The Australian Prudential Regulation Authority (APRA) welcomes the findings of the International Monetary Fund’s (IMF’s) Financial System Stability Assessment report on the strength of Australia’s financial sector, which was released today.

The report was the culmination of a detailed review in 2005 and 2006 of the Australian financial sector and its regulatory infrastructure by independent experts under the IMF’s Financial Sector Assessment Program (FSAP).

As part of its review, the IMF undertook an assessment of Australia’s compliance with a number of international standards and codes, including the Basel Core Principles for Effective Banking Supervision and the International Association of Insurance Supervisors (IAIS) Insurance Core Principles. The IMF also conducted stress tests to assess potential vulnerabilities in the Australian financial sector.

APRA Chairman John Laker said the IMF’s report provided a strong endorsement of Australia’s regulatory framework and of the effectiveness of APRA’s prudential supervision of banks and insurance companies.

“The IMF concluded that Australia has a high overall level of compliance with the banking and insurance core principles. In addition, the IMF noted that APRA’s risk-focused approach to supervision was ‘leading edge’ and that APRA has ‘a supervisory function that embodies many best international practices’.”

Dr Laker said that APRA has put considerable effort into lifting the quality of its prudential oversight over recent years and was pleased with the IMF’s positive assessment. “APRA appreciated the thoroughness and objectivity of the IMF’s analysis. We have learnt much from our participation in the FSAP and have already commenced work to implement the IMF’s suggestions for improvement. We also acknowledge the IMF’s concern about the consequences of high staff turnover and we are addressing this in a number of ways.”

The IMF will be publishing its detailed assessments in the near future. At that time, APRA will publish the supporting material that it provided the FSAP mission to assist in its assessments against the core principles.

Background

FSAP is a program of country assessments undertaken by the IMF and the World Bank designed to test the strength of a country’s financial sector infrastructure and suggest improvements. The program involves a rigorous and comprehensive analysis by international experts of a country’s financial soundness, governance framework and regulation of the financial system. It involves assessments of the country’s observance of various international standards and codes, as well as testing the financial system’s capacity to absorb and respond to macroeconomic shocks.

Some of the specific findings from the IMF’s Financial System Stability Assessment report relevant to APRA included:

• in a number of areas, including transparency, Australia is at the forefront of best practices; 
• APRA and ASIC, while still relatively young Commonwealth agencies, are making good progress in building their staffs and putting in place systems and policies;
• Australia has a supervisory function that embodies many best international practices and the overall quality of supervision is good;
• the prudential framework is principles-based, and the sample on-site and off-site work reviewed by the assessment team indicates a generally high standard of implementation;
• the approach to consolidated supervision is particularly noteworthy, with solo, group and conglomerate issues being considered as appropriate;
• the Probability and Impact Rating System (PAIRS) and Supervisory Oversight and Response System (SOARS) provide a foundation for banking supervision that is at the leading edge of current approaches to risk-focused supervision;
• most prudential regulations and their implementation are of a very high standard; and 
• Australia has a very high level of compliance with nearly all essential and additional criteria in the core principles for banking and insurance supervision.

A copy of the IMF report released today is available on the APRA website (www.apra.gov.au) at: http://www.apra.gov.au/AboutAPRA/

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. APRA currently supervises institutions holding approximately $2.5 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.

Media and industry inquiries only:
Stuart Snell, Head of Public Affairs
Australian Prudential Regulation Authority
Telephone: 02 9210 3384
Mobile: 0407 250 276

All other inquiries:
APRA Contact Centre
1300 131 060