Mackay Chapman April APRA Update

In this month’s APRA update:

• Depositor protection highlighted through orderly bank exit
• Insurance stress testing reveals a growing protection gap risk
• Payday super reforms move toward implementation
• Capital changes aim to support retirement income innovation
• Licence conditions reinforce governance and risk expectations 
• Liquidity treatment guidance clarifies settlement exposures

Key details for each are below.

Depositor protection highlighted through orderly bank exit

APRA has overseen the return of deposits to customers of in1Bank following the bank’s decision to relinquish its authorised deposit-taking institution licence.

The process involved the orderly return of all customer funds, with APRA monitoring the process to ensure it was conducted in a timely and controlled manner. Depositors remained protected within Australia’s broader prudential framework, including mechanisms such as the Financial Claims Scheme where applicable.

The Financial Claims Scheme forms part of Australia’s broader prudential safety net and is designed to protect depositors in the event of an ADI failure or exit. It ensures that eligible deposits up to the prescribed cap are guaranteed by the Commonwealth.

This outcome highlights the role of prudential supervision not just in preventing failure, but in managing exits in a way that maintains confidence in the banking system and protects depositors.

Insurance stress testing reveals growing protection gap risk

APRA has released the results of a stress test examining the impact of a widening home insurance protection gap on financial system resilience.

The stress test modelled scenarios where increasing insurance affordability pressures lead to reduced coverage levels, particularly in areas exposed to natural disasters. This creates a “protection gap” where households are either underinsured or uninsured.

APRA’s analysis indicates that while insurers remain broadly resilient, a sustained widening of the protection gap could have flow-on effects. These include increased financial strain on households, greater reliance on government support and potential impacts on lender risk where properties are inadequately insured.

The findings reinforce that climate risk and insurance affordability are becoming interconnected prudential issues, extending beyond insurers to the broader financial system.

Payday super reforms move toward implementation

APRA and the Australian Taxation Office have issued guidance on industry readiness for the introduction of Payday Super, which is scheduled to commence on 1 July 2026.

The reforms require superannuation contributions to be paid at the same time as wages, rather than quarterly. This represents a significant shift in how contributions are processed and allocated across the system.

Under the new framework, superannuation funds will be required to receive and allocate contributions to member accounts on a near real-time basis, significantly faster than the current quarterly framework. The reforms are supported by changes to the SuperStream data and payment standards under the Superannuation Industry (Supervision) Act 1993.

APRA and the ATO have indicated that a number of participants are not yet fully prepared for implementation, particularly in relation to system upgrades and data validation processes.

The reforms are intended to address unpaid superannuation, which has been estimated at over $6 billion annually, but they also introduce significant operational and compliance challenges across the superannuation ecosystem.

Capital changes aim to support retirement income innovation

APRA has finalised changes to the capital treatment of longevity products, including annuities, as part of its broader focus on improving retirement outcomes.

The reforms introduce the option for insurers to apply an advanced illiquidity premium when determining capital requirements. This approach better aligns capital settings with the long-term nature of liabilities associated with retirement income products.

To support this change, APRA has introduced additional risk controls relating to governance, reporting and asset composition. The reforms are designed to create a more risk-sensitive and proportionate framework while maintaining prudential safeguards.

The changes are expected to improve capital efficiency for insurers and support the development of more competitive and sustainable retirement income products. They will come into effect from 1 July 2026.

Licence conditions reinforce governance and risk expectations

APRA has imposed additional licence conditions on Fiducian, reflecting concerns identified through its supervisory activities.

While the specific conditions are targeted, this type of action typically relates to strengthening governance, risk management and compliance frameworks within the entity. Additional licence conditions can require enhanced reporting, independent reviews or remediation actions.

These measures are a key supervisory tool used by APRA to address issues before they escalate. Rather than relying solely on enforcement, APRA often intervenes through licence conditions to ensure that institutions address weaknesses in a structured and timely manner.

The action follows supervisory concerns identified by APRA, including issues relating to governance oversight and the effectiveness of risk management processes.

Liquidity treatment guidance clarifies settlement exposures

APRA has issued guidance on the liquidity treatment of deposits placed with settlement service providers, addressing how these exposures should be treated under prudential liquidity standards.

The clarification is relevant to how institutions manage their liquidity coverage ratios and other regulatory metrics. It reflects the evolving structure of payment and settlement systems, including the increased use of third-party providers and real-time payment infrastructure.

By clarifying the treatment of these deposits, APRA is seeking to ensure consistency in how institutions assess and manage liquidity risk, while recognising changes in how financial transactions are processed.

This type of guidance highlights the need for institutions to continually review how new operational models interact with existing prudential requirements.

The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.

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