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Deputy Chair John Lonsdale - speech to FINSIA's The Regulators event

Friday 15 November 2019

APRA's move towards greater transparency

Good morning, and thank you for the opportunity to address you.

It was at this very event exactly 12 months ago that I made my first presentation as an APRA member. The speech – rather aptly, as it turned out – was titled “APRA in 2019: An evolving approach, a consistent purpose”, and it outlined APRA’s supervisory priorities for the coming year. Looking back now as the “coming year” rapidly turns into the “going year”, I doubt many of us fully anticipated the extent of the evolution that we were about to embark on.

One of the primary areas where APRA has evolved its approach over the past year is in the area of transparency. In line with prudential regulators globally, APRA has historically been economical with the information it disclosed. This caution stemmed partly from legal restrictions on what APRA can say publicly, but also a belief that financial stability was best served by a prudential regulator that conducted its work out of the spotlight. It’s fair to say that mindset has undergone a significant transformation.

Rather than viewing openness as a potential obstacle to fulfilling our mandate, transparency is now being harnessed by APRA as a tool to achieve better prudential outcomes on behalf of the Australian community. Over the next 12 months, APRA will increasingly open up on its actions, decisions and assessments of entities as a means of informing our stakeholders, influencing behaviour and driving accountability – both for ourselves and the entities we regulate.

Opening up

APRA’s updated Corporate Plan for 2019 to 2023 identified four strategic focus areas: maintaining financial system resilience; improving outcomes for superannuation members; improving cyber resilience across the financial system; and transforming governance, culture, remuneration and accountability across all regulated financial institutions. The Plan also identified that to deliver these outcomes, APRA would need to lift its capabilities in a number of areas. One of the areas specifically called out for strengthening was external engagement.

APRA’s commitment to greater transparency necessarily has limits. As APRA Chair Wayne Byres noted recently in a speech to journalists at a media awards event, there are good reasons why prudential regulators such as APRA must conduct their affairs with a degree of discretion. Beyond the secrecy provisions of the APRA Act, there are some instances where disclosing our concerns about, for example, an entity’s financial strength, could undermine efforts to shore up its position or resolve it safely.

As in so many other areas of our work, APRA has to find an appropriate balance between candour and confidentiality. APRA knows that it cannot operate solely “behind closed doors”, but nor can we fling our doors open in a manner that may inadvertently harm community interests. Linked to this greater transparency has been a big push by APRA to explain ourselves better.  We’re making a conscious effort to communicate more often, and in language that can be understood – no mean feat in the world of prudential regulation. Following on from our updated Corporate Plan, this week we published an information paper setting out how APRA balances various objectives including financial safety, efficiency and competition to ensure the safety and stability of the financial system.  We are doing more speaking engagements and media briefings to help get our messages across and better explain to the public our mandate and what we do.  Until recently, APRA routinely issued 30-40 press releases a year. This year, we have issued 84 and there are still a few to come before year end.

Putting it out there

The clearest evidence to date of APRA’s new approach to transparency has been in the area of enforcement.

The catalyst here was our Enforcement Strategy Review, which determined that APRA could achieve better prudential outcomes by being more willing to set public examples when enforcement action was taken. It took little more than a month for us to put that into practice, with a media release announcing APRA had issued directions to IOOF group for failing to comply with its new licence conditions. In June, we publicised the decision to impose directions and new licence conditions on AMP Super; we announced the decision to impose additional capital requirements for three of the major banks and one insurer in response to weaknesses identified in their risk governance self-assessments; we publicised our decision to force several banks to tighten the intra-group funding arrangements for their Australian operations and we announced a decision to fine Westpac for failing to meet legal reporting requirements.

As some noted at the time, this was a significant departure from past practice.  In September’s update to our Enforcement Approach, we outlined how we will increase transparency on the use of formal enforcement powers and made clear when we would and would not publicise enforcement actions. Although every case is considered on its merits, our stated preference is to publish enforcement decisions unless we believe that doing so creates risks to the interests of an institution’s beneficiaries, or to broader financial stability.

We are now in the process of developing an overarching philosophy for our entire approach to industry supervision. The Supervision Philosophy document, due for release early next year, is based on five foundational elements, which together contribute to delivering a sound and resilient financial system. One of those elements is being “open”. In practice, this will see APRA use transparency as an additional measure to lift and reinforce industry standards across a whole range of areas.

