Quarterly Statement by the Council of Financial Regulators – September 2024

The Council of Financial Regulators (the Council) held its regular quarterly meeting on Wednesday, 4 September.

Members noted that while global financial stability risks remain elevated and domestic economic conditions had been challenging for some time, the Australian financial system had continued to display a high level of resilience. Members also noted that most Australian household and business borrowers were managing pressure on their finances; loan arrears were picking up only gradually and from a low level. Banks were assessed as well positioned to continue to support economic activity, owing in part to high levels of capital and liquidity. However, members agreed that non-traditional risks to financial stability generated from outside the financial system – including geopolitical risk, operational risk relating to digitalisation, and climate change – required ongoing vigilance by industry and were areas of heightened regulatory focus. Members also noted that these issues would be explored in the RBA's forthcoming Financial Stability Review, to be published in late September 2024.

CFR Review of small and medium-sized banks

The Council discussed the Review into the challenges faced by small and medium-sized banks, requested by the Treasurer in July 2024. The Review will be conducted by the Council, in consultation with the Australian Competition and Consumer Commission (ACCC). It will focus on the role of small and medium-sized banks in providing competition in financial services, and the regulatory and market trends affecting them.

The Council noted the importance of identifying ways of better supporting competition while balancing other objectives, including financial stability. Members agreed to publicly consult on an Issues Paper later this year to gain input from a wide range of stakeholders. The Council will provide a final report to the Government by 1 July 2025.

Macroprudential policy

The Council discussed the financial pressures faced by Australian households and businesses in the current environment, which CFR agencies continued to monitor closely. These pressures were expected to ease a little as inflation moderates further. Members noted APRA had held macroprudential policy settings steady, and it continued to monitor closely lending standards and the broader operating environment. Members also noted that the highly uncertain economic outlook meant there were a range of scenarios in which financial vulnerabilities could build. APRA will continue to review the macroprudential options that would be available, and consult with CFR agencies as appropriate. APRA intends to publish its update on macroprudential policy settings around the end of the year.

Climate-related initiatives

The Council discussed the annual stocktake of climate and sustainability-related initiatives undertaken by the CFR agencies and coordinated through the CFR Climate Working Group. The stocktake is available on the Council's website. Members noted that these initiatives were aligned with the Government's Sustainable Finance Roadmap, and aimed to enhance the ability of financial market participants to effectively manage climate-related risks and opportunities. In particular, Council agencies were supporting the implementation of climate reporting requirements, identifying data challenges faced by the financial sector in understanding climate-related financial risks, and contributing to the development of the Australian Sustainable Finance Taxonomy. APRA also provided members with an update on its Insurance Climate Vulnerability Assessment exercise, which focuses on the risk of deteriorating access and affordability of insurance for households.

Crisis preparedness

The Council noted that progress continued to be made in both Australia and New Zealand on resolution planning. Given the importance of effective coordination at the trans-Tasman level in the event of a crisis, Australian and New Zealand agencies conduct scenario planning exercises to help strengthen readiness for financial crises.

The Council also discussed lessons learned from the recent operational incident at CrowdStrike. The incident highlighted the potential for spillovers across the economy and financial system, and the need to continue to strengthen preparedness and broaden cooperation across government agencies. These will continue to be key areas of focus for the CFR Cyber and Operational Resilience Working Group.

Council agencies had also stepped up their engagement with industry on the importance of financial institutions incorporating geopolitical risk into their wider risk-management frameworks. Drawing on international experience, a future work program led by CFR agencies will include a strong focus on strengthening the overall resilience of financial institutions to heightened geopolitical tensions.

Other initiatives

The Council also discussed a range of other areas, including sustainable arrangements for cash distribution, e-conveyancing reforms, accelerated settlement for securities markets, and research on central bank digital currencies (CBDC). The RBA and Treasury will publish a joint paper on CBDC in September 2024, which will include a roadmap for future work.

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.