What is APRA proposing and how does it compare to current practice?

APRA proposes requiring Boards to document, evaluate, and address skills needed for both individual Directors and the Board as a collective. The focus shifts from overall Board capability to also tracking individual Director competencies.
 
Currently, CPS 510 and SPS 510 require Boards to have necessary skills collectively, but there is no explicit requirement for individual Directors. APRA's reviews have identified gaps, in actual Board capabilities with a 2021 review finding almost 50% of mutual bank Boards had at most one Director with contemporary industry experience. Similarly, some RSE licensees lack Directors with adequate skills in key areas such as investment and risk management.

What's our perspective and what should you consider?

This proposal represents an evolution of governance practice rather than a revolution. However, APRA's approach remains notably silent on the critical balance between technical skills and practical experience. A truly effective skills matrix needs to capture not just technical competencies but also the personal experience of Directors. The proposal also fails to recognise the importance of the behavioural attributes of Directors – such as the ability to question, be frank and fearless; apply good judgment and synthesis complex information quickly – which can never be fully measured in a traditional skills matrix. While this proposal encourages making skills frameworks more actionable, it misses the opportunity to address the deeper question of what skills truly matter for effective governance.
 
To address this proposal effectively, organisations should adopt a comprehensive skills assessment that goes beyond technical credentials. They should enhance matrices with measurable competencies and experiences for individual Directors that are tied to the organisation’s strategy and risk profile. Skills should be verified beyond self-assessments, connect gaps to development plans, and integrate this approach with succession planning to fill identified skills gaps. Importantly, skills gaps identified do not necessarily require new Director appointments – they can be addressed through targeted training or engaging expert advisors to the Board. Boards should strive to balance individual technical skills with the collective experience and behavioural qualities needed for effective governance.

What is APRA proposing and how does it compare to current practice?

APRA plans to strengthen fitness and propriety assessment requirements by expanding the criteria to include the ability to commit sufficient time and also to consider criminal, conduct records and reputational risk. Notably, APRA is explicitly broadening assessments to include civil penalties alongside criminal matters. APRA believes that many entities currently treat fitness and propriety checks as a procedural exercise with limited verification and are proposing that organisations should proactively with them prior to making appointments.

What's our perspective and what should you consider?

This proposal introduces a higher bar for responsible persons and a more interactive relationship with APRA. However, the approach to civil penalties appears overly binary and potentially counterproductive. Civil penalties should not automatically preclude someone from Board service if they do not materially impact the individual's ability to perform as a Director.
 
Civil penalties received in specific professional contexts should not automatically exclude individuals from Board service if these events do not impact their capacity for honesty, integrity and proper performance as Directors.
 
When transforming fit and proper assessments from compliance exercises to meaningful evaluations, entities should consider whether findings impact an individual's ability to perform their duties or the entity's reputation, whether the individual contributes needed skills to the Board, and if any conflicts create material risks to proper performance. The focus should be on substantive impact rather than procedural compliance as entities review policies to incorporate APRA's expanded criteria while developing verification processes beyond self-declarations.

What is APRA proposing and how does it compare to current practice?

APRA proposes extending RSE licensee conflict management requirements to banks and insurers. All entities must identify actual, potential, and perceived conflicts. Currently, banks and insurers address conflicts under CPS 220, while RSE licensees follow SPS 521 with more comprehensive requirements.
 
What's our perspective and what should you consider?

This proposal standardises conflict management across sectors, with perceived conflicts being an important addition that acknowledges impact on stakeholder trust.
 
Most organisations have established conflicts management frameworks but should prioritise evaluating current practices against superannuation sector requirements. Banks and insurers should ensure they have processes for perceived conflicts, enhance Board practices for effective conflict identification, and consider reputational dimensions in assessments.

What is APRA proposing and how does it compare to current practice?

APRA proposes requiring at least two independent Directors (including the Chair) to not be on any other Board within the entity's group and extending the majority independence requirement to subsidiaries of regulated parents. Currently, CPS 510 allows independent Directors to sit on multiple Boards within a group, and subsidiary Boards need only a majority of non-executive Directors. 
 
What's our perspective and what should you consider?

