APRA's close engagement with other domestic regulatory agencies is a central element in Australia's framework for financial stability, while its other liaison activities — at home and abroad — provide a source of valuable intelligence on the institutions and industries that it regulates. APRA's involvement in all three global standard-setting bodies for prudential regulation ensures that Australia's interests have a 'voice at court' in the development of global regulatory reforms. For these various reasons, APRA attaches high priority to its liaison activities. At the same time, APRA has become more selective in its participation in international bodies given the substantial workload it has been facing in its policy and supervisory activities.
Australia's framework for financial stability is built on clear mandates for its financial regulatory agencies and effective cooperation and coordination across these agencies, at various levels and degrees of formality. This framework has been tested and strongly affirmed over the course of the global financial crisis.
Three specialist regulatory agencies — APRA, the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA) — have separate functional responsibilities for oversight of the Australian financial system but shared responsibilities for the stability and integrity of the system. All three agencies are independent statutory authorities. APRA has a close bilateral working relationship with each of ASIC and the RBA as well as with the Australian Treasury, which provides advice to the Government on policy and possible reforms that promote a sound financial system and infrastructure. Since the onset of the crisis, however, the focal point for agency cooperation has been the Council of Financial Regulators, a non-statutory body made up of these four agencies.
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. Over 2011/12, the Council continued its oversight of conditions in global funding markets but it devoted much of its attention to further enhancing Australia's crisis management arrangements and providing advice to the Government on financial market infrastructure.
The Council's work on crisis management included a review of crisis resolution funding arrangements and a refinement of ADI crisis resolution coordination procedures. These procedures are also aimed at ensuring coordinated and effective public communications in a crisis. The Council 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 65). In September 2011, in response to the Council's recommendations from its review of the design of the Financial Claims Scheme for ADIs, the Government announced a number of changes to the Scheme. These included a lowering of the Scheme limit from $1 million to $250,000 per depositor per ADI, with effect from 1 February 2012.
The Council's work on financial market infrastructure has had two main strands. The first relates to the issue of central clearing of 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 G-20 commitment to see all standardised OTC derivatives transactions centrally cleared by the end of 2012. The Council published a discussion paper on this topic in June 2011 and, following industry consultation, the Government released a consultation paper on the implementation of a framework for Australia's G-20 OTC derivatives commitments in April 2012. The second strand is developing proposals for changing the regulation of financial market infrastructures in Australia to strengthen regulators' ability to provide effective oversight and manage risks to stability and market integrity. The Council's recommendations to the Government in this area were published in March 2012. APRA has participated in two Council working groups on financial market infrastructure, as well as two on crisis management arrangements.
The Council's active work program since the crisis began has not replaced APRA's bilateral relationships with the other agencies. These relationships are based in each case on a Memorandum of Understanding (MoU) and a structured coordination process involving meetings between staff at different operational levels, from agency heads down; however, much of the regular contact occurs via informal as well as formal channels. Both channels have worked well over the years.
APRA's formal channel for its dealings with the RBA is the RBA/APRA Coordination Committee. Over 2011/12, the Committee discussed a range of policy, market, institutional and technical developments. The Basel III reforms featured prominently, along with APRA's revised capital requirements for life and general insurers, and conglomerate supervision. Other main topics included the sovereign debt crisis in Europe, global and domestic liquidity conditions and progress in the Australian banking system on funding structures. Contingency and recovery planning, crisis simulation and stress-testing work were also discussed.
The main formal channels between APRA and ASIC are regulatory liaison meetings and deterrence liaison meetings. 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. Following the failure of Trio Capital (see Chapter 2) and the recommendations of the Parliamentary Joint Committee, APRA is making improvements to the framework for information sharing with ASIC and other agencies, such as the Australian Taxation Office (ATO) and the Australian Federal Police. During 2011/12, broad issues under discussion between APRA and ASIC included risk management systems and other matters for entities that are jointly regulated, and the Government's Stronger Super proposals.
As one of the main mechanisms for joint consultation with industry, the APRA Members and ASIC Commissioners meet annually with the Finance Industry Council of Australia (FICA), an umbrella body for a number of finance industry associations, to discuss significant regulatory and other issues facing the industry. Such liaison allows the two regulatory agencies to brief industry on their current priorities and to identify and test industry concerns. FICA comprises the Australian Bankers' Association, 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 strong working relationship with Treasury was particularly constructive in 2011/12, when key legislative initiatives relevant to APRA's powers and responsibilities were being developed. These initiatives related to crisis management, a review of the Acts under which APRA operates and the Government's Stronger Super reforms. Since the announcement of these latter reforms in December 2010, APRA officials have participated actively in the Treasury's consultation with industry and have assisted Parliament by appearing before a number of hearings on the reforms. Another important area of coordination included the natural disaster insurance review. Senior APRA and Treasury officials also held regular liaison meetings at which a major topic was global regulatory reform, including the work of the G-20, the Financial Stability Board and the Basel Committee and the International Association of Insurance Supervisors.
