential use of superannuation to help members achieve homeownership in retirement. APRA clarified that this is outside of their mandate, and would require changes to the existing legislative framework governing superannuation. 

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The body acknowledged the prudential implications of any such policy changes, noting that factors like liquidity risk, investment governance, and operational risks would need careful consideration. 

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APRA noted their commitment to ensuring that the financial system supports Australians as they prepare for and navigate retirement. 

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Strong support was expressed for the work of the committee in examining the retirement system, expressing optimism that the inquiry’s recommendations would help improve outcomes for members in the future.

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APRA Updates FAQs on Capital Measurement for ADIs and Insurers

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APRA has released an updated set of FAQs concerning the measurement of capital for Authorised Deposit-taking Institutions (ADIs) and insurers. 

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The update, published on 19 November 2024, includes the addition of one new FAQ and the deletion of 11 outdated ones.

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The changes aim to streamline guidance by removing redundant commentary now covered in the revised Prudential Standards. These updates reflect recent changes to the capital requirements for general insurance, life insurance, and private health insurance sectors, ensuring the FAQs are in line with the latest regulatory framework.

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For full details, the updated capital measurement FAQs are available on the APRA website under the section Measurement of Capital - Frequently Asked Questions.

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APRA Updates Reporting Guide for EFS Data Collection

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APRA has issued updates to the Reporting Practice Guide RPG 702.0 and the EFS Data Priority Listing as part of its ongoing efforts to enhance the Economic and Financial Statistics (EFS) collection process. 

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These updates apply to both Authorised Deposit-taking Institutions and Registered Financial Corporations. The changes reflect APRA’s response to consultations on amendments to modernised reporting standards for Economic and Financial Statistics.

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For further details, the updated documents and additional information on the updates to the EFS collection can be accessed on the APRA website under the section Response to Consultation on Amendments to Modernised Economic and Financial Statistics Reporting Standards and Guidance.

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Release of Inaugural Fund-Level Expenditure Data

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APRA has published its first-ever set of fund-level expenditure data, covering a wide range of categories including investment-related expenses, administration costs, and other expenditures like advertising, sponsorships, and payments to industrial bodies.

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This data release, which pertains to the 2022-23 financial year, follows APRA’s announcement on 22 October 2024 regarding its heightened supervision of superannuation fund expenditures. In the letter to superannuation trustees, APRA highlighted that the new expenditure data will inform its targeted approach to monitoring fund-level expenses moving forward.

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The released data is now available in supplementary tables to the Annual Fund Level Superannuation Statistics and the Annual Superannuation Bulletin. 

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APRA plans to publish this fund-level expenditure data annually, with the 2023-24 data expected to be released in early 2025.

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The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.

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