What APRA's governance reforms mean for boards

Financial services regulatory reform is in train with APRA consulting on a revamped governance standard, plus the AICD’s new resource on governing culture offers practical tips and guidance.

APRA fine tunes governance reforms

Major reform to financial services governance regulations are progressing with the Australian Prudential Regulation Authority (APRA) consulting on the final draft of a new governance standard (CPS 510 Governance).

The regulator has been consulting on its proposed changes since March 2025, with this review representing the first major revamp of prudential governance standards in over a decade. APRA released a consultation paper and its draft standard in June with submissions due by the end of August. The new standard is intended to take effect from January 2028. The AICD has engaged extensively with APRA through consultations to date.

These reforms are important. They modernise the governance framework applying to banks, insurers and superannuation funds, while lifting practice and clarifying expectations in areas of regulator concern. The draft standard provides a board with greater discretion to delegate some of the existing 150 board-level obligations across the prudential framework to committee and management in certain circumstances.

We have appreciated APRA’s engagement with the AICD and our members, including with the AICD’s APRA-Regulated Entities Forum, given the significance of the reforms. The revised draft standard reflects the regulator’s consideration of AICD and member feedback.

One of the more significant issues canvassed in the draft is director tenure. APRA had initially proposed a hard 10-year tenure limit for sector directors. APRA has concerns about long tenure in some areas of financial services. The AICD had raised concerns that this hard limit could, in some circumstances, limit effective succession planning and prove too rigid in its application.

We instead recommended a longer tenure limit of 12 years, with the ability for regulated entities to approve extensions for a further two years. APRA’s draft standard adopts a 12-year tenure with scope for a 12-month extension in certain circumstances.

The AICD supports the inclusion of a 12-year tenure limit with scope for extension. However, we acknowledge that boards in some sectors (including superannuation) will find this challenging and will need to elevate their focus on board succession planning, and transition timing may be required.

The draft standard updates the definition of “independence” for directors and provides more clarity on permitted board delegations to committees and senior managers to support board focus on core prudential obligations.

APRA has amended its original proposal for intra-group boards to have at least two independent directors not on any other group board, to one requiring majority independent directors and proactive management of intra-group conflicts. Improvements to the fit-and-proper requirements, reducing overlap with other accountability regimes, and reducing reporting requirements, are welcome proposals.

In June, APRA and the Australian Securities Investments Commission (ASIC), joint regulators of the Financial Accountability Regime, also announced refinements to the regime. This includes raising materiality thresholds for notifying APRA and ASIC of changes in accountability maps, and streamlining or reducing routine reporting.

The AICD will be providing further comments on APRA’s proposals. Members can provide input care of policy@aicd.com.au