The Australian Prudential Regulation Authority (APRA) continues to work on both superannuation and the lending sphere in response to the commissions into superannuation and banking.
On June 18, APRA announced directions and additional license conditions for AMP Superannuation, noting its concerns about AMP Super’s management of conflicts of interest, governance and risk; the processes for breach remediation; how poor risk culture is addressed; and ways to strengthen its board and mechanisms for accountability – all aspects of compliance with the Superannuation Industry (Supervision) Act 1993 (SIS Act).
Under these new directions, AMP Super will need to engage an external expert to report on its remediation and compliance with APRA’s instructions.
APRA is casting its stern and watchful eye over what it considers risky loans as well, announcing capital guidelines for large and small banks on 12 June. The new guidelines come in the wake of its original proposals made in February 2018 and industry feedback on those proposals.
The guidelines target higher-risk, interest-only investment loans, which will now have tighter capital requirements than the principal-and-interest mortgages typically taken out by owner-occupiers. What this means is that, for the investment loans, banks will have to hold more capital to absorb any losses against those higher risk mortgages, which are among the biggest assets of the four major banks.
APRA’s directions affect small to medium enterprise (SME) business lending as well as the mortgage sector, with recommendations for additional types of collateral and more detailed risk assessments for SME loans. Credit cards and personal loans secured by vehicles will also be subject to lower risk weights. Smaller and less complex banks will have a more simplified framework.
APRA says its approach aims to keep outcomes competitive. Most changes won’t take effect until January 2022, ADIs currently using advanced models may need to implement the new requirements from 1 January 2021.