The prudential regulator is proposing new regulations for conglomerate groups to prevent the behaviour of individual business units forcing the collapse of a parent company.

The Australian Prudential Regulation Authority (APRA) is focusing on groups with APRA-regulated entities that have material operations in more than one regulated industry, or material unregulated entities.

An APRA discussion paper released last week outlines a new “Level 3” framework to complement existing Level 1 supervision of stand-alone entities and Level 2 supervision of industry groups.

The new framework would build on existing APRA capital requirements to ensure conglomerates have the resources to prevent contagion between individual business units.

Further proposals bind the parent company to new risk management and governance standards.

APRA Chairman John Laker says the global financial crisis has highlighted the importance of group-wide supervision of prudentially regulated entities.

“APRA’s proposals are intended to strengthen the financial soundness of APRA-regulated entities within a conglomerate group, without unduly constraining the structure or scope of operations of the group,” he said.

Regulator scrutiny of conglomerate groups has intensified in the wake of the global downturn after companies such as AIG were crippled by non-core operations.

Submissions on the APRA proposals close on June 18. The regulator will release draft prudential and reporting standards prior to implementing the new framework.