APRA also interacts with a number of other Australian agencies. APRA and the Australian Transaction Reports and Analysis Centre (AUSTRAC) coordinate activities through the AUSTRAC/APRA Coordination Committee, which meets to update each agency on relevant regulatory developments and to share findings from supervisory activities. Referrals on specific regulatory matters and exchanges of information between the agencies are conducted using protocols established to meet relevant legislative requirements. To avoid duplication and minimise burden, there is also regular communication at the working level on visit schedules to jointly regulated institutions.
APRA has a longstanding commitment to cooperation with the ATO on superannuation matters. Regular consultation takes place across a range of superannuation administration and policy issues, including the Stronger Super reforms, 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. 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 continues to participate in the ATO's Superannuation Consultative Committee and the superannuation technical sub-committee of the National Tax Liaison Group.
APRA cooperates closely with the Private Health Insurance Administration Council (PHIAC), which has responsibility for supervising providers of health insurance. Over the year, APRA provided support to PHIAC for its supervisory functions and worked closely with PHIAC in relation to the review of the latter's compliance with the Insurance Core Principles by the International Monetary Fund (IMF) in the context of its Financial Sector Assessment Program. In this context, APRA and PHIAC consulted on input to assessments by and discussions with the IMF on the regulation of private health insurers in Australia. PHIAC also accessed APRA's training and development programs during the year and was provided with assistance to develop its cost recovery function. The two agencies regularly exchange information on jointly supervised institutions and discuss common industry issues. A new MoU between the two agencies was signed in December 2010 and reviewed in 2011 with no changes.
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 data 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 MAA was updated. APRA also liaises with WorkCover State authorities on prudential matters relevant to workers' compensation insurance.
APRA has continued its liaison 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 Member Ian Laughlin is a member of the Council. APRA also contributed to the AASB's work on reporting by superannuation funds.
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, financial markets participants, industry associations and State and Australian Government 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 2011/12, the main area of interest was business and government communication, taking into account lessons on information-sharing and electronic security learnt from the responses to recent natural disasters.
In addition to its meetings with FICA, APRA liaises directly with a number of industry organisations including the Australian Bankers' Association, Abacus — Australian Mutuals, 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 Corporate Superannuation Association 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, risk managers and trustees. Such liaison may be at multiple levels throughout these organisations and APRA's own 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 has for many years played 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 Institute of Actuaries of Australia (IAAust) and the profession generally. During 2011/12, the principal topics of interest in discussions have been APRA's proposals to update its prudential capital requirements for life and general insurers, and the role and responsibilities of appointed actuaries in reviewing the adequacy and effectiveness of the risk management framework of insurers. APRA also liaises regularly with life insurance Appointed Actuaries as a group and, during the year, it initiated similar meetings with general insurance Appointed Actuaries. It also liaised with other groups of individuals who undertake statutory roles under the various Acts that APRA administers.
APRA's international liaison activities take two main forms. The first are its traditional direct links with overseas regulatory agencies associated with the supervision of financial institutions with cross-border operations. The second is its participation in international groups and fora that, amongst other roles, have carriage of global reform initiatives being pursued by the Leaders of the G-20. Unlike some of its overseas counterparts, APRA does not have a separate unit that participates in such groups. Rather, APRA spreads the involvement across a range of experienced staff. In addition to information sharing on policy matters, the involvement of staff with supervision experience in particular allows APRA to inject supervisory knowledge and practical considerations into the global debate. Importantly, it also has the advantage, when reforms are being implemented, that APRA's senior supervisors have a strong understanding of the policy imperatives and detailed discussions behind the reforms.
