Treasury seeks feedback on APRA review

Treasury has released a draft of the terms of reference for the Australian Prudential Regulation Authority capability review it announced in February in response to commissioner Kenneth Hayne’s final royal commission report, which recommended that the review take place “as soon as reasonably practicable”.

The draft terms of reference states that the review will:

• assess APRA’s capability to deliver upon its statutory mandate under the APRA Act and relevant industry acts
• undertake a forward-looking assessment of APRA’s ability to respond to an environment of growing complexity and emerging risks for APRA’s regulated sectors
• identify recommendations to enhance APRA’s future capability, having regard to the changing operating environment and any relevant organisational initiatives which are already underway

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

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

The draft terms of reference states that the independent panel should evaluate the effectiveness of a range of measures in supporting APRA in delivering its statutory mandate to “balance the objectives of financial safety and efficiency, competition, contestability and competitive neutrality” and, in doing so, “promote financial system stability”.

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 areas that will be looked at during the capabilities review include APRA’s decision-making processes, culture, internal governance arrangements, resources, staff expertise, information-sharing practices and statutory powers.

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

Speaking at the Insurance Council of Australia Annual Forum 2019 in Sydney last month (27 February), the deputy chair of APRA, John Lonsdale, said he expected the review to “recommend an increased enforcement appetite”.

He said this would mean that APRA-regulated industries can expect “an APRA that is less patient on the time taken by uncooperative entities to remediate issues, more forceful in expressing specific expectations, and prepared to set examples using public enforcement to achieve general deterrence”.

“A capability review will help APRA be well equipped to fulfil our mandate into the future; and the creation of a new regulatory accountability regime, similar to the [Banking Executive Accountability Regime], and a new regulatory oversight body, will make us more answerable for our decisions and actions,” the deputy chair said in February.  

“Increased accountability is beneficial for financial institutions, so I am confident it will also help APRA to lift its standards and performance.”

[Related: Erosion of trust a prudential issue: APRA]