Australia’s financial regulator plans to examine how AI-driven economic disruption could affect banks, superannuation funds and life insurers in a 2027 system stress test. The Australian Prudential Regulation Authority (APRA) outlined the exercise in its November 12 assessment of risks to the financial system.

The big change

  • APRA says the exercise will consider severe but plausible downside scenarios involving rapid AI adoption disrupting business models or a sharp reassessment of AI-related asset values. These are risks to test, not losses the regulator says have happened.
  • The regulator also warns that common technology and service-provider dependencies can spread an operational failure across institutions. That is a broader supervisory concern; the outlook does not say a particular provider failure is a defined 2027 test scenario.
  • Earlier system testing illustrates why the connections matter: a move by a retirement fund to protect its own liquidity can also affect a bank that relies on the fund’s deposits. The outcome depends on institutions’ actions and the assumptions used.

Testing the connections

A stress test asks institutions to model what would happen under an adverse situation. A system-wide exercise looks beyond one firm’s balance sheet to how the responses of banks, funds and other participants interact.

The Reserve Bank of Australia raised a related possibility in March: if expected productivity benefits from AI investment were revised down, estimates of company profitability and asset values could fall. It also identified potential consequences for financial asset quality and investment.

For a retirement fund, the valuation channel matters because it holds investments for its members. If expectations for AI-related businesses fall, affected holdings could lose market value. This illustrates the RBA’s risk channel, not a forecast of a particular fund’s return.

What an earlier exercise revealed

APRA’s first system risk stress test, published in June, modelled a market and liquidity shock involving four banks and six superannuation funds. In its modelled scenario, superannuation funds withdrew funding from banks during an initial stress period; participating banks also considered how they would obtain cash by selling assets or using central-bank liquidity facilities.

APRA reported that participating banks and funds were resilient to the shocks in that exercise. It also found that banks’ and funds’ assumptions about the speed of deposit withdrawals varied. That difference is useful information: if one side expects funds to stay longer than the other expects to leave them, a bank’s plan for meeting payments under stress may be less reliable.

Shared suppliers and practical controls

APRA’s existing CPS 230 operational risk standard requires regulated entities to identify material service providers and test business-continuity arrangements against severe but plausible disruptions. A provider is material where the entity relies on it for a critical operation or it creates material operational risk. A firm must understand not only its own systems but relevant risks in its supplier arrangements.

The standard also requires tolerance levels for critical operations: how long disruption can last, how much data loss is acceptable and minimum service under alternative arrangements. A continuity plan therefore needs an operational answer, such as what resources and external dependencies are needed to keep a critical service running.

APRA’s planned test examines resilience under assumptions; it cannot guarantee uninterrupted service or predict individual investment returns.