This proposal directly addresses intra-group conflicts with a pragmatic approach that balances conflict mitigation and practical implementation. 

Preparing for these requirements necessitates a thorough review of current Board composition against the proposed criteria to identify Directors who would no longer qualify as independent. Organisations should develop transition plans for meeting the new requirements, particularly for subsidiary Boards, while refining approaches to managing intra-group conflicts and addressing succession planning needs. 

What is APRA proposing and how does it compare to current practice?

APRA proposes requiring significant financial institutions² (SFIs) to commission independent third-party assessments of Boards, Committees, and individual Directors every three years, with Chairs accountable for addressing recommendations. Currently, annual internal assessments are required, but external reviews are only suggested in guidance for health insurers and RSE licensees.
 
What's our perspective and what should you consider?

This proposal formalises existing better practice among leading institutions, bringing greater objectivity to sensitive matters such as Director effectiveness.

To maximise value, organisations should prioritise substance over form with assessments that deliver genuine insights, not just compliance. They should establish clear assessor selection criteria and define focused review parameters. Organisations must also develop protocols for handling sensitive findings while defining the Chair's implementation responsibilities.

What is APRA proposing and how does it compare to current practice?

APRA proposes defining core expectations for Boards, Chairs, and senior management, with guidance on delegation. Currently, standards provide only high-level board role definitions with limited delegation guidance. APRA found many Boards spend under 30% of time on strategy and risk oversight.
 
What's our perspective and what should you consider?

This proposal helps Boards prioritise strategic matters by clarifying responsibilities and addressing compliance overload. While APRA's intention to reduce Board time spent on regulatory matters and encourage more strategic focus is positive, it remains to be seen whether Directors will feel comfortable shifting their focus given their individual responsibilities under FAR.

To recalibrate, organisations should review charters against APRA's definitions, assess delegation frameworks, evaluate agenda focus, and ensure reporting supports strategic decisions. Entities should also consider how APRA's responsibility scope aligns with FAR statements.

What is APRA proposing and how does it compare to current practice?

APRA proposes requiring separate Risk and Audit Committees for SFI RSE licensees but offers flexibility to non-SFIs. Banks and insurers are already required to establish separate committees while RSE licensees currently require just one that covers both functions, often including external experts as voting members. For all sectors, only Board members will be able to vote on committees.
 
What's our perspective and what should you consider?

This proposal applies proportionality based on entity size by aligning large RSE licensees with banks and insurers while providing smaller institutions with greater flexibility. All but three SFI RSE licensees already maintain separate Audit and Risk Committees, which will limit the change impact of the proposal.
 
To adapt, RSE licensees should evaluate their Committee structures and plan accordingly, while non-SFI banks and insurers reassess the appropriateness of separate Committees, and all organisations review membership to identify non-Board voters, verify Board expertise, and consider alternative ways to access specialist knowledge without voting rights. 

What is APRA proposing and how does it compare to current practice?

APRA proposes a 10-year tenure limit for non-executive Directors with possible two-year extensions in exceptional cases, plus more vigorous renewal processes. Current standards only require renewal policies that consider whether long tenure affects independence, but with flexibility on specific limits. APRA notes approximately 150 Directors have tenures exceeding 12 years, with 30 exceeding 20 years. The APRA proposals do not include a transition period for the tenure limit to come into effect. 
 
What's our perspective and what should you consider?

This proposal introduces a clear tenure limit to drive Board renewal, though the 10-year cap appears somewhat arbitrary and is not aligned with global practice (which APRA has acknowledged). The change also introduces a risk that Boards will periodically experience significant upheaval as experienced Directors leave in quick succession and are replaced by those with less knowledge of the organsiation. 

A more flexible approach based on collective Board tenure rather than individual limits – might better balance renewal with continuity while still encouraging a steady flow of new Directors. This would allow Boards to manage composition holistically, considering the aggregate experience across the entire Board.

To prepare, identify Directors approaching tenure limits and develop staggered transitions while strengthening succession planning, creating knowledge transfer processes, and determining what circumstances might justify extension requests. Most importantly, focus on building a framework that manages the collective capacity of the Board while supporting appropriate renewal.