Super funds behind banks and insurers in crisis preparedness

The Australian Prudential Regulation Authority (APRA) is consulting on new prudential standards to strengthen the preparedness of banks, insurers and superannuation trustees to respond to future financial crises.

According to APRA’s ‘Strengthening Crisis Preparedness’ discussion paper, the financial contingency readiness of the superannuation industry was “considerably further behind” banks and insurers.

APRA was consulting with banks, insurers and super funds about two proposed financial contingency standard to reduce negative consequences resulting from failure.

The first standard, CPS 190 Financial Contingency Planning, would set out actions that an entity would take in stress to restore financial resilience or exit the industry safely, while protecting depositors, insurance policyholders and superannuation fund members.

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The second, CPS 900 Resolution Planning, would require large APRA-regulated entities to take pre-emptive actions to help APRA resolve failures to mitigate adverse financial system impacts.

ASIC deputy chair, John Lonsdale, said the disorderly failure of an APRA-regulated entity could have a significant impact on the economy and society.

“Although Australia has one of the strongest and most stable financial systems in the world, and failures are extremely rare, businesses in any competitive market can face financial difficulties,” Lonsdale said.

“Should that happen, we want to be sure each entity has the capability to either recover, or manage an orderly exit with the smallest possible impact on the community and the financial system.

“APRA-regulated entities have made substantial improvements in contingency planning over recent years, however there remain large gaps in capabilities between entities and across industries.

“By laying out a consistent, transparent and enforceable framework, APRA will be better able to strengthen crisis preparedness and close those gaps.”

Consultation on CPS 190 and CPS 900 would take five months and close on 29 April 2022. APRA proposed the new prudential standards would come into force from the start of 2024, and one year later for superannuation trustees for CPS 190 only.