APRA's liaison activities, which are essential input into its supervisory and policy work, take three broad forms. One is close engagement with other domestic financial regulatory agencies in pursuit of a robust and stable financial system. Another is regular liaison with other Australian agencies and industry bodies, and with overseas regulators, as part of APRA's network of intelligence on the institutions and industries that it regulates. The third is APRA's participation in the global standard-setting bodies for prudential regulation, which gives Australia an active voice in global reform initiatives. This participation stepped up in intensity over recent years as the wave of global prudential reforms in banking reached its peak. APRA is looking to scale back this activity as global banking reforms are finalised, but global reform initiatives in insurance are now gathering momentum.
The effectiveness of APRA's working relationships with the other domestic financial regulatory agencies in Australia - the Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC) - has been one of the strengths of Australia's financial stability framework. Important, as well, has been APRA's productive links with the Australian Treasury, which provides advice to the Government on policy and possible legislative reforms that promote a sound financial system and infrastructure. APRA's bilateral relationships with each of these agencies, built on regular dialogue at various levels of formality from agency heads down, eased in tempo over the course of 2012/13 as the aftershocks of the global financial crisis receded. However, cooperation between the four agencies under the auspices of the Council of Financial Regulators, of which each is a member, continued to involve considerable follow-up work.
The Council, chaired by the Governor of the RBA, operates as a forum for coordination and information exchange between its members on financial policy and regulatory issues. Its objectives are to contribute to the efficiency and effectiveness of regulation and promote stability of the Australian financial system. During the crisis, the Council became the natural focal point for agency coordination and it continues its watching brief over conditions in global financial markets. Over 2012/13, the Council's main priority was to progress work on Australia's crisis management arrangements and on financial market infrastructure.
The Council's work on crisis management continued its exploration of resolution options for a distressed ADI. It also covered funding issues related to the Financial Claims Scheme for ADIs, looking both at mechanisms for making Government funding available if the Scheme is declared for a particular ADI and at options for pre-funding the Scheme. Following a review of pre-funding options, the Council concluded that an ex ante funding model for the Scheme should be introduced in Australia.
The Council's preferred model was one based on a flat (not risk-based) levy applied to all ADI deposits protected by the Scheme, with the proceeds from the levy hypothecated into a specific fund that would be confined to making payments under the Scheme or to helping to fund other ADI resolution activities that seek to protect deposits. An ex ante funding model was listed as a 'high priority' recommendation of the IMF's Financial Sector Assessment Program review of Australia in 2012 (see page 57). The Council also continued to work closely with the New Zealand Treasury and the Reserve Bank of New Zealand (RBNZ) on trans-Tasman crisis management arrangements (see page 67). APRA participates in two Council working groups on crisis management arrangements.
APRA also participates in the Council's work on financial market infrastructures. Although APRA has no direct responsibilities in this area, the Council's work has implications for risk management by APRA-regulated institutions active in financial markets. The work has had two main strands. The first relates to over-the-counter (OTC) derivatives transacted in Australia's financial markets. This is in response to the substantial reforms in this area underway in many offshore jurisdictions and to the G20 commitment to see all OTC derivatives contracts reported to trade repositories and all standardised OTC derivatives transactions centrally cleared and traded on electronic platforms, where appropriate. The second strand relates to enhancing the regulation of financial market infrastructures in Australia to improve the ability of regulators to provide effective oversight and manage risks to stability and market integrity. The Council has been developing legislative proposals that would strengthen recovery and resolution regimes for financial market infrastructures.
APRA's close bilateral relationship with the RBA supports the shared responsibility of the two agencies for the stability of the Australian financial system. A crucial element in the relationship is, therefore, the regular sharing of information about emerging systemic risks, from both domestic and offshore sources. Other issues under discussion during 2012/13, particularly through the formal channel of the RBA/APRA Coordination Committee, included the implementation of the RBA's Committed Liquidity Facility in the context of the Basel III liquidity reforms (see page 48), other elements of APRA's prudential policy agenda that may impact on financial system stability, the composition of ADI credit portfolios, stress testing, and the coordination of RBA and APRA activities on the Basel Committee on Banking Supervision.
