The APRA has opened consultation on a major reform of its banking prudential framework, proposing a three-tier proportionality model aimed at improving competition and regulatory clarity across the financial sector.
The move builds on APRA’s commitment made during the Council of Financial Regulators’ Review into Small and Medium-sized Banks to formalise a structure that better reflects the different risk profiles and operational scales of Australian banks.
Under the current system, banks are categorised as either significant or non-significant financial institutions. Significant financial institutions (SFIs) are subject to heightened prudential expectations compared to non-SFIs. However, APRA’s new discussion paper outlines a more granular approach. At the top of the structure, a newly defined category, Most Significant Financial Institutions (MSFIs), would cover banks with more than $300bn in assets. This group would include Australia’s four major banks alongside Macquarie Bank.
The second tier would comprise SFIs, with APRA proposing to raise the threshold from $20bn to $30bn in assets. Below that, the third tier—non-SFIs—would include all remaining authorised deposit-taking institutions. These smaller players would be granted additional time to meet new prudential standards, reflecting their lower risk profile and reduced operational capacity to manage regulatory change at pace.
APRA also acknowledges that banks may shift between tiers due to growth, mergers or acquisitions. To ease this transition, all banks would be provided a minimum of 12 months to comply with higher prudential expectations if they enter a new category.
APRA member Therese McCarthy Hockey said the framework aims to provide the industry with greater transparency while ensuring safeguards remain proportionate to risks. APRA Member Therese McCarthy Hockey said, “While APRA’s prudential framework is inherently proportionate, with larger, more complex entities subject to heightened requirements, there is an opportunity to give greater certainty and clarity to the industry and reduce impost where appropriate.”
She added that more explicit differentiation would help ensure requirements are “not overly burdensome relative to what is needed to protect depositors and promote financial stability.”
APRA is also exploring whether a potential fourth tier—with reduced requirements for the smallest banks—could further strengthen proportionality. Additionally, it may consider applying similar principles across the superannuation and insurance sectors.
The consultation period will run for three months, with APRA expected to finalise its proposals in 2026.
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