On 20 November 2025, the Australian Prudential Regulation Authority (APRA) issued a new System Risk Outlook report, which sets out the regulator’s twice yearly view of risks and vulnerabilities facing Australia’s financial system. The report also includes a summary of the findings from Phase 1 of APRA’s inaugural system risk stress test, which was undertaken this year with the four major banks and six large superannuation funds.

The report frames APRA’s system-wide assessment across banking, insurance and superannuation and explains how APRA, working with the Council of Financial Regulators, is positioning the system to absorb shocks.

Key points

APRA judges the Australian financial system to be safe, stable and resilient, with regulated entities well placed to withstand potential adverse shocks. Nonetheless, the external backdrop is more complex and volatile, with elevated global risks transmitting through financial, economic, and operational channels.

Three areas dominate APRA’s risk focus:

  • The geopolitical environment presents a multifaceted vulnerability. More than two-thirds of APRA-regulated entities view geopolitical risk as a top concern. APRA and peer agencies have commenced a dedicated, multi‑year geopolitical risk work program to strengthen horizon scanning, crisis coordination, sanctions and payments system resilience.
  • Operational and cyber resilience has become more critical as institutions deepen reliance on digital infrastructure and concentrated third‑party service providers. APRA’s new CPS 230 Operational Risk Management standard, effective 1 July 2025, requires entities to identify and test important business services, test business continuity planning and uplift third‑party risk management. APRA is collecting data on material service providers to understand concentration and cross‑institutional dependencies, recognising that third‑party failures or cyber intrusions can cascade across the system.
  • Housing‑related vulnerabilities are building from a high base of household indebtedness and declining interest rates in 2025. While lending standards remain broadly sound, APRA notes signs of higher‑risk lending in some cohorts, and heightened competition for new lending. Macroprudential tools can be implemented if needed.

APRA Chair John Lonsdale said: “Our inaugural system risk stress test is an important addition to APRA’s stress testing regime by helping us better understand how linkages in the financial system could dampen or amplify shocks. We will shortly commence Phase 2 of the exercise, which will test the robustness of the Phase 1 findings and consider other areas of analysis.”