Direct links with overseas regulatory agencies provide important input into APRA's risk assessment of regulated institutions that also operate in other jurisdictions and of foreign financial institutions for which APRA is 'host' supervisor. Since the global financial crisis began, the drive for stronger global regulatory cooperation has centred on supervisory colleges, which are multilateral working groups of relevant supervisors and central banks formed to enhance the supervision of each of the largest international banking and insurance groups. APRA participates in several of these colleges and has established its own colleges for a number of large, internationally active financial institutions headquartered in Australia. During 2011/12, it hosted two of these colleges, involving 14 participants from overseas regulatory agencies. APRA now has formal bilateral information sharing arrangements with 23 overseas regulatory agencies, following the signing in 2011/12 of MoUs with the Financial Supervisory Commission/Financial Supervisory Service of Korea, the Banking Control Commission of Lebanon and the Bank of Indonesia. Other arrangements remain under discussion, some of which will facilitate the activities of supervisory colleges. APRA is also one of 32 signatories to the multilateral MoU put in place by the International Association of Insurance Supervisors (IAIS) and provides staff resources to assist the IAIS in the validation of applications from other jurisdictions.
The traditional direct link of most importance to APRA is that with the RBNZ, the prudential supervisor of banks and insurance companies in New Zealand. The importance flows from the high degree of interconnectedness between the Australian and New Zealand financial systems. APRA has a strong cooperative working relationship with the RBNZ on a range of supervisory issues. 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. Cooperation has extended to the supervision of insurance, as the RBNZ takes on its new role in this area; an APRA officer was seconded to the RBNZ for much of the year to help build its insurance supervision team and processes.
Over recent years, APRA and the RBNZ, together with other members of the Trans-Tasman Council on Banking Supervision (the RBA and the Australian and New Zealand Treasuries), have given high priority to the detection of emerging stress in trans-Tasman banks. Considerable work has gone into the development of a structured approach to the handling of any episode of trans-Tasman financial distress. In this context, the Trans-Tasman Council agencies, together with ASIC, have entered into a Memorandum of Cooperation on Trans-Tasman Bank Distress Management. The Memorandum sets out high-level principles to which agencies will have regard when faced with financial distress involving banks with significant operations in Australia and New Zealand.
The Memorandum represents a non-binding understanding on how cooperation will be promoted in respect of all stages of crisis resolution, including problem identification, information sharing, systemic impact analysis, assessment of response options, implementation of measures to resolve a crisis and public communications. Notwithstanding this 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.
In 2011/12, the Trans-Tasman Council agencies and ASIC carried out a bank crisis simulation exercise in order to test the effectiveness of multi-agency coordination in a crisis. The exercise focussed on different areas of trans-Tasman coordination including information exchange, diagnostic work, formulation of a resolution and managing communications. It was part of a routine periodic testing of crisis resolution arrangements and provided helpful guidance on the means by which trans-Tasman coordination on crisis resolution can be further enhanced. These lessons will be drawn on in future work on cross-border crisis resolution.
APRA's participation in global reform initiatives is mainly through its involvement in global standard-setting bodies and in other fora. These include:
- Basel Committee on Banking Supervision. APRA has been a member of the Basel Committee on Banking Supervision, the global standard setting body for bank regulation and supervision, since 2009. The RBA is also a member and the APRA Chairman represents Australia on prudential supervision matters. The primary focus of the Basel Committee over the past year has been the implementation of new global regulatory standards on bank capital adequacy and liquidity (Basel III), which are discussed elsewhere in this Report, and a substantial revision to the Core Principles for Effective Banking Supervision. The Basel Committee has also been involved in the development of additional policy measures for systemically important banks whose failure would have significant cross-border repercussions (so-called G-SIBs) or impacts on the domestic economy (D-SIBs).
APRA is also represented on the Basel Committee's three key sub-committees: the Policy Development Group, the Standards Implementation Group and the Accounting Task Force. The Policy Development Group identifies and reviews emerging prudential issues and develops policies to promote strong prudential standards. Its work program during 2011/12 covered Basel III implementation issues, banks' exposures to central counterparties and 'trading book' capital requirements. The Group was also involved in producing updated guidance on the management of foreign exchange settlement risk.
The Standards Implementation Group shares information and promotes consistency in the implementation of Basel Committee standards and guidance. Its main priority in 2011/12, which will continue over 2012/13, was assessing the progress of Basel Committee members in adopting Basel III in line with the agreed rules text and timetables. The Group also developed principles for effective risk data aggregation and risk reporting, and has been reviewing and benchmarking the adequacy of operational risk capital charges. APRA hosted a meeting of the Group in November 2011.
