APRA releases 2021 Year in Review

The Australian Prudential Regulation Authority (APRA) has released its 2021 Year in Review, indicating how the regulator responded to the persistence of COVID-19 while pushing ahead with significant reforms to reinforce the stability of the Australian financial system.

Last year, the Australian financial system's strength and resilience were further tested as the “one-in-100-year pandemic” moved into its second year.

At the beginning of 2021, APRA saw that the Australian economy had started to recover from the economic and financial impacts of the COVID-19 pandemic and the lockdowns in 2020. During the recovery period, the regulator released its policy and supervisory agenda for the year ahead, focusing on further strengthening the resilience and crisis readiness of the country's financial system.

However, mid-year, the economy's positive outlook experienced a setback due to the emergence of the COVID-19 Delta variant. On the bright side, APRA said the Australian financial system remained financially and operationally resilient despite the lockdowns and border closures that impacted many businesses.

“Banks and insurers remained soundly capitalised, while APRA-regulated superannuation funds were able to deliver higher-than-average returns to their members. Importantly, these institutions continued to deliver their essential services to the community despite staffing and other operational challenges,” the report said.

However, near the end of 2021, another COVID-19 variant, Omicron, emerged – providing a sharp reminder that the pandemic and its associated disruption and uncertainty were far from over.

Read more: APRA updates capital framework for deposit-taking institutions

Despite the challenges last year, APRA completed several significant longer-term projects and key policy priorities and supervision activities, including conducting regular stress testing across its key industries to maintain the financial and operational health of the financial sector.

As the frequency and sophistication of cyberattacks continued to increase, APRA released a paper discussing two of its recently completed initiatives: a pilot technology resilience data collection and an independent assessment of a pilot set of entities' compliance with the regulator's Prudential Standard CPS 234 Information Security (CPS 234), urging boards to strengthen their ability to oversee cyber resilience.

“Cyber risk presents arguably the most difficult prudential threat as it's driven by malicious and adaptive adversaries who are intent on causing damage,” said APRA Chair Wayne Byres.

Moving forward, APRA will continue to focus on:

• Preserving the resilience of banks, insurers, and superannuation funds, with a continuing emphasis on financial strength; cyber risks; governance, risk-culture, remuneration, and accountability; and in superannuation, in particular, implementing the government's Your Future, Your Super reforms;
• Modernising the prudential architecture to ensure it is effective and accessible, less burdensome for entities, and more adaptable to the rapidly evolving financial sector; and
• Better enabling data-driven decision-making by continuing to invest in and embed data as a core enabler for achieving the regulator's purpose and strategy.

“While our strategic priorities may change over time, our core purpose remains constant: to ensure the financial system remains stable, efficient, and competitive, and the financial interests of Australians are protected,” Byres said.