APRA to overhaul governance standards

APRA's most significant governance reforms in years are now open for consultation 9 min read

APRA is consulting on a new draft Prudential Standard CPS 510 Governance, which is slated to replace existing prudential standards for banks, insurers and superannuation trustees and impose heightened governance, fitness and propriety and conflicts management requirements from January 2028. 

This Insight explains the proposed key changes.

Key takeaways 

• APRA has released new draft Prudential Standard CPS 510 Governance which will replace prudential standards relating to governance, fitness and propriety, and conflicts management for all APRA-regulated entities.
• The draft CPS 510 contains heightened and more prescriptive requirements which would require banks, insurers and RSE licensees to fundamentally reassess their governance frameworks.
• Submissions on the consultation close on 28 August 2026. APRA plans to release the final CPS 510 and accompanying practice guide CPG 510 by the end of 2026, ahead of a January 2028 start date.

Snapshot of proposed changes

APRA's proposed new CPS 510 would make the following key changes.

Previous consultation

APRA's March 2025 discussion paper contained eight proposals aimed at strengthening governance of APRA regulated entities (please see our Insight). In October 2025, APRA published an update which walked back some of the original policy positions following consultation (and a lot of media attention), including by:

• extending the proposed tenure limit for non-executive directors from 10 years to 12 years;
• removing the proposal for entities to engage proactively with APRA on potential responsible person appointments;
• removing the proposal for at least two independent directors, including the chair, not to be members of any other board within an insurer's or bank's group.

Draft CPS 510 reflects these updates, as well as others designed to step back from more prescriptive requirements in response to stakeholder concerns about cost, feasibility and unintended consequences. However, draft CPS 510 still includes a number of significant changes and is generally more prescriptive than the standards it will replace.

Board delegation

The draft CPS 510 includes a list of 'prudential responsibilities' that boards may not delegate. This includes (but is not limited to):

• setting and monitoring the entity's strategic objectives, business plan and risk appetite;
• overseeing governance, remuneration and risk management frameworks;
• overseeing the culture, including risk culture, and values of the entity and setting a clear tone from the top;
• overseeing financial and operational resilience; and
• for RSE licensees, overseeing the investment governance framework.

We think this does not mean that board committees and management cannot have a role in supporting the board or also performing aspects of these functions, but the board must be able to demonstrate that it has discharged these responsibilities and has not delegated them to others.

Draft CPS 510 also expressly permits Boards to delegate certain functions under prudential standards to Board committees and senior managers – but prescribes requirements for any delegations made (eg, that the delegation is clearly documented and regularly reviewed).

If APRA's proposals are implemented, APRA-regulated entities will need to review their existing delegations and related processes.

Senior managers and board reporting

APRA proposes to include new responsibilities and obligations for senior managers, together with new definitions for 'senior manager' as relevant for each industry in CPS 001 (for locally incorporated entities). Senior managers will be required to:

• carry out and manage the entity’s activities consistently with its strategic objectives, business plan and risk appetite, its culture and values, Board-approved frameworks and policies, and its legal obligations;
• implement business strategies, risk management systems, risk culture, and controls and processes for managing risks; and
• deal with the Board in clear, timely and transparent manner, including by briefing the Board effectively with succinct and relevant information to support decision making.

Draft CPS 510 will also require locally incorporated entities to have a policy relating to the reporting of management information to the Board, including expected content, quality and frequency, and processes in place that ensure management information, strategy, risk appetite, conflicts and, for RSE licensees, the best financial interests of beneficiaries, are considered and recorded in all relevant decision-making.

While entities and senior managers will already be doing many of these things (including having regard to the financial accountability regime), they will need to consider whether any enhancements are needed if the proposals are implemented. Senior managers are not strictly subject to the APRA Prudential Standards and a failure by a senior manager to comply with a responsibility does not automatically result in a breach by the regulated entity, but APRA may expect the regulated entity to take action to ensure compliance and implement appropriate consequences for senior managers who fail to comply.  

Minimum of five directors for RSE licensees

The existing requirement in CPS 510 for banks and insurers to have a minimum of five directors is proposed to be extended to RSE licensees, with specific exemptions from the requirement where there is a temporary vacancy. However, RSE licensees will not be subject to the same requirements as banks and insurers to have a majority of independent directors, have an independent chair, or have a majority of non-executive directors present and eligible to vote at all board meetings.

Director independence for banks and insurers 

Draft CPS 510 introduces a new definition of 'independent director' that is consistent with the definition in the ASX Corporate Governance Principles and Recommendations.

Existing exceptions to the requirements to have a majority of independent directors and to have a majority of directors ordinarily resident in Australia are proposed to be removed. Further, a director assessed as independent at the parent board level will no longer be assumed to be independent on a regulated subsidiary board. Whether they would be independent as a director of a subsidiary will need to be assessed having regard to any potential or actual conflicts from intra-group arrangements, such as structural, funding or remuneration relationships.