The Accounting Task Force engages with accounting and auditing standard-setters to help ensure that global 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 2011/12, it remained closely involved in the ongoing convergence process between the International Accounting Standards Board and the Financial Accounting Standards Board, with a particular interest in the development of a provisioning approach based on expected loss. In addition, the Accounting Task Force continued to analyse the implications for bank balance sheets of the interaction between changes to capital and accounting standards, and developed enhanced guidance for supervisors for assessing the effectiveness of the internal audit function in 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 Definition of Capital Sub-group, 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 was a member of the Core Principles Group (now disbanded), established to review and assess the need for changes to the Basel Committee's Core Principles, and is a member of the Operational Risk Sub-group of the Standards Implementation Group, which investigates issues related to the management and measurement of operational risk. During 2011/12, the bulk of the subgroup's work has been a review of the adequacy of the standardised approaches for calculating operational risk capital charges. APRA hosted a meeting of the sub-group in January 2012.
APRA also participated in the Cross-border Bank Resolution Group, which undertook a survey of members' policies, legal frameworks and allocation of responsibilities for the resolution of failed banks. In July 2011, following that survey, the Group published a report on progress being made on cross-border bank resolution and identified areas where further work is needed. The report contributed to the development of the Financial Stability Board's Key Attributes of Effective Resolution Regimes for Financial Institutions, a new international standard on financial crisis resolution published in November 2011.
A senior executive of APRA 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.
- International Association of Insurance Supervisors (IAIS). The main 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 (at APRA Member level) and Technical Committee; it is also an active participant on the Financial Stability Committee, established in response to the global financial crisis, and on a number of sub-committees most relevant to APRA's supervisory mandate and the Australian insurance industry.
Over recent years, APRA has been closely involved with a key IAIS initiative to develop a common framework ('ComFrame') for the supervision of internationally active insurance groups, and it has led a number of drafting 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. An important area of work for the Financial Stability Committee has been responding to G-20 and Financial Stability Board requests in relation to systemically important financial institutions. APRA has contributed to the IAIS draft methodology for use in determining whether an insurer or insurance group has systemic importance.
APRA has also continued its involvement in the Accounting and Auditing Issues, Solvency and Actuarial Issues, Insurance Groups and Cross-sectoral Issues, and Reinsurance sub-committees. While much of this work has been related to the development of ComFrame, other more general developments have also been progressed under the aegis of each subcommittee. APRA hosted two IAIS sub-committee/ working group meetings in 2011/12.
- 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 Organisation 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 2011/12, the Joint Forum completed a review of its Principles for the Supervision of Financial Conglomerates. APRA has significant supervisory experience in this area and was an active contributor to the review. The Principles are directly relevant to APRA's development of a prudential framework for conglomerate groups (Level 3 framework). Other workstreams reported on intra-group support measures and commenced investigations into disclosure at point of sale, mortgage insurance and longevity risk.
- 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. In late 2011, the APRA Deputy Chairman was re-elected President of IOPS for a third two-year term. During 2011/12, the work of IOPS included development and publication of further working papers in the Effective Supervision series and the release, jointly with the OECD, of a good practice guide on pension funds' use of alternative investments and derivatives. Following the launch of the IOPS 'toolkit' for risk-based supervision of pension funds in 2010, an APRA staff member was seconded to the IOPS Secretariat during 2011 to assist in the development of further guidance and a practical case study on risk-based supervision. The case study has been used in a series of IOPS workshops held in various regions to demonstrate these supervision techniques.
- 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 cross-country statistics in insurance and pensions. The APRA Deputy Chair is Vice-Chairman of the IPPC Working Party on Private Pensions (WPPP). During 2011/12, the IPPC and WPPP published their work on policy options to strengthen retirement income adequacy in defined-contribution pension schemes. Work was commenced on a series of studies covering the management of longevity risk, analysis of long-term investment options, the communication of risk to defined-contribution members, the adequacy of retirement savings in OECD countries, insurance for catastrophic risk and disaster risk management. The IPCC and WPPP also considered how the level and quality of insurance and pension statistics collections could be improved and undertook accession reviews of and engagement with a number of countries seeking to join the OECD.
- 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. Membership of IADI complements APRA's role as the agency responsible for the administration of Australia's Financial Claims Schemes. In particular, APRA's membership of IADI has provided access to targeted training on deposit insurance systems and the ability to contribute to policy developments on deposit insurance and resolution of banking institutions. IADI's core mission is to share developments and best practice in deposit insurance with all countries. In that spirit, APRA has developed bilateral relationships with the most experienced IADI members.
