Planning to resolve a crisis: APRA assists regulated entities in strengthening crisis preparedness

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Written by Max Allan, Jo Dodd, Bryony Evans, Ian PatersonMandy Tsang and Monica La Macchia 

On 2 December APRA released its Discussion Paper “Strengthening Crisis Preparedness”. It describes proposals for how APRA regulated institutions should prepare for circumstances affecting their viability. 

Two draft prudential standards accompany it, draft CPS 190 on Financial Contingency Planning and draft CPS 900 Resolution Planning

Brief though these standards may be (11 pages for CPS 190, 7 pages for CPS 900), if implemented as proposed, they will entail significant work for a very wide range of financial institutions, including many Australian and foreign banks, general, life and private health insurers and responsible entities of APRA-regulated superannuation entities.  This note describes the key elements of the proposals and important points for careful consideration by APRA-regulated institutions.

Australian and foreign bank, general, life and private health insurer and responsible entity of APRA-regulated superannuation entities (“RSE”) affected by these reforms should engage with the proposed requirements now, given the complexities that are likely to arise in applying APRA’s high-level principles to their own businesses. 

What will the standards require?

The Financial Contingency Planning standard will require an institution to have a plan in place which is acceptable to APRA detailing how it would respond to a stress that threatens its viability.  This standard will apply from 1 January 2024 (for banks and insurers) and 1 January 2025 (for the superannuation industry).  The standard does not prescribe what those actions should be.

The Resolution Planning standard contemplates APRA having a plan for how to resolve the institution if it is not viable.  While the plan is APRA’s, the institution is obliged to organise its affairs to ensure it is resolvable and assist APRA to prepare the plan.  Again, the standard is not prescriptive.

Which institutions are affected?  

Different provisions of each standard will apply depending on whether the institution is a significant financial institution (“SFI”) or not a significant institution.[1]

There are two categories of SFI:

  • Domestic institutions[2] with total assets over the following thresholds:


$20 billion

General insurer or life insurer

$10 billion

Private health insurer

$3 billion


$30 billion[3]

  •  other entities determined by APRA having regard to certain criteria such as the complexity of its operations or membership of a group.

Financial Contingency Planning – more details

Both SFIs and non-SFIs must formulate a contingency plan that is approved by the entity’s Board.[4]  The plan must include a trigger framework, governance arrangements and credible actions that could be taken to restore financial resilience or to effect an orderly or solvent exit from regulated activity, along with a communication strategy to support those contingency actions.[5]

The plan for a SFI requires more detailed scenario analysis and assessment of recovery capacity, including detailed consideration of the timeline to implementation, barriers to implementation and the expected effects on capital and liquidity.[6]  For a SFI, the plan must be reviewed annually and comprehensively reviewed every three years.[7] SFIs will also have to incorporate their contingency plans into their risk, capital and liquidity management frameworks (as relevant) or, for RSE licensees, into their business plan and business performance review.[8]

There are significant consequences if APRA is not satisfied with a plan.  In these circumstances, APRA may adjust the capital and liquidity requirements of regulated entities (other than RSEs).[9]

Resolution Planning – more details

The resolution standard will apply to SFIs and non-SFIs determined by APRA to provide critical functions.[10]    

Critical functions are those that are important to financial system stability or the availability of essential financial services to an industry or community.[11]  Systemic impact, customer impact and the substitutability of other providers are referred to as factors relevant to the determination of whether an entity provides any critical function.[12]  An entity must support APRA in making that determination.[13]

The resolution plan is APRA’s to determine.  It may include options such as a solvent wind-down, a business transfer or recapitalisation of the entity.[14]  Again, an entity must support APRA in developing and implementing the plan.[15]  Further, the Board of the entity is made responsible for ensuring the entity is resolvable and should consider its capability to make that assessment.[16]  Resolvability must be assessed[17] and the entity may be required to undertake pre-positioning actions. Those actions may include changes to its structure, for example the location of shared support services in a group, the re-negotiation of contracts, in particular with third party service providers, the development of wind-down or run-off plans, measures to ensure operational continuity and other actions to mitigate risks of execution of the resolution plan.[18]  It seems the plan should include a “post-crisis stabilisation plan”.[19]  The entity must have the capability to carry out the plan.[20]  In particular, entities other than RSEs may be required to hold more loss-absorbing capital, by way of adjustment to total capital (in the case of ADIs) or the prudential capital requirement (in the case of insurers).[21]  If APRA is not satisfied that material barriers to resolution have been addressed or capabilities to support the plan are insufficient, APRA may adjust the prudential requirements of an entity (other than an RSE).[22]

APRA may require external advisers be appointed to support “any aspect of the Prudential Standard”.[23]  The resolvability assessment, including any pre-positioning plan, must be reviewed every three years.[24]

When would the standards take effect?