Regulatory liaison meetings and enforcement liaison meetings are the main formal channels for cooperation between APRA and ASIC. The former meetings focus on policy issues or operational supervision matters concerning industries and institutions regulated by both agencies; they are also a forum for discussion on practical supervision outcomes arising out of changes to legislative and administrative procedures. The latter meetings discuss broad enforcement-related issues, coordinate specific actions related to jointly regulated institutions and discuss cases identified by one agency that may have relevance to the other. Over 2012/13, APRA and ASIC strengthened their information-sharing arrangements, in part to address the recommendations of the report of the Parliamentary Joint Committee into the failure of Trio Capital Limited. Steps taken included:
- measures to raise the awareness amongst staff of both agencies about matters of joint interest, which has led to more exchanges of information in between formal meetings;
- presentations to APRA staff on ASIC's role and functions;
- the development of guidance notes to assist APRA staff to identify matters relevant to ASIC; and
- secondment of staff between APRA and ASIC in a number of areas, including enforcement.
Broad issues under discussion between APRA and ASIC during 2012/13 included implementation of the Government's Stronger Super reforms and the Government's proposals to strengthen the regulation of Registered Financial Corporations (see page 50).
An important mechanism for joint consultation with industry is the annual meeting between the APRA Members, the ASIC Commissioners and the Finance Industry Council of Australia (FICA), an umbrella body for a number of finance industry associations. This dialogue on significant regulatory and other issues is important to ensuring balanced outcomes for the industry and the broader community. FICA comprises the Australian Bankers' Association, the Customer Owned Banking Association (formerly Abacus - Australian Mutuals), the Australian Finance Conference, the Australian Financial Markets Association, the Australian Securitisation Forum, the Financial Services Council and the Insurance Council of Australia.
APRA's active engagement with Treasury in 2012/13 was centred on key legislative initiatives relevant to APRA's powers and responsibilities. Four tranches of superannuation legislation were enacted to implement the Government's Stronger Super reforms, the second of which granted APRA prudential standards-making power in superannuation. The legislation has enabled the introduction of superannuation prudential standards on 1 July 2013 and the authorisation of MySuper products. Additionally, a discussion paper was released for consultation proposing amendments to APRA's crisis management powers, as well as measures to streamline and simplify APRA's existing industry acts. Senior APRA and Treasury officials also held regular liaison meetings to discuss the G20's and the Financial Stability Board's regulatory reform agenda, the activities of the global standard-setting bodies and domestic reform initiatives.
APRA also interacts with a number of other Australian agencies, again with varying degrees of formality. APRA has a structured liaison arrangement with the Australian Transaction Reports and Analysis Centre (AUSTRAC) and activities are coordinated through the AUSTRAC/APRA Coordination Committee. Meetings of this Committee allow the agencies to update each other on relevant regulatory developments, and to share findings from supervisory activities and concerns with specific areas of the financial industry. Referrals on specific regulatory matters and exchanges of information between the agencies are based on protocols that meet relevant legislative requirements.
APRA has a longstanding commitment to cooperation with the Australian Taxation Office (ATO) on superannuation matters. Regular consultation takes place across a range of superannuation administration and policy issues, including ATO rulings, determinations and interpretative decisions and APRA prudential practice guides on the application of superannuation legislation, illegal early access to superannuation benefits, limited recourse borrowing arrangements and the public register of superannuation funds maintained by the ATO. During 2012/13, extensive consultation took place on the Stronger Super reforms, particularly the introduction of SuperStream and the implementation of new data standards. The regular interaction between APRA and ATO staff (including data interchange on superannuation matters) is augmented by quarterly technical liaison meetings as well as ad hoc meetings on specific issues as required. APRA participates in the ATO's Superannuation Consultative Committee, the Super Reform cross-agency communications working group and the superannuation technical sub-committee of the National Tax Liaison Group.
APRA has a strong cooperative relationship with the Private Health Insurance Administration Council (PHIAC), the prudential regulator of the health insurance industry. The two agencies share prudential information, where appropriate, particularly in relation to transactions in the private health insurance industry (including conversions to 'for profit' health funds) and the development of capital and other prudential standards. During the year, APRA provided feedback to PHIAC on policy documents related to the use of actuaries in health insurance, risk management and capital management practices. PHIAC also utilised APRA's Information Technology specialist risk team in a review of a major private health insurer, on a cost-recovery basis. PHIAC staff have also participated in APRA's in-house training and development programs.
