Industry consultation begins on APRA’s draft CPS 510 reforms

Based upon APRA’s responses to the previous consultations and the proposed CPS 510 prudential standard, we believe that any further changes proposed by APRA are unlikely to be significant. APRA is expected to issue the final CPS 510 and the related prudential practice guide by the end of 2026, and these will take effect on 1 January 2028. 

What should you do?

Depending upon the nature and structure of your existing governance arrangements, some entities may be required to make significant changes. To avoid disruption, we recommend that entities commence reviewing their existing arrangements against the proposed CPS 510 and develop a workplan.

There are matters that may require a longer lead time to implement and therefore should be prioritised. They’ve been listed below.

Board renewal

CPS 510 introduces a maximum tenure limit for non-executive directors of 12 years. It is therefore possible that Board’s may experience significant turnover over the next 18 months due to director resignations due to reaching the tenure limit. Entities may need to consider bringing new directors onto the Board with varied terms – for example 6 or 9 years to limit the disruption from renewal going forward.

Director skills matrix

In developing or revising a skills matrix, it is important to not only have regard to the strategic plan but also possible external and internal developments beyond the scope of the plan. The high volume of transformation and merger activity within the financial services sector means that there is high demand for directors with relevant experience.

In our experience, better practice skills matrices are weighted so that Board’s include a balance of “experienced generalists” and specialists. In some cases, the Board should consider whether they would be better served by having an independent advisor rather than too many directors with deep but very specific knowledge.

Where allowed for in the Constitution, entities may also appoint independent members to Board committees. This is a practical way of developing future directors.

Director actual or perceived conflicts

There is now a much stronger focus the identification, recording and management of director conflicts, particularly when they arise from a current or previous commercial or employment relationship. Appropriate consideration must be given to the treatment plan. In the current environment, It may not be sufficient for a director to not participate in any voting related to an area where the conflict exists.

Entities should also consider now whether their Constitution will need to be updated to enable the required changes to their governance structures to be implemented. In undertaking this review, there is an opportunity to review other aspects of your constitution that may not fall within the scope of the proposed CPS 510 but may be misaligned with contemporary governance practices – for example the existence of Co-Board Chairs or an Executive Chair.

We’re here to help

Over the implementation period, we will issue more detailed insights to assist your implementation of the updated CPS 510. Please reach out to your Grant Thornton Adviser if you’d like to understand more.

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