On 7 August 2025, the Australian Prudential Regulation Authority (APRA) issued a media release stating that it will make changes to its banking framework following the Council of Financial Regulators’ (CFR) Review into Small and Medium-sized Banks.
The Australian Government welcomed all nine actions from the CFR’s review and APRA will take forward four of these to better support competition from small and medium banks.
ARPA will:
- Formalise a three-tiered approach to proportionality in the regulatory framework for banking to broadly align with large banks (the majors), medium banks (other banks that are Significant Financial Institutions) and small banks.
- Streamline, simplify and clarify the accreditation process that allows banks to use the internal-ratings based approach to calculating risk-weighted assets.
- Better communicate to banks APRA’s decisions on minimum capital requirements under Pillar 2 of the Basel framework and what risks need to be addressed for certain capital adjustments to be removed or lowered.
- Amend its bank licensing framework with the aim of making its expectations more transparent and the process more efficient. This decision was announced late last month.
The Government will seek feedback on the CFR recommendation that would involve APRA introducing a lighter touch framework for very small banks, accompanied by adjustments to the Financial Claims Scheme. APRA will engage with Government and industry on this.
Chair John Lonsdale said: “The changes we have committed to as part of this review strike a sensible balance between lowering the regulatory burden for banks while ensuring banks of all sizes have the financial and operational resilience to protect their depositors. APRA has also written to the Treasurer about further initiatives to support productivity, beyond those outlined above. I look forward to sharing more details on these initiatives in due course.”