If APRA's supervisors detect issues of concern, APRA is empowered to take enforcement action against an institution, or individuals associated with that institution, to protect the interests of depositors, policyholders and members of superannuation funds.
APRA prefers to take a cooperative approach to resolving prudential issues with boards and management of the institutions it supervises. On occasions, APRA’s collaborative approach will be unsuccessful because the institution is either unwilling or is unable to cooperate. Under such circumstances, it is critical that APRA takes effective enforcement action.
APRA has considerable statutory powers to protect beneficiaries. Powers may be exercised for the purpose of ensuring an entity continues to meet prudential standards and beneficiary interests. Where there is a potential threat to the viability of an entity, resolution powers may need to be exercised to take control of the entity, to effect an orderly restructure (such as through transfer or recapitalization) or to otherwise ensure an orderly exit of that entity from the industry.
Although the details vary slightly by industry, typically these include the power to:
- undertake a formal investigation into the affairs of an institution;
- impose conditions on an institution’s licence or issue directions related to particular matters;
- appoint a statutory manager, judicial manager or replacement trustee to manage an institution’s affairs;
- accept enforceable undertakings (EUs) (see below);
- take criminal action against persons or institutions; or
- seek restraining orders.
Individuals can be removed (or ‘disqualified’) from their positions or from holding senior roles within the industries supervised by APRA. An individual will also be automatically disqualified if he or she is convicted of an offence involving dishonest conduct, or becomes bankrupt.
Since 1 July 2008, any decision to disqualify an individual from holding a senior role within the industries supervised by APRA is made by the Federal Court of Australia, on application by APRA. In addition, the Federal Court has the capacity to impose a conditional ban on an individual, limiting the period of disqualification.
See further information on the disqualification process, and also the Disqualification Register of individuals who have been disqualified from holding prudentially significant roles within APRA-regulated entities.
If an institution or individual is considered to have breached prudential requirements, APRA may accept an enforceable undertaking rather than impose sanctions. EUs are particularly relevant when an institution or an individual has made particular admissions to APRA concerning their conduct and remedial steps have commenced. An EU deals effectively with prudential issues. EUs also typically offer a more cost-effective and timely means of achieving an appropriate supervisory outcome than commencing formal legal action.
See a list of Enforceable undertakings APRA has accepted from people or corporations since 1 January 2005.
Enforcement strategy review
The Australian Prudential Regulation Authority (APRA) is currently reviewing its enforcement strategy. The review will examine the current enforcement strategy and infrastructure and how it interacts with our core supervisory approach.
APRA Deputy Chair John Lonsdale is leading the review, supported by APRA staff and external advisers as necessary. An independent advisory panel of experts in the administration of law and regulatory enforcement is also assisting. The panel comprises former NSW Supreme Court Judge Dr Robert Austin, ACCC Commissioner Sarah Court and Professor Dimity Kingsford Smith, holder of the Minter Ellison Chair in Risk and Regulation at UNSW Law, and the Director of the Centre for Law Markets and Regulation, UNSW.
The enforcement review recognises APRA’s new regulatory responsibilities under the Banking Executive Accounting Regime, as well as case studies examined by the Royal Commission. It is a forward-looking examination of our approach to using enforcement powers to ensure that supervised institutions meet their financial promises within a stable, efficient and competitive financial system.
Although APRA has taken a range of supervisory actions in the past, it is now examining whether its traditional approach - prioritising prevention and rectification - can be augmented by greater enforcement activity.
The final Review will be presented to APRA Members by 31 March 2019. After considering the Review’s recommendations, APRA expects to release both the final review and APRA’s enforcement strategy to the public.
Terms of Reference – Review of APRA’s approach to enforcement
1. The Review will conduct a forward-looking examination of APRA’s approach to the use of enforcement to achieve its prudential objective of ensuring that financial promises made by its supervised institutions are met within a stable, efficient and competitive financial system (the Review).
2. The Review will examine APRA’s current enforcement strategy and infrastructure, and in particular, how it interacts with APRA’s core supervisory approach. It will assess any legal, practical or structural impediments to APRA taking enforcement action where such action is appropriate.
3. The Review will make recommendations on:
a) the breadth of issues APRA seeks to address through public and non-public enforcement action;
b) the considerations in determining when APRA should take enforcement action to hold entities and individuals to account, including under the Bank Executive Accountability Regime (BEAR) and other powers;
c) the considerations in determining whether and when it may be appropriate for APRA to take public enforcement action, including litigation, to achieve general deterrence effects in appropriate cases; and
d) APRA’s internal governance, organisation, enforcement strategy, resourcing and any other factors relevant to APRA’s enforcement function.
Areas of focus
1. In examining the issues set out above, the Review will focus on:
a) the relationship between APRA’s supervisory approach and enforcement action;
b) APRA’s process for identifying candidate enforcement actions;
c) APRA’s decision-making process on whether to take enforcement action;
d) APRA’s approach to breach reporting and whistle-blowers;
e) the weight given to factors (including but not limited to cost, timeliness, remediation, precedential value) in determining whether to take enforcement action;
f) APRA’s approach to publicly disclosing enforcement priority areas;
g) whether internal organisational change would be required to achieve an appropriate level of enforcement action;
h) whether the resources and skill sets currently within APRA are adequate to achieve an appropriate level of enforcement action;
i) whether there is greater need for APRA to more closely cooperate with other regulatory agencies when dealing with enforcement-related matters;
j) whether the current and proposed legislative framework is adequate to support the recommended approach; and
k) any other relevant matters agreed by the APRA Members from time to time.
5. Draft recommendations will be available to APRA Members by 28 February 2019 with the final Review to be presented to the APRA Members by 31 March 2019.
6. The Review will be conducted by APRA Deputy Chair John Lonsdale and supported by APRA staff and external advisors as necessary. The APRA Members will be regularly informed on progress over the course of the review.
7. An external advisory panel comprising Dr Robert Austin (Former NSW Supreme Court Judge), Commissioner Sarah Court (Australian Competition and Consumer Commission) and Professor Dimity Kingsford Smith (Director of the Centre for Law, Markets and Regulation, University of New South Wales) has been appointed to provide an expert perspective on matters arising from the Review.