Banks and insurers will therefore need to review their existing director appointments if the proposals are implemented.

Shareholder board representation for banks and insurers

Where a shareholder does not hold more than 20 percent of the regulated entity's voting shares, there can be only one board member who is an associate of the shareholder where the board has up to six directors, or up to two board members who are associates of the shareholder where the board has seven or more directors. This raises the current 15 percent threshold and may require some banks and insurers to review their existing director appointments.

New board risk and audit committee requirements

Draft CPS 510 sets additional prescriptive requirements for board committees, including:

• baseline requirements for all committees with delegated authority to fulfil a board function under the prudential standards and prescribed responsibilities for certain committees;
• a new requirement for RSE licensees to have a board risk committee (this may only be combined with the audit committee for non-significant financial institutions);
• a requirement that all members of the audit, risk and remuneration committees be non-executive directors, to preserve accountability for prudential decisions that sit with the board (this was strongly opposed, especially by RSE licensees).

Board skills matrix

Draft CPS 510 will include new more prescriptive requirements relating to the board skills. These include the requirements for:

• locally incorporated APRA regulated entities to document in a skills matrix, the skills, experience and behavioural attributes required for the Board and its committees to perform effectively, with measurable and verifiable assessment criteria and rating scales;
• Boards must also take all reasonable steps to ensure they can demonstrate how they are actively addressing any current or future skill and capability deficiencies.

APRA clarified that it does not intend that each director role should have its own prescribed mix of skills (which had been raised as an issue of concern in submissions).

Board, committee and director performance assessments

Draft CPS 510 would expand annual board performance assessments to include, among other things, the appropriateness of the skills matrix, committee performance, the effectiveness of governance framework processes, and the effectiveness of individual directors measured against their performance objectives and the skills matrix.

At least every three years, a significant financial institution's board would be required to engage an external, independent expert to conduct a comprehensive assessment of board, board committee and directors’ performance. In response to submissions, APRA has determined it will not require this assessment to be submitted to it, based on concerns that this may impact candour and independence.

Board renewal and tenure 

There are a range of prescriptive requirements proposed regarding Board renewal.

The draft CPS 510 would also introduce a 12-year tenure limit for non-executive directors for banks, insurers and RSE licensees. This restriction would apply to non-executive directors who come across to successor entities. The draft CPS 510 allows an extension for up to 12 months in exceptional circumstances.

Conflicts management 

APRA proposes to set consistent conflict management standards for all entities, and to replace the existing standards for RSE licensees in SPS 521 with similar standards in the draft CPS 510.  Banks and insurers do not currently have equivalent conflict management prudential standards.

APRA proposes that banks, insurers and RSE licensees be required to (among other things):

• identify, assess and manage actual and potential conflicts;
• maintain a register of potential and actual conflicts and associated controls to monitor and manage those conflicts; and
• record in board and committee minutes how conflicts were avoided or managed.

RSE licensees will need to continue to publish their conflicts registers (in accordance with regulation 7.9.07ZB of the Corporations Regulations 2001 (Cth)), but banks and insurers will not be required to do so (as originally proposed).

APRA's initial proposal included 'perceived' conflicts of interest and duty to be identified, avoided or managed, together with actual and potential conflicts. Following strong opposition to this inclusion, APRA intends only to set this expectation in its guidance, rather than making it a legal requirement.

Fit and proper enhancements and streamlining 

APRA proposes to revoke CPS 520 and SPS 520, and to instead include relevant fit and proper standards in CPS 510. The key changes include the following:

• narrowing the cohort of persons subject to fit and proper requirements in the new draft CPS 510, to include accountable persons, auditors, actuaries and RSE licensee secretaries.
• Removing reporting requirements, other than to notify APRA where a person is assessed as not fit and proper– this is intended to reduce duplication with the financial accountability regime.
• setting more prescriptive minimum standards for what information must be considered and minimum triggers requiring reassessment of fitness and propriety.

While APRA initially proposed to require entities to notify it 'when concerns arise that may reasonably impact a person’s fitness and propriety, even before a determination has been reached', this proposal has not been retained in draft CPS 510 in view of procedural fairness for prospective candidates.

Next steps

Submissions close 28 August 2026. APRA has asked for consultation on six questions in relation to the proposals put forward in the paper and the draft CPS 510, and intends to release the final CPS 510 and accompanying practice guide CPG 510 by the end of 2026.

APRA's proposed changes to CPS 510 are extensive, and will require boards to reflect on their current governance frameworks and practices. Banks, insurers and RSE licensees should be prepared to support the development or rework of a range of foundational governance documents, policies, registers, skills and capability artefacts, reviews and assessments, fit and proper arrangements and other documented governance processes.

Please get us in touch with us if you have any questions or would like to discuss the proposals.