APRA liaises regularly with the Motor Accidents Authority of New South Wales (MAA) and the Motor Accident Insurance Commission of Queensland (MAIC). These State regulatory bodies administer compulsory third-party (CTP) motor vehicle insurance schemes in these states. The MAA and MAIC provide APRA with scheme information and consult with APRA on the financial condition of the CTP insurance providers; in turn, APRA provides both agencies with solvency information and general updates on these providers. APRA also keeps these agencies informed of policy developments in the prudential supervision of general insurers. During the year, APRA's MoU with the MAIC was updated. APRA also liaises with WorkCover State authorities on prudential matters relevant to workers' compensation insurance.
APRA has continued its involvement with the Financial Reporting Council and the two Boards the Council oversees: the Australian Accounting Standards Board (AASB) and the Australian Auditing and Assurance Standards Board (AuASB). APRA Deputy Chairman Ian Laughlin is a member of the Council and also represents APRA on the Council's committees on audit quality and strategy and on a taskforce on financial reporting. APRA contributed to the AASB's work on reporting by superannuation funds and to the AASB's impairment roundtable.
APRA is a permanent member of the Banking and Finance Sector Group (BFSG). Established under the Government's Trusted Information Sharing Network, the BFSG aims to strengthen the financial system's ability to respond to an industry-wide operational disruption by providing a framework for sharing security-related information that affects critical infrastructure. Membership comprises representatives from major financial institutions and from financial regulatory agencies. The BFSG is an important forum for strengthening the resilience of the banking and finance sector and further streamlining business and government coordination in disasters. During 2012/13, areas of interest included third-party service providers and business-to-government communication relating to cyber threats.
In addition to its meetings with FICA, APRA liaises directly with a number of industry organisations including the Australian Bankers' Association, the Customer Owned Banking Association, the Australian Finance Conference, the Australian Payments Clearing Association, the Financial Services Council, the Insurance Council of Australia, the Association of Superannuation Funds of Australia, the Industry Super Network and the Australian Institute of Superannuation Trustees. APRA also liaises with professional associations and institutes such as those for accountants, actuaries, administrators, auditors, company directors, compliance professionals, financial planners, lawyers, risk managers and trustees. Such liaison may be at multiple levels throughout these organisations and APRA staff are actively involved in various committees and taskforces of some of the professional associations. APRA's regional offices also have wide-ranging liaison programs with regional offices of ASIC, industry bodies and professional associations.
The actuarial profession plays a key role in financial management and prudent risk management -both formally through statutory roles and also in an advisory capacity - in the general insurance, life insurance and superannuation industries. APRA has regular dialogue with the Actuaries Institute as well as its relevant committees. During 2012/13, implementation of APRA's reforms to capital standards for the general and life insurance industries was the principal topic of discussions. Other topics were the role and responsibilities of appointed actuaries in reviewing the adequacy and effectiveness of the risk management framework of insurers, signing-off on life insurance product or reinsurance changes, recently observed experience and premium changes, and new life insurance products and distribution channels. APRA also liaises regularly with Appointed Actuaries as a group and with groups of auditors of APRA-regulated institutions.
APRA has direct links - long-established in many cases - with a range of overseas regulatory agencies and these links enhance its oversight of APRA-regulated institutions that also operate in other jurisdictions and of foreign financial institutions for which APRA is 'host' supervisor. The global financial crisis highlighted the importance of supervisory cooperation and timely sharing of information in relation to large cross-border financial institutions. In response, a number of supervisory colleges, which are multilateral working groups of relevant agencies, have been formed to strengthen the supervision of each of the largest international banking and insurance groups. APRA has participated in several of these colleges and has established its own colleges for a number of large, internationally active APRA-regulated institutions headquartered in Australia. In the past three years, APRA has hosted five of these colleges for three different institutions, involving up to 14 participants from overseas regulatory agencies. As well as physical attendance, APRA has also hosted and participated in colleges through teleconferences. APRA is planning to host three colleges during 2013/14.
APRA now has formal bilateral information-sharing arrangements with 24 overseas regulatory agencies, following the signing in May 2013 of a Memorandum of Understanding (MoU) with the National Bank of Cambodia. Other arrangements remain under discussion, some of which will facilitate the activities of supervisory colleges. APRA is also one of 37 signatories to the multilateral MoU (MMoU) put in place by the International Association of Insurance Supervisors (IAIS); this MMoU now covers agencies supervising insurers writing over 50 per cent of global insurance premiums. APRA provides staff resources to assist the IAIS in the validation of applications from other member jurisdictions to become signatories to the MMoU.