The Financial Contingency Planning Standard will come into force on 1 January 2024, except for RSEs for which the date will be 1 January 2025.[25]  The Resolution Planning Standard will come into effect on 1 January 2024.[26]

Some issues for consideration

For all regulated entities generally

The draft standards are notable for their brevity and lack of detailed prescription.  This reflects the breadth of their application and the diversity of the institutions to which they will apply.  It should not be concluded that compliant plans may be as slender as the standards themselves.  To the contrary, the principles-based approach suggests that the plans will require more detail.  Institutions should expect a rigorous process of assessment and testing with APRA in the light of their particular circumstances.  APRA’s approach discourages attempts at “checking the box” or mimicking peers.  APRA has acknowledged in the discussion paper that the requirements are principles-based, and there seems to be a clear expectation that regulated entities will meet these requirements in a way that is appropriate to their particular business model and the risks they present to the financial system.[27]

Plans are expected to remain confidential between the institution and APRA.  In the case of resolution planning, it is proposed that an entity may not make any disclosures in relation to it without the approval of APRA.[28]  How this will work in practice remains to be seen.          

The draft standards shed no brighter light on what APRA regards as the precise point at which it would exercise its powers to resolve a regulated entity.  The draft CPS 900 employs a definition of “resolution” which tracks the definitions inserted into the relevant legislation in recent times.[29]  The standard associates “resolution” with the concept of “non-viability”, a term used in the capital adequacy standards, but not in the legislation.[30]  The discussion paper describes an entity as a “gone concern” when it has “failed” and the entity needs to be “resolved” and notes that “failure from a prudential regulation perspective may occur before insolvency.”[31]  No doubt it would not be sensible to attempt to define the point of regulatory intervention by reference to any particular metric.  On the other hand, given the serious effects of resolution on members, depositors, policyholders and creditors, it would seem reasonable to define the point of intervention in a way that is at least conceptually clear, for example the point where insolvency is likely.    

For entities with LAC

ADIs and general and life insurers have issued significant volumes of securities that would be expected to convert into equity in resolution (if not before) to assist recapitalisation of the entity.  Private health insurers will soon join them as issuers of these securities, following APRA’s separate announcement proposing to align private health insurer capital with the requirements of life and general insurers.[32]

The legal framework for those conversions in Australia is particularly robust.[33]  However it is expected that a resolution plan will need to address the practicalities of effecting the conversion, in particular having regard to the resulting quanta of shares issued and any implications that may arise under laws relating to foreign ownership and the ownership of financial sector entities.  As the volume of LAC securities grows those questions become more significant.

ADIs and LAC

For ADIs, the issuance of LAC securities has grown significantly as APRA has recognised only existing forms of regulatory capital as counting towards TLAC requirements.[34]  The draft CPS 900 may add to that trend, as an unsatisfactory plan may lead to adjustments in total capital, a figure that includes additional Tier 1 and Tier 2 capital.

Insurers, LAC and PCR

For an insurer, the consequence of an unsatisfactory resolution plan may be felt in an adjustment to the insurer’s prudential capital requirement (“PCR”)  so as to increase its amount of loss-absorbing capacity.  A certain proportion of PCR must be met by common equity.[35]  That may provide an additional incentive to insurers to avoid being subject to an adjustment.  

Foreign ADIs and insurers

Foreign entities operating in Australia as a branch should be aware that the draft CPS 190 and CPS 900 apply to them.  They may or may not be SFIs depending on the complexity of their operations. The contingency planning and resolution obligations apply only to their Australian operations.[36]  The drafts are silent as to whether the plans that have been agreed with the head regulator of the entity will be accepted and respected by APRA, so far as Australian statutory requirements allow.[37]


Contingency planning under the draft CPS 190 is said to be targeted at the case where the RSE licensee itself is under stress, rather than cases where there have been poor member outcomes or underperformance to be reviewed under SPS 515, although it is noted that fund underperformance may lead to that stress.[38]

There is no expectation that RSEs will be required to issue LAC securities as part of resolution planning.  The discussion paper notes that a RSE’s access to other financial resources is relevant and it appears that may include funding arrangements.[39]

Next steps

Submissions on the proposals are due by 29 April 2022.  APRA has invited comments on the design of its framework, its scope and costs.[40]

Some institutions will have already done much work to develop recovery options and exit plans in line with its supervisory guidance.  The new standards will formalise these expectations and make it imperative for affected institutions to develop robust and satisfactory plans in the context of their own businesses.  In KWM’s experience the issues encountered are multi-disciplinary: corporate structure and governance, capital and funding requirements, access to payment systems and financial market infrastructure, technology and systems, intellectual property and branding, services arrangements (third party and intragroup) are all relevant.  Board level engagement is expected.  Adjustments to business arrangements may be necessary.   

