The APRA has opened a consultation on a significant change to its banking prudential framework, unveiling plans for a formal three-tier structure designed to strengthen proportionality and stimulate competition in the sector.
The move follows a commitment made during the Council of Financial Regulators’ Review into Small and Medium-sized Banks, which called for clearer differentiation to ensure regulation remains appropriate for institutions of varying scale and complexity.
APRA’s current structure relies on only two categories: significant financial institutions (SFIs) and non-significant financial institutions (non-SFIs). Under these rules, SFIs are subject to stronger prudential expectations, while smaller entities face a lighter regulatory load. However, in a discussion paper released today, APRA proposed the creation of an additional top tier—Most Significant Financial Institutions (MSFIs)—which would apply to banks with more than $300bn in assets. This category would currently include the country’s four major banks alongside Macquarie Bank, marking a formal distinction that reflects their size and systemic importance.
The existing SFI threshold would also shift upward, rising from $20bn to $30bn. This creates a middle tier consisting of all remaining SFIs, while non-SFIs would continue as the third tier under the new structure. APRA noted that while proportionality already exists in the framework, a more explicit approach would offer greater clarity and help ensure requirements remain aligned with an institution’s risk profile.
One of the central benefits highlighted is the flexibility afforded to smaller institutions. Non-SFIs would receive additional time to meet new or updated prudential obligations where appropriate, reducing the burden of implementation. APRA also acknowledged that banks may move between categories due to growth, mergers or acquisitions. To support these transitions, the regulator proposes a minimum 12-month adjustment period for institutions entering a higher tier, allowing them time to comply with heightened regulatory standards.
APRA member Therese McCarthy Hockey said the proposals were intended to reinforce competition and long-term resilience across Australia’s banking landscape. “While APRA’s prudential framework is inherently proportionate, with larger, more complex entities subject to heightened requirements, there is an opportunity to give greater certainty and clarity to the industry and reduce impost where appropriate,” she said.
APRA member Therese McCarthy Hockey said, “By increasing the level of distinction in our prudential framework between banks of different size, scope and complexity, APRA can better ensure that requirements are not overly burdensome relative to what is needed to protect depositors and promote financial stability.”
She added that the regulator is reviewing wider opportunities to streamline regulation across the financial system. “This is one of a number of initiatives APRA is undertaking to enhance proportionality and reduce regulatory burden as part of our continued efforts to support the Government’s drive to lift national productivity. We are also engaging with Treasury on the possibility of creating a fourth tier with reduced requirements for the very smallest banks and will consider whether additional proportionality may be appropriate in superannuation and insurance.
“APRA will continue to explore opportunities to more explicitly differentiate prudential requirements and implementation flexibility by tier when we develop a new standard or revise an existing one,” she said.
With the consultation period set to run for three months, APRA aims to finalise the new framework in 2026, marking one of the most notable structural revisions to bank supervision in recent years.
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