The direct link that has traditionally been of most importance to APRA is that with the RBNZ, the prudential supervisor of banks and insurance companies in New Zealand. The high degree of interconnectedness between the Australian and New Zealand financial systems makes a close and cooperative relationship between the two agencies essential. In that spirit, there is regular liaison on matters relating to the supervision of the major Australian banks, including regular information exchange and coordination of supervisory activities where appropriate. Such liaison is either face-to-face or, more recently, via video conferencing. Cooperation has extended to the supervision of insurance now that the RBNZ has taken on its new role in this area.
Over recent years, APRA and the RBNZ, together with other members of the Trans-Tasman Council on Banking Supervision (the RBA, the Australian and New Zealand Treasuries and, most recently, ASIC), have done substantial preparatory work for the handling of any episode of financial distress involving a trans-Tasman banking group. High-level principles and responsibilities were formalised in a Memorandum of Cooperation on Trans-Tasman Bank Distress Management agreed between the Trans-Tasman Council agencies in September 2010 and work has continued on specific protocols and guidelines, drawing on the lessons learned from the trans-Tasman bank crisis simulation exercise carried out in 2011/12. Notwithstanding the Memorandum, the Trans-Tasman Council agencies recognise that the exact nature of any response by the respective governments and their agencies will always depend on the specifics of a particular situation. In the first instance, both countries will look to the private sector for solutions to financial distress affecting trans-Tasman banking groups.
APRA's participation in the global standard-setting bodies for prudential regulation involves a range of experienced APRA supervisory staff. This enables APRA to inject supervisory knowledge and practical considerations into the global debate on regulatory reforms and ensures that APRA's senior supervisors are well-acquainted with the reforms and their context when they are being implemented. The main standard-setting bodies are:
- Basel Committee on Banking Supervision. APRA and the RBA have been members of the Basel Committee on Banking Supervision, the global standard-setting body for bank regulation and supervision, since 2009. The APRA Chairman represents Australia on prudential supervision matters. Over the past year, the Basel Committee finalised a framework for dealing with domestic systemically important banks (D-SIBs) and the rules text for the new Basel III liquidity standard (see pages 47-48), and continued work on remaining elements of the Basel III capital reforms, particularly the leverage ratio. The Basel Committee also began to take an active role in ensuring the timely, consistent and effective implementation of the Basel III reforms in member countries. One key aspect of this role is vigorous peer review and public disclosure of the compliance of domestic regulations or standards with the agreed rules text for the Basel III capital reforms. Initial peer reviews were conducted of the European Union, the United States and Japan, with an APRA senior executive leading the European Union review. Australia will be subject to this peer review process in 2013/14. The other key aspect is ensuring that the Basel capital framework is delivering consistent outcomes in practice across banking institutions and jurisdictions. Preliminary analysis has identified considerable variation across global banks in the calculation of risk-weighted assets on both trading and banking books, which the Basel Committee has said warrants further attention. An APRA expert is participating in this work.
APRA is also represented on three of the Basel Committee's four main expert sub-committees: the Policy Development Group, the Supervision and Implementation Group and the Accounting Experts Group. The RBA is represented on the fourth sub-committee, the Macroprudential Supervision Group. The Policy Development Group identifies and reviews emerging prudential issues and develops policies to promote strong prudential standards. Its work program during 2012/13 continued to focus upon Basel III implementation issues, banks' exposures to central counterparties and the regulatory framework for securitisation exposures. The Group is also overseeing the Committee's current review of the large exposures framework. The Supervision and Implementation Group seeks to advance improvements in banking supervision, particularly across Basel Committee members. It also has carriage of the Basel Committee's drive to promote national convergence of Basel Committee standards and guidelines, as outlined above.
The Accounting Experts Group engages with accounting and auditing standard-setting bodies to help ensure that international accounting and auditing standards and practices promote sound risk management at banks, support market discipline through transparency, and reinforce the safety and soundness of the banking system. In 2012/13, the Group remained closely involved in the ongoing convergence process between the International Accounting Standards Board and the Financial Accounting Standards Board with respect to financial instruments. The Group has a particular interest in the development of a provisioning (or impairment) approach based on expected loss. It also continued to analyse the implications for bank balance sheets of the interaction between changes to capital and accounting standards, and developed enhanced guidance for the external audit of banks.
