APRA has proposed eight key reforms to strengthen governance, risk management, and compliance processes for banks, insurers, and superannuation trustees.
The reforms include stricter requirements for board skills, fitness and propriety, conflicts management, independence, performance reviews, role clarity, board committees, and director tenure.
Businesses must reassess their governance structures and compliance processes to align with APRA's enhanced standards, with finalised standards expected in 2026 and implementation from 2028.
The Australian Prudential Regulation Authority (APRA) has released a governance review discussion paper announcing eight proposed updates to its governance, and fit and proper requirements for banks, insurers, and superannuation trustees.
These reforms are designed to strengthen leadership, improve risk management, and streamline compliance processes. In response, businesses operating in these sectors will need to proactively adapt their governance practices to align with APRA's enhanced standards.
The scope and application of the proposals varies based on whether a regulated entity is classified as a significant financial institution (SFI) or a non-significant financial institution (non-SFI), impacting the level of compliance and oversight required.
Now’s the time to assess your governance structures and make relevant adjustments to meet APRA's evolving expectations.
Key proposals for enhanced governance standards
APRA has proposed eight key reforms aimed at improving governance standards, focusing on areas that have historically been challenging for regulated entities:
Boards must ensure they have the right mix of skills and experience to support the entity’s strategy and manage risks effectively.
Minimum standards for responsible persons will be raised, requiring organisations to engage more rigorously with APRA on succession planning and key appointments.
Existing requirements for managing conflicts of interest in superannuation will be extended to banks and insurers, creating a cross-industry set of conflict management requirements across all regulated entities. The framework will enhance transparency and accountability by requiring a conflicts management policy and public disclosure of registers of duties and interests.
Stricter independence requirements will be implemented for Boards, particularly those in corporate groups, to mitigate potential conflicts. APRA - subject to a reasonable transition period - proposes to extend the majority of independent directors’ requirement to subsidiaries of parent entities regulated by APRA.
Regular assessments of Board performance will be conducted to identify areas for improvement and ensure effective governance, primarily requiring a triennial independent review for SFIs. The proposed amendments also recognise the cost of performing an independent board performance review for non-SFIs, and therefore only expects non-SFIs to strengthen the rigour and quality of the internal annual performance reviews.
APRA will clarify expectations around the roles of boards, chairs, and senior management to reinforce accountability and improve decision-making processes.
The proposed amendment on Board committees emphasises the principle of proportionality. APRA suggests extending the requirement for separate risk and audit committees to registrable superannuation entities (RSEs) classified as SFIs, while removing this requirement for APRA-regulated entities classified as non-SFIs.
A new 10-year tenure limit for non-executive directors will promote board renewal and diversity of thought within leadership teams, subject to a possibility of a two-year extension at APRA’s discretion.
What this means for your business
These reforms will require APRA-regulated businesses to reassess their governance frameworks and compliance processes. For many organisations, this means taking a closer look at board composition, succession planning, and overall governance effectiveness to prevent issues.
While entities with established governance frameworks may experience fewer disruptions, those with longer director tenures, lack of board performance assessments, or a focus on compliance rather than risk management will need to make significant adjustments. All businesses, regardless of size, should prepare for increased scrutiny on governance practices.
The proposed changes regarding director tenure and independence could also lead to higher turnover, requiring succession planning and management to reduce potential disruptions.
Next steps
APRA has opened a three-month consultation period for industry feedback, with finalised standards expected in 2026 and implementation from 2028. Now is the time for boards and executive teams to review their governance arrangements against the APRA review materials, and identify areas for improvement.
To discuss how these changes may affect your business and what proactive steps you can take, please get in touch.
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