The Australian Prudential Regulation Authority (APRA) has confirmed plans to formally introduce a three-tiered approach to proportionality in its prudential framework for banking.
The measure is one of a number of reforms APRA moved to introduce as part of its response to the Council of Financial Regulators' Review into Small and Medium-Sized Banks. The CFR review was undertaken in consultation with the Australian Competition and Consumer Commission (ACCC). It also aligns with APRA's strategic commitment to get the balance right between its primary mandate for financial safety and stability and other considerations such as competition and efficiency.
Following a consultation that closed earlier this year, APRA today wrote to banks confirming it will proceed with the following proposals aimed at embedding additional proportionality and driving competition in the industry:
- Introducing a third tier of Most Significant Financial Institutions (MSFIs) for banks with total assets greater than $300 billion
- Raising the asset value threshold for banks to qualify as a Significant Financial Institution (SFI) from $20 billion to $30 billion; and
- Automatically providing a 12-month transition period when a regulated institution moves to a higher tier.
APRA also commits to providing non-SFIs with additional time to comply with new and revised prudential requirements when it is appropriate to do so.
APRA Executive Board Member, Therese McCarthy Hockey said: "Today's changes reflect APRA's ongoing commitment to building further proportionality into the banking framework and our supervision practices.
"This proportionality will only deepen over time as we look for more opportunities for greater differentiation between each of the banking tiers with each new piece of policy development."
The changes take effect from 1 July 2026.
The letter formally responding to submissions to the consultation is available on the APRA website at: Formalising a three-tiered approach to proportionality in banking prudential framework