In addition, APRA is an active participant in a number of other sub-committees and working groups of the Basel Committee. APRA is represented on three groups dealing with key aspects of the Basel III reforms — the Working Group on Capital, the Working Group on Liquidity and the QIS Working Group, which is monitoring the impact of the reforms through semi-annual quantitative impact studies during the transition to Basel III. APRA is also a member of the Operational Risk Subgroup of the Supervision and Implementation Group, which investigates issues related to the management and measurement of operational risk. During 2012/13, the bulk of the Subgroup's work was a review of the calibration of the standardised approaches for calculating operational risk capital charges; other initiatives included an Advanced Measurement Approach benchmarking exercise and a review of the implementation of the Basel Committee's principles for the sound management of operational risk.
A senior executive of APRA, Mr Wayne Byres, took up a secondment to the Basel Committee, as Secretary General, in the latter part of 2011. The Secretary General heads up the Secretariat of the Committee. As noted elsewhere in this Report, Mr Byres will complete his secondment in June 2014 and will take up the Chairmanship of APRA on his return.
- International Association of Insurance Supervisors (IAIS). The objectives of the IAIS are to promote effective and globally consistent supervision of the insurance industry in order to develop and maintain fair, safe and stable insurance markets for the benefit and protection of policyholders, and to contribute to global financial stability. APRA is represented on the IAIS Executive Committee (by the APRA Deputy Chairman) and Technical Committee. The APRA Deputy Chairman also chairs the IAIS Audit and Risk Committee. APRA is also a member of the Financial Stability Committee, which was established in response to the global financial crisis, and of a number of sub-committees most relevant to APRA's supervisory mandate and the Australian insurance industry.
One of the significant IAIS initiatives over recent years has been the development of a common framework ('ComFrame') for the supervision of internationally active insurance groups. APRA is in a strong position to contribute to this work as it has had a group supervision framework for general insurance since 2009, and it has either led or participated in a number of Comframe drafting groups. Another important IAIS initiative has been responding to the G20 and Financial Stability Board on a framework for identifying and dealing with systemically important insurers. Through its involvement in the Financial Stability Committee, APRA contributed to the recently released IAIS methodology for use in determining whether an insurance group has global systemic importance and to the development of appropriate supervisory measures to be applied to such groups.
APRA has also continued to be involved in relevant work of the Accounting and Auditing Issues, Solvency and Actuarial Issues, Insurance Groups and Cross-sectoral Issues, Supervisory Cooperation and Reinsurance sub-committees.
- Joint Forum. APRA and ASIC represent Australia on the Joint Forum, a body working under the umbrella of the Basel Committee, the IAIS and the International Organization of Securities Commissions (IOSCO).
The Joint Forum focusses on issues relating to financial conglomerates and other issues that are common to, or have cross-sectoral implications for, the banking, insurance and securities sectors. During 2012/13, the Joint Forum released the update of its Principles for the Supervision of Financial Conglomerates. APRA has significant supervisory experience in this area and was an active contributor to the work including, for most of 2012/13, as co-chair of the working group revising the Principles. The Principles are directly relevant to APRA's development of a prudential framework for conglomerate (Level 3) groups (see page 52). Other workstreams reported on the market structure, underwriting cycle and policy implications of mortgage insurance, on longevity risk transfer markets, and on point-of-sale disclosure.
- International Organisation of Pension Supervisors (IOPS). IOPS is an independent body representing agencies involved in the supervision of private pension arrangements. Its objectives are to be the global standard-setting body for pensions supervision, to promote international cooperation on pension supervisory issues and to provide a global forum for policy dialogue and exchange of information on these matters.
APRA has been on the board of IOPS since its foundation and is a member of the Technical Committee. APRA's then Deputy Chairman Ross Jones stepped down as President of IOPS at the end of June 2013. During 2012/13, the work of IOPS included development and publication of three further working papers in the 'Effective Supervision' series covering the structure of pension supervisory authorities and their approach to risk-based supervision, the supervision of pension intermediaries, and supervision of default investment funds. IOPS also held a series of outreach workshops and a global forum during the year, in which APRA staff participated.
