Mackay Chapman January 2025 APRA Update

In this month’s APRA update:

• APRA review highlights the need for improved valuation and governance in superannuation;
• Phase-out of AT1 capital to strengthen bank stability;
• Enhanced superannuation data collection to improve transparency and oversight; and
• Land Bank of Taiwan granted a foreign ADI licence by APRA.

APRA review highlights the need for improved valuation and governance in superannuation

APRA has published findings from its review of superannuation trustees' progress on enhanced valuation governance and liquidity risk management. 

The review focuses on trustees' compliance with updated Prudential Standard SPS 530, including the use of independent asset valuations and the management of conflicts of interest.

As of June 2024, APRA-regulated superannuation entities managed approximately $2.7 trillion in assets, with a growing share invested in unlisted assets. 

The review, covering 23 trustees managing about 80% of total assets, found material gaps in valuation and liquidity risk management practices. Twelve trustees needed significant improvements to meet SPS 530 requirements.

Weaknesses were observed in board oversight, revaluation practices, conflict of interest management, and liquidity risk frameworks. APRA has called for remediation plans from trustees identified with deficiencies and expects all trustees to assess and improve their governance practices. 

APRA Deputy Chair Margaret Cole emphasised the need for robust risk management to protect superannuation fund members' savings.

Phase-out of AT1 capital to strengthen bank stability

APRA has confirmed plans to phase out Additional Tier 1 (AT1) capital instruments, also known as hybrid bonds, to simplify and enhance the effectiveness of bank capital during a crisis. 

This decision follows a comprehensive consultation process and is driven by lessons learned from recent global banking crises, where AT1 instruments failed to stabilise banks as intended.

APRA will require banks to replace AT1 with more reliable forms of capital, such as Tier 2 and Common Equity Tier 1 (CET1), which are better suited to absorb losses during financial stress.

This move aims to improve the resilience of Australia's banking system, reduce the potential for government intervention, and enhance financial stability.

The phase-out will occur gradually over the next eight years, with no increase in overall capital requirements. Large banks will replace AT1 with Tier 2 and CET1, while smaller banks will fully replace AT1 with Tier 2 capital.

APRA expects this adjustment to have a neutral to slightly higher funding cost for the five largest banks and slightly lower costs for smaller institutions.

The changes are intended to be finalised by the end of 2025, and the updated framework will take effect in 2027. Insurers' capital requirements will remain unaffected.

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Enhanced superannuation data collection to improve transparency and oversight‍

APRA has finalised enhancements to superannuation data collections, responding to a consultation aimed at improving transparency and regulatory oversight across the industry. 

The new data, which covers investments, trustee licensee profiles, and trustee governance, will provide more accurate and comparable insights to support better member outcomes.

The changes address key gaps in current data, particularly regarding liquidity and valuation risks, investment governance, and trustee board effectiveness. These improvements will also capture a comprehensive view of trustees’ business operations, including product distribution arrangements.

The enhanced data collection will allow APRA to better assess the financial resilience of superannuation funds and the robustness of their governance, ultimately aiming to deliver more equitable outcomes for members. 

Trustees will begin submitting the new data by December 2025.

The Land Bank of Taiwan granted a foreign ADI licence by APRA‍

APRA has granted Land Bank of Taiwan Co., Ltd a licence to operate as a foreign authorised deposit-taking institution (Foreign-ADI) under the Banking Act 1959. 

This approval allows the Taiwanese bank to offer banking services in Australia, expanding its international presence and providing more options for Australian consumers and businesses.

The move is part of APRA’s ongoing efforts to foster a competitive and diverse banking sector while ensuring that all authorised institutions meet the necessary regulatory standards to maintain financial stability and consumer protection.

For a full list of all APRA-authorised ADIs, visit the APRA website's Register of authorised deposit-taking institutions.

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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.