In a report released last Friday, APRA said no decisions will be taken on the implementation of the level 3 framework for supervising conglomerates until it has had the opportunity to consider the government’s response to the inquiry’s recommendations.
APRA did, however, provide an indication of what framework it plans to implement.
The prudential regulator said the planned framework has been designed to assist APRA to ensure its supervision “adequately captures the risks to which APRA-regulated institutions within conglomerate groups are exposed”.
APRA said this framework will apply in particular to risks that are not “adequately covered by existing prudential arrangements for standalone entities (level 1 supervision) and single industry groups (level 2 supervision).
Conglomerate groups are defined by APRA as APRA-regulated institutions that have material operations across more than one APRA-regulated industry and in one or more non-APRA-regulated sector.
APRA said the framework will therefore apply to conglomerate groups such as AMP limited, Australia and New Zealand Group, Challenger, Macquarie Group, CBA, NAB, Suncorp and Westpac Banking Corporation.
APRA chairman Wayne Byres said the eight conglomerate groups to which APRA intends to apply the planned level 3 framework control approximately 80 per cent of the assets of all APRA-regulated institutions.
“The importance of strong group-wide governance, risk management and capital adequacy is therefore critical not just to these groups, but to the stability of the financial system more broadly,” said Mr Byres.
“Release of the planned framework is intended to inform the financial industry of APRA’s conclusions following the most recent consultation process, and enable interested stakeholders to make informed second-round submissions on the issue to the FSI,” he said.
APRA said in the report the level 3 framework is also likely to include governance requirements such as establishing consistent business practices and capital adequacy requirements to ensure APRA-regulated institutions have the ability to meet their obligations to beneficiaries.
