Australia’s financial services firms are not doing enough to protect against or plan for geopolitical risks that cause sanctions or restrict market access, the banking regulator has said.
As the nation continues to struggle with high inflation and stalling economic growth four months into the Iran War, mortgage lenders are among the financial services firms being put on watch in a warning from the Australian Prudential Regulation Authority (APRA).
The watchdog, which looks out for the safety and stability of the financial system, has written to banks, insurers and super funds warning of heightened geopolitical risk and the risks associated with trade restrictions, sanctions and armed conflicts.
It comes amid a difficult few months for Aussie households facing high fuel and food prices off the back of the Middle East oil crisis.
Corresponding rising interest rates are continuing to challenge borrowing capacities, with affordability constraints flowing through to a slowing housing market, falling auction clearance rates and consumer confidence.
Financial services firms are now being urged to bolster their defenses and undertake “targeted readiness assessments” to confirm financial systems are well protected in the event of similar future events.
Oil tankers and gas tankers affected by the closure of the Strait of Hormuz. Picture: Getty
The regulator said there are “common gaps” in firms’ crisis readiness, noting risk management practices are not keeping pace with rapidly evolving threats.
“Entities often do not explicitly consider actions by nation states to impose sanctions, restrict market access or reduce capital mobility in their business plans, credit decisions, funding plans or investment strategies,” APRA warned.
“These include personnel-related security risks, and risks associated with disinformation campaigns that could undermine confidence.
APRA has told all lenders, alongside other financial services firms, to reach minimum readiness expectations across six areas. These include preparing for cyberattacks linked specifically to geopolitical shocks.
Australia's fuel reserves have been under scrutiny. Picture: Getty
“As a mid-size trade-exposed economy, Australia will always be impacted by what happens in the rest of the world and right now the rest of the world is becoming more volatile and unpredictable,” chair John Lonsdale warned.
“[This] is clear call to action as awareness is not enough.”
The warning follows similar messaging from the Reserve Bank, which has raised interest rates three times this year as it struggles to forecast the economic impact of the Middle East conflict in Australia.
Aussies homeowners have felt the brunt of this, with minimum repayments on a $500,000 home loan having risen by around $240 a month on average since rate hikes began in February.
APRA chair, John Lonsdale. Picture: APRA
RBA deputy governor Andrew Hauser warned in May that “the list of adverse supply shocks is lengthening” and that it was challenging for the bank to differentiate between supply and demand shocks.
While homeowners are hoping for the RBA to take its foot off the accelerator, new data this week showed underlying inflation has spiked in May for the first time since the Iran War began.
With both the RBA and the Treasury anticipating the peak has yet to come, a rate hike in August is now back on the table.
Markets are pricing in a 31% chance of an increase to 4.60% in a few weeks’ time, a move which would take the cash rate to the highest seen for 15 years.
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