APRA: What is it and why should you care?
APRA is the government body that oversees the financial industry, making sure it’s healthy and well managed. Here’s a closer look at APRA, what it does and why brokers should care.
What is APRA?
APRA – the Australian Prudential Regulation Authority – was established in 1998. Created in response to the Financial System Inquiry (known as the Wallis Inquiry) the year before, it’s a government body that regulates the Australian financial industry in order to promote the prudent management of financial institutions in Australia, including:
- fund managers
- banks and credit unions
- building societies
- general insurance and reinsurance companies
- life insurance and private health insurance
- most of the superannuation industry.
All combined, these institutions hold a staggering $4.9 trillion in assets for Australian depositors, policyholders and superannuation fund members – making APRA’s role of promoting stability and confidence an extremely important one for financial institutions and investors.
What does APRA do?
The job of APRA is to protect the financial interests of depositors, policyholders and superannuation fund members, which in turn helps to promote the stability of individuals, communities and the entire Australian financial system as a whole.
To this end, APRA has a created a framework of legislation and prudential standards that helps to ensure the investment risks undertaken by financial institutions in Australia “are clearly identified and well managed, and that the likelihood of financial losses to consumers are minimised.”
APRA also oversees the ongoing activities of financial institutions and, if necessary, takes the appropriate actions to safeguard the interests of investors and beneficiaries where an institution is found to be out of compliance with APRA regulations.
Why APRA is important to brokers
APRA is committed to ensuring that brokers adhere to sound mortgage lending practices at all times, in order to minimise risk to both brokers and borrowers. During certain economic cycles, APRA has been known to increase its supervisory oversight over the following areas:
- Mortgage lending restrictions: For example, minimising the number of riskier high loan-to-income loans, high loan-to-valuation (LVR) loans and interest-only loans to owner-occupiers.
- Higher-risk property investor restrictions: This might involve enforcing stricter requirements on investors with a material portfolio asset growth above a threshold of 10%.
- Loan affordability tests for first-time borrowers: Requiring brokers to adda minimum interest rate buffer above the loan product rate to assess a borrower’s ability to repay the loan.
As a broker, this means it’s important to stay informed of the latest changes in APRA legislation, as well as understand how it impacts your consumer lending practices. For more information, visit the APRA website.
Keeping up with the latest regulations and lending practices can be a challenging task, but it’s a vital part of every broker’s job.