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In an address to the Risk Management Association in Sydney, chair of the Australian Prudential Regulation Authority (APRA) Wayne Byres noted the shift in regulatory expectations over the past five years.
Mr Byres said that shortcomings associated with culture, governance and accountability within both financial industry stakeholders and regulators – addressed in recent inquiries – have shed light on the regulators’ duties and responsibilities in the financial sector.
“[Five] years ago, the idea that APRA should, as we do today, regard lifting standards of governance, culture and accountability as a key strategic priority would have led many to challenge whether we had our priorities right,” Mr Byres said.
The APRA chair also stated that the regulator’s traditional responsibilities to protect financial stability have also often been misunderstood, pointing to its macro-prudential curbs on investor and interest-only lending, which he said were “seen as unusual and controversial”.
“Many questioned why we were intervening – if there was concern about macroeconomic trends, wasn’t that the RBA’s job? And if we were concerned that lending was irresponsible, wasn’t that ASIC’s job?” he continued.
“In fact, we were concerned about financial stability due to an environment of heightened risks, to which we did not think the banking system was adequately responding. In the end, we believe our intervention achieved its purpose promoting financial stability by recalibrating lending standards to a more sustainable level, reducing risks for both banks and the system as a whole.”
Mr Byres claimed that such interventions are now viewed as an accepted tool within APRA’s remit.
“We are now in a world in which macro-prudential actions are seen as part and parcel of APRA’s armoury. [Our] armoury has more weapons: we have even been granted powers over non-bank lenders, should material risks to financial stability emerge,” he said.
“Particularly as the limits of monetary policy in dealing with both economic and financial risks have become clearer, there is likely to be an increasing focus on APRA’s ability to step in and ‘lean against the wind’ as imbalances emerge.
“The calls for action will come quicker, and we will need to be ready with the framework and tools to respond.”
Mr Byres added that the regulator is committed to using its expanded toolkit to deliver on its broad set of responsibilities in the financial sector.
“We will be firmly stepping into our expanded mandate and acting more forcefully than we have done in the past,” he said.
“We certainly hope to still have an open and cooperative relationship with regulated entities, since that is essential to good prudential supervision, but will have little patience when that is not reciprocated.”
He concluded: “Be it governance and culture, financial stability, superannuation or cyber-related risks, our standards and expectations in the future are likely to be more prescriptive and demanding, and our enforcement of them will undoubtedly be firmer and more insistent.”
[Related: Gonski reveals why ANZ failed its customers]