APRA Eases Governance Reforms After Industry Pushback

Key Takeaways

• Revised Proposals: APRA eased or dropped three key governance proposals after feedback, extending director tenure limits, scrapping new independence rules, and withdrawing early appointment engagement requirements.
• Focus on Flexibility: The regulator emphasized maintaining flexibility for different business models while lifting minimum governance standards.
• Governance Weaknesses Persist: APRA continues to identify board and governance shortcomings as a major driver of prudential issues across industries.

Deep Dive

The Australian Prudential Regulation Authority (APRA) has revised several of its proposed governance reforms following extensive industry consultation, signaling a more balanced approach to modernizing prudential standards for banks, insurers, and superannuation trustees.

The regulator’s updated position, outlined in a letter to industry on Friday, comes after three months of consultations, 57 meetings and roundtables, and nearly 80 written submissions. The initiative, first launched in March, marks APRA’s first major overhaul of its governance framework in more than a decade.

Among eight proposals introduced earlier this year, APRA has confirmed it will amend or drop three that drew the most industry concern: director tenure limits, independence requirements, and early engagement on executive appointments.

• Tenure Limits: Instead of imposing a 10-year cap on non-executive directors with a possible two-year extension, APRA now proposes a hard limit of 12 years, with limited extensions permitted.
• Board Independence: The initial requirement that at least two independent directors (including the chair) be unaffiliated with other group boards will not proceed. Instead, APRA plans to remove the presumption of independence for directors serving on multiple group boards and strengthen conflict management expectations.
• Early Engagement on Appointments: APRA will no longer require significant financial institutions to consult early with the regulator on key appointments, citing privacy and process concerns. However, the regulator still considers such engagement “best practice.”

The regulator will also clarify proposals on director skills, perceived conflicts of interest, and disclosure of registers of relevant interests and duties, indicating that banks and insurers will not be required to make such registers public.

Balancing Standards and Flexibility

APRA Chair John Lonsdale said the regulator remains committed to raising governance standards while recognizing industry calls for flexibility.

“Effective governance is fundamental to financial stability and sound risk management,” Lonsdale said. “Across our regulated industries, APRA continues to see cases where deficient governance leads to poor prudential outcomes. However, in strengthening standards, we want to strike a balance between increased prescription and sufficient flexibility for different business models.”

Lonsdale added that the consultation process demonstrated APRA’s willingness to “listen carefully” to feedback, leading to changes that still deliver a “meaningful uplift in governance standards” without imposing undue constraints.

Broader Governance Uplift

APRA’s governance reforms are intended to bring contemporary expectations in line with evolving financial sector dynamics and international standards. Since its last major update in 2012, assets held by APRA-regulated entities have more than doubled, from roughly $2.73 trillion to $5.92 trillion (AUD 4.2 trillion to AUD 9.1 trillion), while regulatory regimes such as the Banking Executive Accountability Regime (BEAR) and the incoming Financial Accountability Regime (FAR) have expanded oversight of board and executive conduct.

The regulator’s analysis shows that 78% of entities subject to heightened risk-based supervision have underlying governance issues. In response, APRA has increasingly tied governance performance to prudential outcomes, ranging from capital overlays and license conditions to enforceable undertakings.

APRA plans to release draft prudential standards and guidance for further consultation in the second quarter of 2026, with final updates expected before implementation in 2028. In the meantime, the agency will continue stakeholder engagement through roundtables and bilateral meetings to refine the framework.

“Good governance is a precondition for easing prudential burden in other areas,” APRA noted in its discussion paper. “To reduce regulatory load without increasing risk, we must be confident that entities are led by high-calibre, high-integrity teams who can manage risk and govern effectively.”

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