AICD submission on a more proportionate banking prudential framework

The AICD welcomed APRA’s proposals to provide greater proportionality in the banking prudential framework through implementing certain recommendations from the Council of Financial Regulations final report on its Review into Small and Medium-sized Banks. Our key points were: 

• We supported the proposals to formalise a three-tier structure to the prudential framework to better reflect the diversity of size and complexity in the banking population. This included the the establishment of the most significant financial institutions (MSFI) category and the $300 billion threshold and the adjustment of the significant financial institution (SFI) threshold from $20 billion to $30 billon.  

• We recommended that APRA establish a formal documented process or mechanism for reviewing and adjusting the tiering thresholds across all industries. The thresholds should be adjusted at least every 2-3 years to account for inflation, asset growth and changes in industry structure.

• We supported APRA formalising the provision of more time to non-SFIs to comply with new or revised prudential requirements. Separately, we also supported a minimum 12-month period for ADIs to transition to a higher tier, either SFI of MSFI, with APRA having a facilitative approach to providing more time to a bank in particular circumstances.  

• We strongly supported APRA updating the policy development protocol to ensure that it more explicitly differentiates prudential requirements across the three tiers in future prudential policy making.

• We recommended APRA take timely steps to adjust the tiering, SFI thresholds and approach to proportionality that applies to insurance and superannuation entities.