Governance shake-up scaled back following industry pushback
The Australian Prudential Regulation Authority (APRA) has partially walked its proposed overhaul of banking governance requirements following industry feedback.
Following a consultation on key prudential standards affecting remuneration and governance of major Australian financial institutions, APRA confirmed it will no longer pursue a number of contentious proposals.
APRA initially laid out the governance proposals in March, when the regulator stated: “APRA’s overall assessment is that governance practices have improved in recent years… However, there remain substandard practices in some areas and regulated entities. APRA is determined to address remaining poor practices and set firm governance expectations for all regulated entities.”
Banks will not be required to seek formal approval of major board appointments and removals of senior executives, including business heads and risk officers, as was initially proposed by the regulator.
In an update to the consultation this Friday, APRA confirmed:
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Instead of a tenure limit for non-executive directors of 10 years with the possibility of a two-year extension, APRA now proposes a hard tenure limit of 12 years with short extensions in limited circumstances
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A proposal for banks and insurers to have at least two independent directors (including the chair) not on other group boards will not proceed as originally proposed
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A proposal to require significant financial institutions to engage early with APRA on responsible person appointments and succession planning will also not proceed
APRA chair John Lonsdale said: “Effective governance is fundamental to financial stability and sound risk management. Across our regulated industries, APRA continues to see cases where deficient governance leads to poor prudential outcomes.
“However, in strengthening standards of governance, we want to strike a balance between increased prescription in some areas and making sure we retain sufficient flexibility for different business models.
“We have benefited from the range of feedback from consultation, and today’s update demonstrates that we have listened carefully to the views of stakeholders. These changes will still deliver the uplift in governance standards APRA is seeking but we have found an outcome that works better for all parties.”
More clarifications made
Initially, APRA had proposed that boards document the specific skills and capabilities required not just for the board as a whole, but for each individual director.
APRA has clarified that it will not require a granular skills breakdown per director role, instead expecting a documented and credible view of the overall board’s capabilities, including those that all directors should possess.
APRA also opted to address the issue of perceived conflicts through guidance rather than enforceable standards while also backing away from requiring public disclosure of registers of relevant interests and duties for banks and insurers.
The consultation remains ongoing, with draft standards and guidance due in early 2026, before the release of final standard and guidance in early 2027.