- OECD Insurance and Private Pensions Committee (IPPC). APRA is represented on the IPPC, which focusses on liberalisation of insurance markets, governance and regulatory frameworks in insurance and private pensions, and the collection and publication of crosscountry statistics in insurance and pensions. APRA's then Deputy Chairman also stepped down as Vice-Chairman of the IPPC Working Party on Private Pensions (WPPP) during the year. During 2012/13, the IPPC and WPPP continued work on a series of studies covering the management of longevity risk, analysis of long-term investment options, the adequacy of retirement savings in OECD countries, insurance for catastrophic risk and disaster risk management. The WPPP considered revisions to the OECD's Core Principles for Occupational Pension Regulation. The IPCC and WPPP also considered how the level and quality of insurance and pension statistical collections could be improved and undertook accession reviews of, and engagement with, a number of countries seeking to join the OECD. Together, the IPPC, the WPPP and IOPS are undertaking a major project on annuities, involving a stocktake of types of annuity products and their guarantees, and an examination of the regulatory framework governing different types of annuity products and of their fiscal treatment. APRA is contributing to this project.
- International Association of Deposit Insurers (IADI). IADI is responsible for promoting principles and guidance in the design and administration of deposit insurance and guarantee arrangements. Consistent with its responsibilities for the administration of Australia's Financial Claims Scheme in the ADI industry, APRA is a member of IADI and its regional committee in the Asia-Pacific region. Membership provides APRA with access to targeted training on deposit insurance systems and information on overseas developments on deposit insurance and resolution of banking institutions, with the aim of improving practice in Australia. During 2012/13, APRA joined the International Forum of Insurance Guarantee Schemes, which is the equivalent of IADI for insurance.
- International Credit Union Regulators Network (ICURN). ICURN is an independent network of regulators of financial cooperatives. Its objective is to share information on topics critical to sound financial regulation; it also initiates research on financial cooperatives and their oversight, identifies best practice and issues recommendations to its members to improve regulations, safety and soundness. Governance has been a primary area of focus for ICURN and in 2012/13 it published a new guiding principles document, Enhancing Governance of Cooperative Financial Institutions. ICURN continues to work closely with the World Council of Credit Unions in assisting the development of supervisory systems and approaches in developing countries. ICURN is governed by a steering committee of representatives from six regions around the world and APRA is currently the representative for the Asia-Pacific region.
Although APRA is not a member agency of the Financial Stability Board (FSB) — Australia is represented by the RBA and Treasury — it continued to contribute to the work of the FSB in 2012/13. APRA is a member of the FSB's Supervisory Intensity and Effectiveness Group, which seeks to promote robust supervisory practice in relation to systemically important financial institutions. The Group undertook a thematic review of risk governance, which was published in February 2013, and developed a set of principles for an effective risk appetite framework, which were released for public consultation just after year-end. APRA is also a member of the FSB's Compensation Monitoring Contact Group. This Group is responsible for sharing and promoting good practice in implementation of the FSB's Principles for Sound Compensation Practices, monitoring and reporting on national implementation of the Principles, and establishing and maintaining a process to ensure consistency of their application. In addition, APRA participated in a peer review of resolution regimes, the results of which were published in April 2013. APRA works closely with the RBA and Treasury in ensuring a coordinated Australian response to the FSB's peer reviews, surveys and other initiatives.
APRA meets annually with integrated supervisory agencies from a range of countries to discuss matters of common interest. The key topics covered at the 15th conference in June 2013 included supervisory transparency and accountability, lessons learned from Iceland's experience in the global financial crisis, and risk governance, management and culture.
APRA is a member, as is the RBA, of the Working Group on Banking Supervision (WGBS) of the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP), which brings together central banks, banking supervisors and monetary authorities within the region. The Group provides a forum for examining regional financial and prudential matters. In 2012/13, these matters included the implications for member countries of global regulatory reforms and low interest rates in major economies. The Group also continued to work on regional crisis management and recovery planning.
APRA supports the deepening of institutional capacity among its Asian and Pacific supervisory counterparts through a series of tailored technical assistance programs, principally funded by the Australian Agency for International Development (AusAID). These programs seek to assist supervisory agencies to improve standards of prudential supervision, as part of a broader whole-of-government effort to strengthen public sector governance in the Asian and Pacific regions. APRA's technical assistance activities aim primarily at building relationships with its regional counterparts through the sharing of supervisory skills and experience.
