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An independent review is urging the overhaul of the Australian Prudential Regulation Authority (APRA), slamming it for a poor culture and variable leadership.
Key points:
- The review was ordered in the wake of the banking royal commission
- It criticised APRA's dealings with regulated entities "behind the scenes"
- The panel made 24 recommendations, including five directed at the Federal Government
In a proposed shake-up of the often secretive regulator, a three member panel chaired by former ACCC chairman Graeme Samuel said change was needed.
"APRA appears to have developed a culture that is unwilling to challenge itself, slow to respond and tentative in addressing issues that do not entail traditional financial risks," the review said.
"In combination with APRA's organisational structure, these factors limit its ability to deliver on the breadth of its mandate and adapt to new challenges."
The panel made 24 recommendations, with 19 directed to APRA and the remaining five directed to the Federal Government.
The capability review into APRA was initiated as a result of a recommendation from the Hayne Royal Commission final report released in February, which was also critical of the Australian Securities and Investments Commission (ASIC) for failing to detect and eliminate misconduct in financial services.
While the panel described APRA as an "impressive and forceful regulator", it observed that its tolerance for operating beyond quantifiable financial risks had been low.
It also urged change in the way APRA was run, noting a "variability in its leadership capability" at all management levels and the need for cultural change "that fosters internal debate and contestability".
APRA staff interviewed for the review said decision-making was slow "with issues being taken through various committees and sometimes 'parked' for long periods, before decisions are made".
The report criticised APRA's preference to keep a low profile and dealing with regulated entities "behind the scenes".
"The panel believes that this limits its impact and authority. APRA needs to shift the dial towards a more strategic and forceful use of communication to ensure that it maximises its impact with regulated entities," the report said.
In other key recommendations, the panel urged:
- A review of current penalties available to APRA to determine if they are adequate
- Building on the Commonwealth Bank inquiry into culture, accountability and governance with a view to holding several similar inquiries over the next two years
- The creation of a new superannuation division to oversee the system for all members
- That APRA has sufficient powers and flexibility to prevent inappropriate directors and senior executives from being appointed or re-appointed to regulated entities
Treasurer to take action
In a statement, APRA said it supported all of the recommendations describing the report as "fair and balanced, and appropriately forward-looking about necessary capabilities needed to stay successful into the future".
Treasurer Josh Frydenberg said he would take action on the five recommendations directed to the Government.
"An independent, robust and effective prudential regulator is essential for safeguarding the financial safety and the financial stability of the Australian economy," Mr Frydenberg said in a statement.
The APRA capability review was announced in February in the wake of the Royal Commission final report.
Mr Samuel headed the panel with company director Diane Smith-Gander and Grant Spencer, a former governor of the Reserve Bank of New Zealand.
Follow Peter Ryan on Twitter @peter_f_ryan
Topics: business-economics-and-finance, banking, regulation, australia