APRA Prepares for Geopolitical Unrest

With growing geopolitical uncertainty, APRA is preparing for potential volatility caused by international events

With growing geopolitical uncertainty, the Australian Prudential Regulation Authority (APRA) is preparing for potential volatility caused by international events.

In a recent address to the European Australian Business Council in Sydney, APRA Chair John Lonsdale spoke about increasing the focus on these risks regarding the financial and operational soundness of banks, insurers, and superannuation funds and creating its first specialist geopolitical risk team.  

APRA’s new geopolitical risk team is collaborating with the Council of Financial Regulators (CFR) agencies to assess various global shocks and their impacts on Australia, which could include economic, financial, and operational disruptions and community unrest.   

Mr Lonsdale explained: “We note that geopolitical risk carries the potential for multiple disruptive events to occur simultaneously. For example, a cyberattack may occur simultaneously as a geopolitical shock, which may happen during bank runs. All these events may converge to compound the financial risks already occurring. We recommend that organisations start to include these more severe “multi-event” scenarios in their overall risk management approach.”  

APRA has also introduced a new system risk stress test, another tool designed to increase its understanding of transmission risks across Australia’s complex financial system. This system now includes the growing importance of superannuation and the emergence of new financial sectors such as private credit, crypto, alternative payment platforms, and digital wallets.  

Mr Lonsdale concluded: “We can prepare for the impact of global events by building up our understanding of where risks lie, and just as importantly, we can ensure our banks, insurers and superannuation trustees have the financial and operational resilience to keep supporting their customers and the economy in the event of a crisis. We might not be able to prevent uncertainty, but we can be certain of the strength of our financial system to deal with it.”