The Australian Prudential Regulation Authority (APRA) has announced plans to revise its regulatory framework to better support small and medium-sized banks.
The move is part of the Council of Financial Regulators’ (CFR) Review into the sector, released by the Treasurer this week.
The review, conducted jointly by the CFR and the Australian Competition and Consumer Commission (ACCC), explored the competitive landscape, structural challenges, and regulatory barriers for small and mid-tier lenders.
The federal government welcomed all nine actions proposed by regulators and accepted eight of the review’s recommendations in principle. It will consult further on the ninth, which suggests APRA introduce a “lighter touch” regulatory regime for very small banks, alongside changes to the Financial Claims Scheme.
The review found that while smaller banks have gradually grown their market share since the global financial crisis, many still face cost and scale-related challenges. Digitisation, evolving customer preferences, and rising risk complexity have also added competitive strain.
The regulatory framework was deemed broadly fit-for-purpose but identified opportunities to improve proportionality and reduce compliance burdens to help smaller banks compete more effectively.
APRA chair John Lonsdale (pictured) said the review had sharpened focus on achieving balance in the system.
“Small and medium-sized banks are an important part of the industry landscape, delivering essential banking services and providing choice for millions of customers, especially in rural and remote areas,” Lonsdale said in a media release.
“We recognise the challenges many of these institutions face at a time when banking is becoming increasingly digitised, and community expectations around cyber security and operational risk management are rising.”
APRA has committed to four key actions aimed at reducing regulatory strain and supporting smaller banks:
Additionally, APRA will assess whether covered bonds should qualify as high-quality liquid assets (HQLAs), subject to upcoming changes to issuance limits.
“At a time of heightened global geopolitical uncertainty, robust regulation is vital to ensuring all banks remain safe, stable and treat their customers fairly,” Lonsdale said.
“APRA is committed to efficient, right-sized regulation that supports safety, stability and good community outcomes while also supporting competition and innovation in the sector.
“The changes we have committed to as part of this review strike a sensible balance between lowering the regulatory burden for banks while ensuring banks of all sizes have the financial and operational resilience to protect their depositors.”
Lonsdale also confirmed APRA has written to the Treasurer with further productivity support initiatives beyond those in the review, to be detailed soon.
The Australian Banking Association (ABA) welcomed the release of the CFR review and its potential to create a more level playing field.
ABA CEO Anna Bligh said the review would help strengthen the overall banking ecosystem.
“This is an important step forward in ensuring Australia maintains a strong and competitive banking sector,” Bligh said in a media release. “Having a diverse range of banks ultimately means more competition in the market and that delivers more choice and better outcomes for customers.
“There are positive steps in this review to ensure the regulatory settings allow small and medium-sized banks to compete and succeed.”
She added that the industry was particularly encouraged by the move toward lower funding costs and reduced red tape.
“In particular, we welcome moves to formalise more proportionate regulation, support lower funding costs, and reduce unnecessary regulatory reporting,” Bligh said.
“Our industry thanks the Council of Financial Regulators for their engagement throughout the review and stands ready to assist in the effective implementation of these recommendations.”
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