In Asia, APRA's engagement is primarily focused on technical assistance activities with Indonesia. For a number of years, APRA worked with Bapepam-LK, Indonesia's integrated regulator of non-bank financial institutions and securities markets. APRA's assistance included guidance in the introduction of a new risk-rating model (adapted from APRA's PAIRS framework) by Bapepam-LK's Pension Fund Bureau. The Indonesian Government is now integrating the supervision of banking with supervision of non-bank financial institutions and securities markets in a single financial supervisory agency, Otoriatas Jasa Keuangan (OJK), which will begin operations in early 2014. To assist in preparations for the new agency, APRA hosted several visits by Indonesian officials in 2012/13 to review Australia's regulatory framework and to discuss how APRA itself was established. APRA's capacity-building engagement with Bank Indonesia, which has been the banking supervisor, continued in 2012/13, with two Bank Indonesia interns placed within APRA's frontline supervisory divisions for a period of six months. This was the fifth instalment of a long-term engagement between APRA and Bank Indonesia that began in 2006. Other visits from Bank Indonesia staff focused on adapting regulatory tools and assisting with the development of its risk-based bank rating guidance system, which applies a similar philosophy and methodology to APRA's PAIRS/SOARS framework. In total, APRA hosted 25 interns from Indonesia during the past year.
APRA's assistance to Indonesia has been funded by a multi-year initiative under the auspices of the Government Partnership Fund II (GPF II) funded by AusAID.
In the Pacific, APRA administers two distinct but complementary projects under the auspices of the Government's multilateral Public Sector Linkages Program. The Pacific On-Site Prudential Supervision Project provides for APRA supervisors to travel to Pacific countries for two weeks at a time to conduct training programs with on-site review teams comprised of local and other visiting Pacific prudential regulators. During 2012/13, APRA supervisors undertook two on-site training programs in Fiji, two in Papua New Guinea, one in the Solomon Islands and one in Vanuatu. These programs ranged across banking and other credit providers and provident funds. The Pacific Prudential Regulator Internship Project places staff from Pacific prudential regulators within APRA's frontline supervisory divisions for a period of up to three months to learn about prudential supervision techniques. In 2012/13, this project placed one participant from the Reserve Bank of Fiji in APRA's office in Sydney. Funding arrangements for these Pacific projects have now ended.
The Association of Financial Supervisors of Pacific Countries facilitates cooperation between supervisory agencies in the Pacific through meetings of heads of supervision. APRA represents Australia as an observer at Association meetings and supports its training activities, through sponsoring speakers on topical issues at the Association's annual meeting and training workshops (most recently, on risk governance issues in provident funds). The Association annual meeting is also a forum to exchange views on important regulatory issues and developments, including areas of emerging financial sector risk. APRA is also a member of:
- the Asian Forum of Insurance Regulators;
- the South-East Asia, New Zealand and Australia (SEANZA) Forum of Banking Supervisors;
- the Financial Regulators Training Initiative (FRTI) of the Banking Supervisors' Advisory Group of Asia-Pacific Economic Cooperation (APEC), coordinated through the Asian Development Bank; and
- the Australian APEC Study Centre Advisory Group.
Given the importance of Australian banks within the South Pacific, APRA has been invited to join the annual meeting of South Pacific Central Bank Governors. The 2012 meeting was hosted by the Reserve Bank of Australia in Sydney.
APRA continues to support the international broadening of knowledge on prudential supervision by providing expert speakers to various institutes, including the Financial Stability Institute (of the Bank for International Settlements), the South East Asian Central Banks (SEACEN) Research and Training Centre and the APEC FRTI. During 2012/13, APRA provided seven speakers to conferences organised by the Financial Stability Institute, which are often co-hosted with other regional bodies, and one speaker to programs organised by each of the SEACEN Centre and EMEAP. APRA also hosted and provided a speaker to an APEC FRTI/US Federal Reserve System workshop on IT risk issues in February 2013; it also provided speakers to four regional events organised by IOPS on pension sector supervision and related matters. APRA values the opportunity to develop the skills of its staff, as both participants and speakers in such programs.
During the year, APRA hosted around 70 international delegations (with delegates from around 80 countries) from regulatory agencies, central banks, multilateral organisations, industry bodies and private sector organisations. This number is well down on recent years. Over half of the delegations involved developing countries, with around one-fifth of visits being from China. Delegation visits from Indonesia (10) and South Korea (eight) were also prominent. Areas of interest were wide-ranging and included APRA's functions and operations, Australia's 'twin peaks' approach to regulatory arrangements and the challenges of establishing an integrated prudential regulator, prudential policy developments, risk-based supervision, Australia's handling of the global financial crisis, implementation of the Basel III reforms, APRA's proposed prudential framework for conglomerate groups (Level 3 framework), and superannuation prudential policy and supervisory practice. In addition, there were a number of visits by individual financial institutions to discuss the requirements for establishing operations in Australia.