APRA is the government regulatory authority that supervises the financial services sector in Australia, with the focus on creating a sustainable finance sector which can withstand varying economic conditions. This article will help you better understand what APRA is, what the organisation does and
Here’s a closer look at APRA, what it does and how it impacts everyday Australians.
What is APRA?
APRA – the Australian Prudential Regulation Authority – was established in 1998 in response to the Wallis Inquiry. The inquiry had recommended the establishment of a specific regulatory body to ensure Australia’s financial institutions could be stress tested and managed so they would be able to survive economic events such as recession, credit markets contracting and high foreclosure rates. Through the APRA, regulation would be put through to regulate:
- Banks, building societies and credit unions
- Investment funds
- General insurance providers covering the retail sector
- Health insurance
- Life insurance
- The majority of retirement structures through superannuation
This swathe of industries in total make up a significant proportion of the ASX20 and over 5 trillion in Australian assets including cash, shares, real estate and business assets. Through providing a consistent framework for internal regulation and intra-entity relationships, APRA is able to promote policies which give stability to the financial sector – safeguarding the greater economy, retirement funds and the assets of every day Australians. Through creating a robust financial sector, APRA is meant to help the economy through the savings of greater industry competition, reduced failures and lower perceived risk in dealing with Australian institutions.
What does APRA do?
The primary function of APRA is to protect the assets of every day Australians financial assets – from deposit accounts, retirement funds and insurance policies. Through regulation of these products and services APRA is able to ensure stability for households, communities and the broader Australian economy by minimising risk which can flow across society.
The primary lever APRA uses to manage this risk and promote stability in the sector is through the creation and adjustment of prudential standards which determine how financial institutions can effectively manage risk, monitor consumer behaviour and allow products – ie such as the approval of home loans, the assessment of affordability for lending and the management of risk. Through managing risk within these organisations, consumers are protected from the risk of business failure where their assets and livelihood come under risk.
If an organisation under APRA fails to meet these prudential guidelines, laws allow APRA to penalise and put forth corrective measures to the parties involved to ensure long term compliance.
APRA uses data from the Reserve Bank of Australia, the Australian Securities and Investments Commission and the Australian Bureau of Statistics to guide its decision making processes; likewise also acting as a data collection point for both organisations.
What is an APRA fund?
An APRA fund is a type of superannuation fund which is supervised by APRA. APRA supervises regulated APRA superannuation funds, Approved Deposit Funds and Pooled Superannuation Trusts, regulated under the Superannuation Industry (Supervision) Act 1993.
The most common way many Australians will hear of APRA is through seeing products listed as an “APRA fund”. To find out if a particular superfund is an APRA fund you can find out here.