APRA scales back small bank oversight despite rising sector risks
APRA has removed dedicated prudential supervisors for smaller banks, despite acknowledging growing risks in the sector — instead relying on an inbox and supervisory panel.
The banking supervisor has restructured its oversight of smaller financial institutions, despite rising strategic, credit and fraud risks in the sector — a move some banks say has reduced the intensity of their regulatory interactions.
In August, the Australian Prudential Regulation Authority (APRA) wrote to smaller authorised deposit-taking institutions (ADIs) advising they would no longer have a dedicated supervisor.
APRA told Capital Brief it had shifted to a “pooled approach” across several industries, saying this “ensures there is more effective supervision of entities and provides more opportunities for APRA to identify insights across the cohort of similarly sized entities managed by the team”.
The surprise move has raised concerns about the quality of the relationship with the primary regulator and the timeliness of responses to emerging issues. It comes amid mounting pressure for consolidation in the sector, as mutual banks have increased their share of the mortgage market to 5% over the past decade.
