APRA endowed with new crisis powers

The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017, designed to strengthen the Australian Prudential Regulation Authority’s crisis powers, passed the upper house with support from Australia’s major parties on Wednesday (14 February).

The enhanced suite of resolution powers include:

• strengthening of APRA’s statutory and judicial management regimes;
• broadening the scope and efficacy of APRA’s existing directions powers;
• improvement of APRA’s ability to implement a compulsory transfer of business of a regulated entity;
• ensuring the effective conversion and write-off of capital instruments to which the conversion and write-off provisions in APRA’s prudential standards apply;
• improving stay provisions and ensure that the exercise of APRA’s powers don’t trigger certain rights in the contracts of relevant entities within the same group;
• strengthening APRA’s ability to respond when an Australian branch of a foreign bank may be in distress;
• enhancing the efficiency and operation of the FCS and ensure that it supports the crisis resolution framework; and
• strengthening and simplification of APRA’s powers in relation to the wind-up or external administration of regulated entities under the industry acts, and other related matters.

In a statement released following the bill’s successful passage through the Senate, Treasurer Scott Morrison claimed that the legislation has strengthened the regulator’s ability to manage financial stability risks.

“These reforms represent a significant leap in APRA’s capability, and implement a recommendation from the government’s Financial System Inquiry,” Mr Morrison said.

“The government is taking action to ensure the prudential regulator is adequately equipped to manage financial stability risks.”

Further, Shadow Treasurer Chris Bowen noted that the bill could help prevent “severe [and] adverse economic consequences” experienced in foreign markets as a result of failures to resolve distress signals prior to the global financial crisis.

“The experience of other countries during the global financial crisis demonstrated that, when complex financial groups enter distress, failure to resolve these entities in an orderly fashion can lead to severe, adverse economic consequences.

“The disorderly failure of a significant financial institution in Australia could, of course, have severe impacts on our financial system and our economy more broadly.

“So, this bill is ensuring that APRA has effective powers to resolve a failing entity expeditiously in ways to protect the interests of depositors and policyholders and to maintain financial system stability.”

Moreover, a Senate committee recently quashed concerns raised by the Citizen’s Electoral Council (CEC), which argued that APRA’s extended powers could lead to a “bail-in” of customer deposits.

In response to the CEC’s concerns, the Senate committee published a report on 9 February containing comment from the Reserve Bank of Australia.

“The proposed legislation does not give APRA any additional powers that could be used to the detriment of retail depositors,” the Reserve Bank told the committee.

Additionally, Assistant Treasurer Michael Sukkar said that he believes the new powers could help alleviate the impact of a “stress event” while also reducing costs to taxpayers. 

Mr Sukkar said: “These amendments will substantially reduce the wider financial system impact and cost to the taxpayer of a stress event.

“They put APRA in a position to address barriers to the orderly resolution of an entity.”

[Related: APRA is ‘uncomfortable’ about supervising non-banks]