Australia’s banking watchdog will run its first stress test focused on artificial intelligence next year, warning that banks, super funds and insurers are not ready for the risks AI could bring.
The Australian Prudential Regulation Authority (APRA) said its 2027 System Stress Test will look at how a sharp fall in AI-related asset values, and rapid AI-driven change to business models, could hit the financial system.
01. What APRA warned
APRA chair John Lonsdale told a media briefing on Thursday that risks to financial stability are increasing, mainly because of growing geopolitical volatility and the rapid escalation of AI-related risks. He said it was safe to assume “there will be interruptions; there will be problems”, and that large financial institutions were “not where they needed to be” in preparing for AI risks.
APRA’s latest System Risk Outlook report says a sharp repricing of AI assets could raise funding costs and reduce investment values in Australia. More than half of super funds’ investments are in listed shares, and just under 20 per cent are in fixed income, the report says.
The report also notes that AI-related deals made up 34 per cent of global private credit deal values in 2025, up from 9 per cent in 2024, according to OECD estimates. Australian funds could become exposed through financing data centres and related construction.
02. Why it matters for savers
APRA oversees Australia’s banks, super funds and life insurers — the institutions that hold the savings and retirement money of millions of Australians. A stress test does not predict a crash. It is a “severe but plausible” scenario used to check whether banks and funds could keep operating if markets fell sharply.
APRA said its earlier stress test found banks and super funds were resilient, but warned that concentration and shared dependencies could matter more as the super system grows. It also said the scale of data centre investment is stretching insurance capacity, and that AI is speeding up cyber and operational threats.
The regulator said Australia’s financial system remains resilient, but the risk environment is becoming less forgiving. Its 2027 test will be the first to focus specifically on AI.
APRA had already made AI governance one of its top two supervisory priorities in May 2026, and in April it warned bank, insurer and fund bosses that their defences were not keeping pace with AI adoption.
