APRA responds to Royal Commission Final Report
The Royal Commission has identified significant failings in the manner in which the financial system treats consumers. The Commission emphasised that ‘there can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities’. However, the Commission has also identified a range of areas where the regulation and supervision of financial institutions must be strengthened. APRA will review the recommendations in the Report in the coming days and issue a more detailed response to those recommendations relevant to APRA shortly.
Overall, APRA is pleased that many of the recommendations made within the Report, and supported by the Government, are consistent with submissions APRA made to the Commission. This includes:
- the preservation of the ‘twin peaks’ regulatory architecture, and APRA’s current mandate;
- a broadening of the Bank Executive Accountability Regime (BEAR) to other industries; and
- a strengthening and realignment of regulatory powers by the Parliament to provide a greater role for ASIC in superannuation.
APRA Chair Wayne Byres said: “The Commission’s Final Report is a considered and fair assessment of failings in the financial system and a helpful roadmap for reform. The Commission’s recommendations are wide-ranging; within them, the Commission has identified a number of areas where APRA’s prudential and supervisory framework can and should be strengthened. Many of these improvements are already in train, and APRA is committed to delivering on them. APRA appreciates the Commission’s acknowledgment that increasing the intensity of supervision will require additional resources.
“APRA welcomes the Government’s recognition that the recommendations and referrals will require APRA to increase the breadth and depth of its supervision, and that APRA will need to be appropriately resourced to do so. In that regard, the upcoming capability review will be important to ensure APRA is well equipped and resourced into the future to both balance a number of priorities and address the full range of issues within its mandate,” Mr Byres said.
The Commission highlighted, in particular, the central role that APRA’s work on governance, culture and remuneration will play in underpinning better behavioural standards and stronger accountability in the financial system, and recommends APRA do more in this area. APRA has acknowledged the importance of this, and will continue to build expertise and capacity devoted to these issues.
More broadly, the Commission’s full suite of recommendations provide a significant opportunity to substantially improve the financial system in Australia. APRA looks forward to working with the Government, Treasury, ASIC and other relevant parties on the many recommendations that will require legislative change and cross-agency coordination to implement. In particular, APRA is committed to ensuring the shared responsibilities between APRA and ASIC work effectively and efficiently, for the benefit of the community.
The Commission made comments and observations on the conduct of a number of APRA regulated entities, including specific matters that have been referred for possible enforcement action. After the Commission’s Interim Report, APRA established a Royal Commission Enforcement Cases Steering Committee, which has been reviewing evidence as it has come to light and, where necessary, undertaking additional enquiries and investigations. APRA will consider whether this work needs to be broadened in light of the Final Report, and continue to liaise with ASIC, and other relevant agencies, to address promptly the matters identified.
The Royal Commission also concluded that APRA needs to adopt a stronger stance in relation to its enforcement activities. As previously announced, APRA is reviewing its enforcement strategy with the assistance of an Independent Expert Panel. This review has a wide scope that includes consideration of when to hold individuals to account (including under the BEAR), when it would be appropriate to take enforcement action to achieve general and specific deterrence in appropriate cases, and APRA’s governance and other related arrangements in relation to enforcement decisions. The Report will be completed at the end of March 2019 and published shortly thereafter.
Mr Byres also said: “Although the Commission has assigned some important new responsibilities to APRA, our primary responsibility remains the safety and stability of the financial system, to protect the financial well-being of the Australian community. APRA is the only regulator with a primary focus on ensuring the safety and soundness of the financial system.
“It is therefore important to reiterate that Australia’s financial system remains fundamentally sound. While there are areas where the financial sector clearly needs to make significant changes and improvements, the soundness and stability of the financial system has never been called into question by the Royal Commission,” Mr Byres said.
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, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6 trillion in assets for Australian depositors, policyholders and superannuation fund members.