APRA moves forward with major governance reforms

The Australian Prudential Regulation Authority (APRA) has released for consultation a draft standard that will set new and strengthened governance requirements for all Australian banks, insurers, and superannuation entities.

While the draft standard does not go as far as was initially proposed by APRA in 2025, the changes in totality would still, if finalised, represent a major shift in the governance arrangements for these key Australian businesses.

APRA’s draft changes aim to enhance existing governance practices through amendments to CPS/SPS 510 Governance and CPS/SPS 520 Fit and Proper. These changes are highly relevant to financial services entities, but also more broadly, since APRA prudential standards tend to set governance norms across industries.

Separately, APRA has for the first time released guidance on strengthening preparedness for geopolitical shocks.

Background

APRA’s draft standard CPS 510 Governance (CPS 510) represents the culmination of 15 months of consultation that started in March 2025 (AICD summary of consultation paper available here).

APRA received significant feedback on that initial consultation. The AICD was one of a number of stakeholders to raise concerns with the level of prescription and potential for unintended consequences, including undermining existing effective governance arrangements. We called for APRA to adopt a more principles-based approach, utilise existing powers on a case-by-case basis when deficiencies are identified and reinforce the role of the board as having accountability for key decisions, including senior appointments.

Summary of key changes

Overall, the draft standard reflects a more balanced approach to introducing further prescriptive governance requirements. APRA is still clearly pursuing a policy objective to lift the governance practices of all entities that it supervises, however it has moderated a number of the proposals that the AICD had significant concerns with, such as group independence requirements.

One governance standard to rule them all

APRA has proposed existing governance, fit and proper and conflicts of interest requirements that are currently spread across five separate prudential standards be combined into one cross industry standard – CPS 510.

For the first time, all financial services industries (banking, insurance and superannuation) will have a uniform set of governance requirements to meet.

Tenure

APRA originally proposed a 10-year lifetime limit on directorship tenure, with the ability to request a two-year extension from APRA. This has been revised to a proposed limit of 12 years, with the ability to request a one-year extension. This adjustment is line with an alternative proposal put forward by the AICD.

Fitness and propriety

As initially proposed, APRA has set out specific criteria to assess whether a responsible person is fit and proper. These include whether:

• the person possesses the skill, character, care, diligence, honesty, integrity and judgement to perform properly the duties of the responsible person position; and
  
• the person’s education, technical qualifications and experience are suitable to the duties and responsibilities of the position.

APRA has also proposed that entities be required to reassess fitness and propriety where they become aware of information that may mean a person no longer meets the fit and proper criteria, or where APRA has concerns about the person’s fitness and propriety that it considers have not been addressed.

Importantly, APRA has not retained its proposal to require significant financial institutions (e.g. the largest banks) to consult with APRA prior to making an appointment of a director or senior executive. This is a welcome policy shift.  

Director skills

APRA has proposed that boards maintain a skills matrix documenting the skills, experience and behavioural attributes required for the board and its committees to perform effectively. It is also proposed that the board be required to take all reasonable steps to demonstrate how it is actively addressing any current or future skill and capability deficiencies.

APRA has stopped short of setting requirements for the assessment and evaluation of individual director skills.

Independence requirements for group structures

In a welcome policy shift, APRA is not proceeding with its initial proposal to require enhanced independent director representation on regulated subsidiary boards within group structures.

Instead, draft CPS 510 states that where a director serves on the board of a parent or other entity within the same group, “independence must be assessed with specific regard to any potential or actual conflicts arising from, or associated with, intra-group arrangements, such as structural, funding or remuneration relationships.”

APRA also proposes to update its definition of independence to align with the definition in the ASX Corporate Governance Principles and Recommendations (4^th Edition).

We are closely considering the implications of these proposals.

Delegation to committees or management

APRA proposes to provide boards with greater discretion to delegate existing prudential obligations that sit with the board (such as approval of certain policies and processes) to board committees or management.

This greater latitude is in the context of APRA conceding that the existing set of approximately 150 board level obligations across the prudential framework is a weight on boards that diverts the focus of the board away from strategy and risk oversight.

APRA is clear, however, that certain prudential obligations, including setting strategic objectives and the risk appetite, must rightly remain with the board.

On the role of the Chair, APRA has said that it will elaborate on this in guidance rather than in CPS 510.

Next steps and timeline

APRA’s consultation is open until 28 August 2026, with the final CPS 510 expected in Q4 of 2026. The new requirements are then expected to apply from early 2028.

The AICD is participating in this consultation and welcomes any member feedback on the proposals at policy@aicd.com.au.

APRA releases guidance on strengthening readiness for geopolitical shocks

Preparedness for geopolitical shocks is a risk area APRA has not previously addressed in guidance, and reflects the strategic priority in its 2026-27 Corporate Plan to continue focus on lifting geopolitical risk readiness. APRA has found that while many entities are alert to geopolitical risk, there are differing levels of maturity in how this awareness is translated into risk management practices and crisis preparedness.

The guidance outlines minimum expectations for managing prudential risks arising from geopolitical shocks, and provides examples of how these risks should be incorporated into existing frameworks.

APRA states that it expects boards to ensure that:

• Geopolitical risk is reflected in strategy, risk appetite and board oversight.
• Management has identified and is addressing material gaps against the minimum expectations in this letter, with clear accountabilities and timelines.
• Management is reporting on financial and non-financial exposures, offshore dependencies and service provider vulnerabilities that could be affected by geopolitical shocks.

Against the background of an increasingly unpredictable geopolitical environment, APRA is sending a clear message that regulated entities need to actively engage with how this volatility may affect their businesses.