APRA has published its first guide to assist directors of ADIs understand and comply with their obligations under APRA’s prudential framework. While aimed at directors of ADIs, the guide is also a useful resource for others seeking to understand what APRA considers best practice by directors in areas including financial resilience, risk management and governance, and how that best practice guidance may flow into other industries in the future.
What’s in the guide?
The guide, released on 29 November 2022, brings together, in one place, material requirements and accompanying guidance for directors of ADIs from APRA’s prudential standards and practice guides.
It provides general guidance to assist directors in providing effective oversight of an ADI and then focuses on four key areas:
- financial resilience - ensuring an ADI meets its capital adequacy and liquidity requirements which are fundamental to the ongoing health of an ADI
- risk management - ensuring an ADI maintains a risk management framework that is appropriate to its size, business mix and complexity
- governance - ensuring an ADI has a rigorous governance framework, conducts its affairs with a high degree of integrity, and complies with its accountability and disclosure obligations and
- resolution planning - ensuring an ADI is adequately prepared for scenarios that may impact the financial viability of its business.
Does the guide introduce anything new?
No. It reflects prudential standards that were in force as at 30 September 2022 and prudential standards that are due to come into effect in 2023. APRA intends to regularly update the guide as further changes are made to the prudential framework so that the guide remains current.
It is also worth noting that the guide is not intended to ‘cover the field’. Obligations that come from primary legislation, such as the Banking Act 1959 (Cth) and the Corporations Act 2001 (Cth), are not included in the guide, and neither are less material requirements in the prudential standards. The guide is not a substitute for, and is not intended to take the place of, the prudential standards and guidance.
Is the guide worth reading over the holiday period?
Absolutely.
While the value of the guide is obvious for directors of ADIs, it is also very useful for directors of other entities. As we have seen over recent years, there has been a strong focus on uplifting governance standards across the financial services industry and the guide provides a relatively easy-to-understand snapshot of what APRA sees as best practice for directors. It can be used by other boards as a helpful tool for assessing how their governance frameworks ‘stack-up’ against the prudential standards and requirements.
