Quarterly Statement by the Council of Financial Regulators – October 2020
The Council of Financial Regulators (the Council) held its regular quarterly meeting on Tuesday, 29 September. The key issue discussed was the role of the financial sector in supporting economic recovery. The Council also had important discussions on cyber security.
With signs that the coronavirus is being successfully contained and state economies gradually reopening, much of the Council's discussion focused on how the financial system can support economic recovery. A key focus was the importance of the continued flow of credit to the economy, particularly to small and medium-sized enterprises (SMEs). Members agreed that demand for credit among SMEs has been subdued and that improved confidence in the health and economic outlook will be critical to addressing this. There have also been some signs of tightening in the availability of credit, though this largely reflects the changed trading conditions, rather than tightening lending standards. Members discussed the proposed changes to regulation of lending practices recently announced by the Government. They agreed that these changes would support the supply of credit, noting that requirements for prudent lending by authorised deposit-taking institutions (ADIs) will remain in place through APRA's lending standards. Members also agreed that ADIs should be prepared to use capital buffers to support the supply of credit to the economy.
The Council also discussed lenders' temporary deferral of loan repayments. This has provided important support to households and businesses during the pandemic. The majority of loan deferrals expire in September and October, requiring lenders to process a large volume of individual assessments. APRA and ASIC are working closely with lenders during this process. While many borrowers with deferrals will be able to resume payments, some may need to work with their lender to determine an alternative approach. It is important that borrowers who cannot resume full repayments engage with their lender, or seek other assistance, such as through the National Debt Helpline.
The Council's second key focus was cyber security. The Council met with the Department of Home Affairs to discuss government proposals for regulatory reforms to enhance the protection of critical infrastructure from cyber-attack. The proposals will interact with existing regulation of the financial sector and will require close coordination between the Council agencies and the Department. APRA outlined its renewed Cyber Security Strategy, which will form an important element of the financial sector's framework for managing cyber risk. Members committed to further collaboration to support the Strategy. One existing area of collaboration is a pilot cyber operational resilience intelligence-led exercise being planned with several financial sector entities. Council members agreed to publish the framework for the exercise in the near future.
The Council approved a set of principles for maintaining open access to cash equity clearing and settlement services. The principles are set out in Application of the Regulatory Expectations for Conduct in Operating Cash Equity Clearing and Settlement Services in Australia, which is available on the Council's website. The principles provide additional guidance on how expectations for the conduct of ASX, as the only current provider of cash equity clearing and settlement services in Australia, should be applied. Members also discussed the governance of ASX's CHESS Replacement Project. Council members stressed the importance of the regulatory oversight of the project that is being provided by ASIC and the Reserve Bank.
The Council discussed a stocktake of the climate-related activities of member agencies. A key element in the period ahead will be the climate change financial risk vulnerability assessment announced by APRA in February. The assessment will involve the large ADIs estimating the potential physical impacts of a changing climate on their balance sheets, as well as the risks that may arise from the global transition to a low-carbon economy. This work is being coordinated by APRA in conjunction with the Council. Council agencies continue to undertake a range of activities to understand climate risks and to promote understanding and management of those risks by regulated financial entities.
The Secretary of the Department of Home Affairs attended for part of the meeting.
Council of Financial Regulators
The Council of Financial Regulators (the Council) is the coordinating body for Australia's main financial regulatory agencies. There are four members: the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), the Australian Treasury and the Reserve Bank of Australia (RBA). The Reserve Bank Governor chairs the Council and the RBA provides secretariat support. It is a non-statutory body, without regulatory or policy decision-making powers. Those powers reside with its members. The Council's objectives are to promote stability of the Australian financial system and support effective and efficient regulation by Australia's financial regulatory agencies. In doing so, the Council recognises the benefits of a competitive, efficient and fair financial system. The Council operates as a forum for cooperation and coordination among member agencies. It meets each quarter, or more often if required.