Even for non-Australian institutions for whom resolution planning is already familiar, it will be important to consider how the Australian requirements fit with the requirements of institutions’ home jurisdictions and their existing plans as they relate to their Australian operations. 

Now is the time to engage with these principles to ensure that the path to compliance is transparent and can be navigated efficiently. For those already under way, these standards need to be considered to understand what further work will be required.  For those for whom this is new, the time to start planning how to resolve a crisis is now.  



[1] Note the SFI concept is distinct from a “systemically important financial institution (“SIFI”).

[2] The obligations imposed by the standards only apply to the Australian branch operations of a foreign ADI, a Category C insurer or an eligible foreign life insurance company.

[3] Where a single RSE licensee operates more than one RSE, the assets of the RSEs are aggregated to determine whether the threshold is met.

[4] Draft CPS 190 paragraphs 13, 17,18, 33, 37 and 38.

[5] Draft CPS 190 paragraphs 19 and 39.

[6] Draft CPS 190 paragraphs 19(f)-(g) and 20.

[7] Draft CPS 190 paragraphs 28-30.

[8] Draft CPS 190, paragraph 15.

[9] Draft CPS 190 paragraphs 23 and 40.

[10] Draft CPS 900 paragraph 4.

[11] Draft CPS 900 paragraph 11(a).  It would remain to be seen whether “community” has a regional or social sense, or both.

[12] Draft CPS 900 paragraph 13.

[13] Draft CPS 900 paragraph 13.

[14] Draft CPS 900 paragraph 14.

[15] Draft CPS 900 paragraph 15.

[16] Draft CPS 900 paragraph 17; Discussion Paper page 20.

[17] Draft CPS 900 paragraphs 19-21.

[18] Draft CPS 900 paragraphs 22-24.

[19] Draft CPS 900 paragraph 25.

[20] Draft CPS 900 paragraphs 25-27.

[21] Draft CPS 900 paragraph 28.

[22] Draft CPS 900 paragraph 29.

[23] Draft CPS 900 paragraph 30.

[24] Draft CPS 900 paragraphs 31-2.

[25] Draft CPS 190 paragraph 8.

[26] Draft CPS 900 paragraph 7.

[27] Discussion Paper, Executive Summary, page 5.

[28] Draft CPS 900 paragraph 34.  Equivalent plans in some other jurisdictions are disclosed in redacted or summary form.

[29] Draft CPS 900 paragraph 11(c); Banking Act section 5; Insurance Act section 3; Life Insurance Act section 8, Schedule; Superannuation Industry (Supervision) Act s 10.

[30] APS 111 Attachment J paragraphs 1-5; GPS 112 Attachment G paragraphs 1-4; LPS 112 Attachment G paragraphs 1-4.  The closest the legislation comes to “non-viable” are the expressions “unable to carry on” the relevant business in the statutory management and recapitalisation direction provisions (Banking Act sections 13A(1)(b)(iii) and 13E(1)(b); Insurance Act sections 62ZOA(2)(c) and 103B(1)(b); Life Insurance Act sections 179AA(2)(c) and 230AB(1)(b)).

[31] Discussion Paper, Chapter 1.1, Figure 2.

[32] See APRA announcement of 13 December 2021 available at

[33] See Banking Act sections 11CAB and 11CAC; Insurance Act sections 36B and 36C; Life Insurance Act sections 230AAC and 230 AAD.  It remains to be seen whether similar provisions will be introduced for private health insurers prior to the proposed implementation date of the standards on 1 July 2023.

[34] APRA Discussion Paper ‘Increasing the loss-absorbing capacity of ADIs to support orderly resolution’ from 8 November 2018 (available at and response to submissions (available at  The Discussion Paper at footnote 8 notes APRA continues to monitor international developments in regulatory capital instruments with a view to better positioning those instruments to absorb losses in resolution.   

[35] GPS 110 paragraphs 20-23; LPS 110 paragraphs 22-28.

[36] Draft CPS 190 paragraph 3; draft CPS 900 paragraph 3.

[37] Note e.g. section 11F of the Banking Act and section 116 of the Insurance Act contain special rules for ensuring the preference for local Australian creditors with respect to assets in Australia.

[38] Discussion Paper paragraph 2.4

[39] Discussion Paper paragraph 3.2.1.

[40] Discussion Paper paragraph 4.1.