APRA Warns Financial Firms to Strengthen Defenses Against Geopolitical Shocks

Key Takeaways

• APRA Raises the Bar on Geopolitical Preparedness: The regulator has outlined minimum expectations for how banks, insurers and superannuation funds should prepare for geopolitical shocks using existing prudential frameworks.
• Awareness Must Translate Into Action: APRA found many institutions recognize geopolitical risks but have not adequately incorporated them into governance, risk management, strategic planning and crisis preparedness.
• Non-Traditional Threats Move Into the Spotlight: Foreign interference, insider threats, disinformation campaigns and AI-driven cyber risks are now being treated as material resilience and prudential concerns.
• Boards Face Greater Accountability: APRA expects boards to ensure geopolitical risk is reflected in strategy, risk appetite and oversight, while management addresses identified preparedness gaps with clear accountability.

Deep Dive

Australia's financial institutions are not sufficiently prepared for the operational and financial consequences of geopolitical disruption, according to a warning issued Wednesday by the country's prudential regulator. The Australian Prudential Regulation Authority has written to banks, insurers and superannuation funds outlining what it calls minimum expectations for readiness against geopolitical shocks, citing concerns that many firms have yet to translate growing awareness of geopolitical risks into practical risk management and crisis preparedness.

The regulator identified a series of recurring weaknesses across the industries it supervises. These include inadequate consideration of sanctions, market access restrictions and capital controls in business planning and investment strategies, risk management practices that are failing to keep pace with emerging threats, and crisis exercises that do not sufficiently test an institution's ability to respond to severe geopolitical events.

"Awareness is not enough," APRA Chair John Lonsdale said in announcing the guidance. "We need to see APRA-regulated entities integrate geopolitical risk into governance, risk management and crisis preparedness practices to strengthen their readiness for geopolitical shocks."

The warning reflects a growing focus among financial regulators on risks that sit outside traditional economic and market stress scenarios.

In its letter, APRA said geopolitical shocks can be transmitted through multiple channels simultaneously, affecting funding markets, technology providers, offshore operations, supply chains and customer confidence. Unlike conventional financial shocks, geopolitical events can build gradually before escalating rapidly and creating disruptions across several areas of an institution at once.

Among the regulator's concerns is the extent to which firms remain exposed to non-traditional risks associated with geopolitical tensions. APRA said risk management frameworks are often struggling to keep pace with threats including foreign interference, insider risks and disinformation campaigns. It also pointed to the changing cyber threat landscape, noting that advances in artificial intelligence are increasing the speed and sophistication of attacks while creating new challenges for board oversight.

The regulator observed that many boards are still developing the technical expertise needed to provide effective challenge on technology-related risks, particularly those involving AI. Dependence on critical third-party providers, many of them located overseas, further complicates oversight and risk management efforts.

The guidance sets out expectations across six areas: enterprise risk management, operational resilience, personnel security, political and sanctions preparedness, financial resilience, and crisis preparedness. Institutions are expected to ensure geopolitical risks are reflected in governance frameworks, risk appetite statements and strategic planning processes. APRA also expects firms to strengthen preparations for disruptions involving sanctions, foreign interference, cyber attacks and restrictions affecting offshore assets, investments or operations.

On the financial side, the regulator said capital and liquidity planning should routinely consider severe but plausible geopolitical scenarios, including market closures, funding stress, sanctions and restrictions on the movement of capital.

A particular focus is crisis readiness. APRA said many organisations make insufficient use of crisis exercises to test decision-making, escalation procedures and communications under conditions of uncertainty. The regulator expects firms to maintain crisis response plans and playbooks capable of supporting coordinated action during a geopolitical event.

While the guidance does not introduce new prudential requirements, APRA made clear that it expects institutions to apply existing standards more rigorously. The regulator will soon begin targeted readiness assessments of larger institutions with heightened exposure to geopolitical shocks. Those reviews will focus on crisis preparedness, personnel risks and political risks.

Entities outside that group are expected to adopt a proportionate approach based on their own risk profiles, with APRA supervisors continuing to monitor progress through routine engagement. Where the regulator identifies weak governance, inadequate preparedness or elevated exposure to geopolitical risks, Lonsdale said APRA will take supervisory action to address the gaps.

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