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APRA’s ability to promote stability to be reviewed

APRA’s ability to promote stability to be reviewed

Australia’s prudential regulator will be under the microscope next month when an independent review into its capabilities in promoting financial stability and responding to risks commences.

Federal Treasurer Josh Frydenberg revealed on Monday (11 February) that the government has taken on board Commission Hayne’s recommendation to review the capabilities of the Australian Prudential Regulation Authority (APRA) “as soon as reasonably practicable”, which was also suggested by the Productivity Commission following its inquiry into the nation’s financial system.

The expert panel to conduct the review will be led by former chairman of the Australian Competition and Consumer Commission (ACCC) and president of the National Competition Council, Graeme Samuel.

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Joining Mr Samuel in the three-person review panel is former senior executive at Westpac, Diane Smith-Gander, as well as Grant Spencer, the Reserve Bank of New Zealand’s former head of financial stability, deputy governor, and acting governor.

“The expert panel has thorough understanding of the Australian financial system and APRA’s role as Australia’s prudential supervisor and possesses strong senior leadership experience across public and private sector organisations,” Mr Frydenberg said in a statement.

The Treasurer said the review is expected to assess APRA’s capability to promote financial stability within its frameworks and its preparedness to address issues raised by the financial services royal commission and Productivity Commission.

“This includes APRA’s capability to regulate superannuation entities for the benefit of members, the role of enforcement activities and coercive powers and the supervision of culture, governance and remuneration in regulated institutions,” Mr Frydenberg said.

“Restoring trust in Australia’s financial system is part of our plan for a stronger economy.”

Building on the International Monetary Fund’s recently completed Financial Sector Assessment Program, which reviewed APRA’s policy and supervisory framework for banks and insurers, the impending capabilities review will also provide a “forward-looking assessment” of the prudential regulator’s ability to respond to “an environment of growing complexity and emerging risks” for regulated sectors.  

The expert panel will be required to report to the government with its findings and recommendations by 30 June 2019.

The federal government has also agreed to conduct regular capability reviews moving forward, as well as take action on Commissioner Hayne’s 76 recommendations.

The recommendations also include the joint administration of the Banking Executive Accountability Regime (BEAR) – which serves as an accountability framework, imposing higher standards of behaviour on banks and their senior executives and directors – by APRA and the Australian Securities and Investments Commission (ASIC).

The commissioner noted that the regime requires authorised deposit-taking institutions (ADI) and “accountable persons” to act with “honesty and integrity, and with due skill, care and diligence” while also requiring them to take “reasonable steps to prevent matters from arising that would adversely affect the ADI’s prudential standing or prudential reputation and their actions”.

As such, he suggested ASIC be responsible for overseeing Divisions 1, 2 and 3 of the Banking Act that pertain to “consumer protection and market conduct matters”, regulating and commencing civil penalty proceedings against contraventions of these divisions when it comes to conduct matters. APRA, on the other hand, should be responsible for the prudential aspects of Part IIAA of the Banking Act, bringing civil penalty proceedings for violations of 37G to the extent it is related to prudential matters.

[Related: Culture, governance and remuneration ‘march together’]

APRA’s ability to promote stability to be reviewed
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