The precise framework is still being finalised but I can tell you that being open will have three key objectives:

  • To inform: explaining to industry, government, investors and the general public our overall supervisory approach, methodology and intensity;
  • To influence: using clear communication to convey messages, deter misconduct, promote better practice and enhance public confidence in the financial system; and
  • To drive accountability: using tactical messaging to hold both entities and individuals to account.

If we believe that publicising an action or decision achieves those objectives, we will be putting it out there.

Transparency as a tool

Another area where APRA will publish more information about the entities we regulate concerns their efforts to improve their approach to governance, culture, remuneration and accountability (GCRA). I mentioned earlier the additional capital requirements we imposed on several entities in response to weaknesses uncovered by their risk governance self-assessments that followed the ground-breaking Prudential Inquiry into Commonwealth Bank of Australia (CBA). Next week, APRA will release a new information paper outlining our future approach to regulating, supervising and enforcing GCRA issues among our regulated population. That approach will involve a greater use of both CBA-style prudential inquiries and deep dive thematic reviews. Going forward, under the terms for conducting these reviews, we will generally be making the findings public and releasing GCRA self-assessments as an additional tool to deter poor behaviour, promote better practice and enhance accountability. We will have more to say when we release the paper, but what I can tell you now is that the level of public disclosure we envisage is at the forefront of international best practice among our peer regulators.

We’re also going to be more upfront about APRA’s assessment of entities’ performance, and nowhere is that more evident than with the forthcoming release of our MySuper heatmap. A few hours ago at the ASFA 2019 conference in Melbourne, my fellow Deputy Chair Helen Rowell unveiled the metrics, methodology and presentation of the heatmap, which will be a key tool to support the escalation of APRA’s long-term efforts to weed out underperforming funds. Publicising our view of which MySuper funds and products are underperforming – and where they need to improve ­ ­– turns up the heat on those trustees to lift their games or reassess whether they should exit the industry. Making it easier to assess and compare fund performance also empowers other important stakeholders, including members and employers, to ask hard questions and make better informed superannuation decisions.

Data uplift

For the time being, the heatmap doesn’t cover the choice sector, but work is underway to address this with the launch last week of our Superannuation Data Transformation. This multi-year project is the largest data collection consultation APRA has ever undertaken. Phase 1, which is now underway, will broaden the collection by targeting long-standing gaps around choice products and investment options. Phase 2 will deepen the collection by improving granularity, before Phase 3 assesses quality and consistency.

The Superannuation Data Transformation will deliver the most accurate picture yet of an industry that manages assets worth 1.5 times Australia’s annual GDP. Consistent with our commitment to greater transparency, we intend to publish as much of that data as possible. Indeed, one issue the consultation will examine is a proposal to determine that all superannuation data we collect is non-confidential, and therefore able to be publicly disclosed.

Superannuation isn’t the only industry that will be subject to increased transparency through the publication of new and better data. We recently replaced our Monthly Banking Statistics Publication with the Monthly ADI Statistics publication, which includes never-before published data on credit unions and building societies. Life insurers have also found themselves exposed to greater scrutiny through a world-leading joint data publication between APRA and ASIC that makes it easier to compare life insurers’ performance in handling claims and disputes.

Central to all of these initiatives is our Data Modernisation Program. The increased functionality of the new Data Collection Solution, due to come online next year, will support initiatives to enhance the quality, consistency, reliability and variety of industry data we collect. Other aspects of the program are aimed at increasing the scope and accessibility of what we make available. We are mindful of the increasing interest in our data publications, which are aimed at industry rather than the general public. Consequently, we are examining how to present data in more accessible and flexible ways that enable greater usability by a much broader audience of stakeholders.

Stronger, safer, clearer

With financial stability and the soundness of institutions at stake, APRA must always think carefully about what information we make public. For that reason, our growing appetite for media engagement is unlikely to feature my debut on breakfast television or talkback radio! But financial stability requires more than just a strong balance sheet, a competent board and prudent risk management. It also requires trust and confidence, both of which have been badly tarnished in recent times.

Greater transparency, conducted carefully and strategically, can enhance financial stability. APRA’s direction will no doubt create some discomfort for some of the entities we regulate.  But by informing, influencing and driving accountability, APRA will harness transparency as a tool to promote better practice and deter poor conduct in the entities we regulate. Importantly, opening up on APRA’s actions and decisions will help to restore public confidence that Australia’s banks, insurers and superannuation trustees are being held to account for their performance and the outcomes they deliver.

Media enquiries

Contact APRA Media Unit, on +61 2 9210 3636

All other enquiries

For more information contact APRA on 1300 558 849.

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 $6.5 trillion in assets for Australian depositors, policyholders and superannuation fund members.