- 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. In 2011/12, ICURN published its Guiding Principles for Effective Prudential Supervision of Cooperative Financial Institutions. It 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 contributed to the work of the FSB in the year under review. This included participation as the lead Australian resolution authority in an FSB survey on deposit insurance issues. An APRA staff member was appointed to an FSB panel of experts on crisis resolution to assist in coordinating an FSB peer review on matters relating to financial crisis management. Australia will participate in this review in 2012/13. In addition, an APRA staff member participates in the Compensation Monitoring Contact Group of the FSB. 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 (including a bilateral complaint-handling process to address specific level playing field concerns raised by regulated financial institutions).
APRA meets annually with integrated supervisory agencies from a range of countries to discuss matters of common interest. The theme of the 14th conference in June 2012 was an integrated perspective on recent regulatory reforms. The main topics discussed were bank capital and liquidity versus insurance solvency initiatives, conflicts of policy in relation to economic and financial matters, and the 'shadow' finance industry.
Together with the RBA, APRA is a member of the Working Group on Banking Supervision of the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP), which brings together central banks, monetary authorities and banking supervisors within the region. The Working Group provides a forum to discuss regional financial and prudential developments. In 2011/12, its main focus continued to be the implications of global regulatory reforms for countries in the region. EMEAP also facilitates a number of training initiatives to which APRA provides speakers from time to time.
APRA supports the deepening of institutional capacity among its Asian and Pacific regulatory counterparts through a series of tailored technical assistance programs, principally funded by Australian Agency for International Development (AusAID). These programs seek to assist regulators 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 focussed on technical assistance activities with Indonesia, although it is not limited to that country. APRA has been engaged with Bapepam-LK, Indonesia's integrated regulator of securities markets and non-bank financial institutions, for the past seven years. Building upon the successful introduction of a new risk-rating model (adapted from APRA's PAIRS framework) by Bapepam-LK's Pension Fund Bureau in 2008, APRA is now assisting the Bureau to refine procedures around the benchmarking of risk-rating scores and is also assisting Bapepam-LK's Insurance Bureau to develop a risk-rating model. APRA's capacity-building engagement with Bank Indonesia, the banking supervisor, continued in 2011/12, with two Bank Indonesia interns placed within APRA's frontline supervisory divisions for a period of six months. This was the fourth instalment of a longer-term engagement between APRA and Bank Indonesia that began in 2006. Other visits from Bank Indonesia staff focussed on adapting regulatory tools and assisting with the development of its risk-based bank rating guidance, which applies similar philosophy and methodology to APRA's PAIRS/SOARS framework. In total, APRA hosted 20 interns from Indonesia during the past year.
The Indonesian Government is planning to integrate the supervision of banking, non-bank financial institutions and securities markets into a single financial supervisory agency (OJK) by the end of 2013. Towards this aim, APRA hosted several visits by Indonesian officials in 2011/12 to review Australia's regulatory framework and how APRA itself was established.
APRA's assistance to Bapepam-LK and Bank Indonesia has been funded by a multi-year initiative under the auspices of the Government Partnership Fund II (GPF II).
In the Pacific, APRA administers two distinct but complementary projects under the auspices of the Government's multilateral Public Sector Linkages Program (PSLP). 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 2011/12, APRA supervisors undertook three on-site training programs in Fiji, two in Papua New Guinea and one in Vanuatu; these programs ranged across banking and other credit providers, insurance 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 2011/12, this project placed one participant from the Bank of Papua New Guinea in APRA's office in Melbourne.
In August 2011, an external review of APRA's Pacific technical assistance program confirmed that Pacific partner jurisdictions uniformly value the program, which through its hands on components in particular was seen as filling a useful training gap. The program was found to be clearly in line with AusAID requirements of demonstrated relevance to both Australian government and partner government development priorities and very effective in meeting the program's short-term and intermediate objectives, which include raising levels of understanding about and capacity to deliver risk-based supervision and promoting Pacific regulatory networks. The program was also considered to represent good value for money, give attention to sustainability and gender equality, and to have a well-considered approach to capacity development.
The Association of Financial Supervisors of Pacific Countries facilitates cooperation between regulators in the region. 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. 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 2011 meeting was held in Samoa.
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 APEC Study Centre at RMIT University, the APEC Financial Regulatory Training Initiative and the ASEAN Insurance Training and Research Institute (AITRI). During 2011/12, APRA provided two 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 APEC Study Centre and AITRI. APRA values the opportunity to develop the skills of its staff, as both participants and speakers in such programs.
During the year, APRA hosted just over 100 international delegations from regulatory agencies, central banks, multilateral organisations, industry bodies and private sector organisations. Approximately half of the delegations were from developing countries and just under one-fifth from China. Delegation visits from South Korea and Indonesia 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 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.