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From crisis management to heightened supervision: recapping APRA's latest banking announcements

The effects of the COVID-19 health crisis are still unfolding and present significant challenges to the Australian financial system. Unquestionably strong capital requirements have allowed banks to act as the initial shock absorbers for the domestic economy. However, the path ahead remains extremely uncertain as the Australian Government is now faced with the challenge of simultaneously addressing the health crisis and economic downturn.

In our last article on APRA banking announcements we gave detailed insights into the regulators immediate response to the Coronavirus crisis and unpacked what that meant for banking and financial professionals. In this article we outline key changes to the domestic regulatory environment since the Australian Government declared COVID-19 a global pandemic. We also summarise APRA banking announcements since May 2020 to help regulatory and reporting teams keep across recent developments.

The regulatory landscape

It has been nearly five months since the Australian Government declared COVID-19 a global pandemic and the focus for APRA has shifted from crisis management to heightened supervision. Speaking at a number of recent public engagements, APRA chairman Wayne Byers has praised the role that well-capitalised and highly liquid domestic banks have played in damping the economic impact of COVID-19. The timeline below summarises notable APRA and public announcements in relation to COVID-19.

While the June 2020 GDP figures have not yet been released, Treasurer Josh Frydenberg conceded Australia will enter a technical recession breaking its record of 28 years without one. The rhetoric from the Australian Government is shifting from managing the health crisis to addressing the economic crisis. Consequently, APRA’s focus on operational resilience and capital profiles is likely to intensify. The regulator has also started publishing detailed data on loan deferrals to make the strain on the financial system more transparent.

Key reporting announcements

ADI's risk management and contingency planning frameworks have been put to the test in recent months. APRA has also placed a number of additional COVID-19 related reporting requirements on the banking industry to help understand the initial economic impact of the pandemic and to inform public policy development. This is part of APRA’s role in acting as data conduit for financial system information to the Treasury, RBA and ABS. For that reason, it should come as no surprise that the majority of ARPA’s announcements have been on reporting treatments.

Looking at the regulator itself, APRA has announced changes to its internal supervision structure, moving towards an operational model which is aligned along three industries lines (banking, superannuation and insurance). APRA has also been more vocal about its collaboration with ASIC in the ME Bank redraw scandal and the ongoing AUSTRAC investigation into Westpac. These are both examples of APRA addressing direct recommendations from the Capability Review.

Additional reporting requirements

As the June 2020 reporting quarter comes to a close, so marks the end of the extended EFS parallel reporting period. However, any reporting reprieve in the new fiscal year will be short lived as additional liquidity reporting continues and the SME Guarantee Scheme collection matures. APRA will also be taking steps to embed its ad-hoc COVID-19 collection into a monthly reporting cycle.