APRA seeks to amend definition of 'significant financial institution'

The Australian Prudential Regulation Authority (APRA) has suggested minor amendments to align and centralise the definition of a significant financial institution (SFI) within the prudential network.

SFIs are APRA-regulated entities with assets above a certain size or entities determined as such by APRA, considering factors such as complexity and group membership. Under the prudential standards, APRA-regulated entities determined to be SFIs are subject to higher requirements compared to non-SFI entities.

In its recently released cross-industry consultation, APRA is asking for feedback on its proposal to change certain prudential standards to simplify and streamline the existing approach to determining APRA-regulated entities as SFIs. Its proposed approach aims to:

• Ensure consistency in application, with the definition of an SFI aligned across prudential standards;
• Create efficiencies as entities will only need to be determined as an SFI once; and
• Establish a platform for broader application of proportionality within the prudential framework over the long term.

“Under the proposed approach, all prudential standards would use the same definition of an SFI. Centralising the definition of an SFI would not result in any changes to the quantitative criteria (asset thresholds) that have been used to determine SFIs in existing prudential standards, but it would lead to some small changes to the qualitative criteria,” APRA said in its letter.

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According to APRA's proposal, SFI means an APRA-regulated entity that is:

• Not a foreign ADI, a category C insurer or an EFLIC, and has total assets in excess of A$20 billion in the case of an ADI, A$10 billion in the case of a general insurer or life company, A$3 billion in the case of a private health insurer, or A$30 billion in the case of a single RSE operated by an RSE licensee or if the RSE licensee operates more than one RSE where the combined total assets of all RSEs exceeds this amount; or
• Determined as such by APRA, considering matters such as complexity in its operations or membership of a group.

“Modernising the prudential architecture is a key strategic priority for APRA over the coming years. APRA's objective is to make the prudential standards and guidance more accessible for [the] industry, more adaptable to cater to new risks and new entrants, and better aligned to the needs of the users. Proportionality is one initiative that supports these objectives,” APRA said.

APRA will receive feedback on the draft amendments and the proposal to publish a list of SFIs on the APRA website until May 02, 2022. In addition, the regulator will finalise its response and incorporate the amendments into the relevant prudential standards as soon as practicable after the consultation period.