Conglomerates – groups whose activities cross more than one industry – will have to perform internal capital adequacy assessments under draft standards proposed by the Australian Prudential Regulation Authority (APRA).

The new rules aim to ensure such companies have the resources to cover contagion risks – threats to APRA-regulated divisions such as insurers from the failings of non-APRA-monitored divisions.

The regulator says conglomerates, also known as level-three groups, will have to develop and maintain group-wide risk management frameworks.

APRA will determine a minimum capital requirement that reflects contagion risk.

The regulator says it must weigh the competitive impact of its proposals against its obligation to ensure institutions are sound.

“The complexity and, in many cases, significant size of level-three groups warrant APRA’s particular attention to potential contagion risks within these groups,” it says.

The introduction of a conglomerate framework is a significant progression for APRA’s prudential regime, according to Chairman John Laker.

“One of the key lessons from the global financial crisis is the need to enhance supervisory regimes to better capture the risks facing regulated institutions that are part of a wider conglomerate group.”

Submissions on the draft standards must be made by July 5. They are expected to take effect from next January 1.