pc
nid 92680
May 21, 2026
kgurnani@vixio.com
Australia
Federal Register of Legislation
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1102 charsAustralia's Treasury Department Authorises Banking Prudential Standard Determination No. 5 of 2026
On May 18, 2026, the Department of the Treasury authorised Banking (prudential standard) determination No. 5 of 2026 under the Banking Act 1959. The determination establishes prudential standards applicable to banking institutions operating in Australia.
Prudential standard determinations form part of Australia's regulatory framework for maintaining the safety and soundness of the banking system. These determinations set out specific requirements that authorised deposit-taking institutions must comply with to ensure financial stability and protect depositors. The determination came into force on May 18, 2026, and is administered by the Department of the Treasury.
The legislative instrument (F2026L00590) is available on the Federal Register of Legislation, where stakeholders can access the full text of the determination and any accompanying explanatory statement detailing the rationale and scope of the prudential standards established.
REFERENCES:
Federal Register of Legislation. Banking (prudential standard) determination No. 5 of 2026. Available at: https://www.legislation.gov.au/
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1626 charsAustralia's Treasury Department Authorises Banking Prudential Standard Determination No. 5 of 2026
On May 18, 2026, the Department of the Treasury authorised Banking (prudential standard) determination No. 5 of 2026 under the Banking Act 1959.
The prudential standard is focused on managing contagion risk, conflicts of interest, and step-in risk arising from an Authorised Deposit-Taking Instrument's (ADI) relationships with related entities, subsidiaries, affiliates, funds management vehicles, and group operations.
Key requirements include:
ADIs must maintain Board-approved policies governing dealings with related entities, with annual reviews to ensure they remain appropriate for the institution’s risk profile and group structure.
Institutions must identify, monitor, manage, and control contagion risks arising from:
complex group structures;
operational interdependence;
reputational linkages;
shared branding; and
participation in group operations.
Dealings with related entities must generally occur on an arm’s-length and market-terms basis. ADIs are prohibited from maintaining unlimited exposures or entering into cross-default arrangements with related entities.
APRA may impose:
higher capital requirements;
additional controls; or
risk reduction measures where it believes contagion risk is excessive or systems and controls are inadequate.
The standard also introduces detailed requirements around “step-in risk”, situations where an ADI may feel compelled to support another entity beyond any legal obligation due to reputational or operational concerns. ADIs must assess factors such as sponsorship arrangements, shared branding, liquidity dependencies, and historical support practices.