APRA reveals further update to governance review

Governance prudential standards of the Australian Prudential Regulation Authority (APRA) have been both proposed and reviewed to reinforce clarity and effectiveness.

Earlier this year, in March, APRA issued a discussion paper about proposed updates to its governance prudential standards in eight key areas before recently entering another review.

“The standards are being updated to reinforce good governance practice in line with the critical role APRA-regulated entities play in maintaining trust and stability in the financial system,” APRA said.

“Boards and senior leadership must be equipped to deliver on their responsibilities and respond to current and emerging risks. In undertaking the review, APRA seeks to improve standards, while accommodating different business models, and reduce unnecessary regulatory burden.”

The body revealed its fresh proposals were based on evidence across Australia and overseas that poor governance created weakness, which led to the crystallisation of misconduct, losses and failures.

It was also revealed by the regulator that “most of APRA’s supervisory and enforcement activity has involved issues that can be traced back to governance shortcomings”.

The eight focus areas APRA originally proposed changes to captured skills and capabilities, fitness and propriety, conflicts management, independence, board performance review, role clarity, board committees, as well as director tenure and board renewal.

APRA opened up consultation and feedback on its proposed changes, which led to the review of its governance standards and policy positions to better achieve its stated objectives.

Despite the consultation, APRA noted recent stakeholder feedback had not changed its view on the need for change, but had in some instances identified a more effective policy approach.

“APRA received a broad range of feedback from recent consultation. There was a strong recognition of the importance of sound governance practices and the value of raising minimum standards to be consistent with contemporary practice,” the regulator said.

“Many entities indicated that their current practices already align with APRA’s proposals. There was also strong support for initiatives that can reduce burden and address regulatory overlap.”

According to the regulator, from the feedback received, the three topics that attracted the most attention were tenure limits, independence and early engagement with APRA on proposed appointments.

On this, APRA revealed it would make three material changes to the proposals originally set out in its March discussion paper, which would be formally consulted on in quarter two 2026.

Jane Stanton, Grant Thornton Sydney partner, said based on the regulator's updated stance on governance standards, boards should be preparing for what’s ahead.

On the three areas of increased feedback, APRA extended the tenure limit from 10 years to 12 years on each regulated entity board, with short extensions permissible in limited circumstances.

Stanton said it was crucial to review current director tenure and identify which directors would need to exit the board and by when.

“For the stability of the board, it is better that departures are staggered. The board should also consider the tenure pattern they will adopt going forward. For example, three times four-year terms or four times three-year terms, or shorter tenure periods.”

Stanton also said boards would need to review their conflict-of-interest frameworks, processes and registers to ensure that conflicts of this nature were considered and conflict management plans were in place.

This recommendation was linked to APRA’s change in independence as it dropped the requirement to have at least two independent directors, including the chair, on a regulated entity board that were not members of any other boards.

In addition, Stanton said boards needed to prepare for APRA’s changes to early engagements on appointments and individual director skills.

“Boards should have a view of the experience, skills, knowledge and attributes that are necessary to be effective. This should be captured in a skills matrix that is reviewed regularly to ensure that it remains current,” she said.

“At least annually, boards should review their coverage of the matrix and appointments should close any gaps in the matrix.”