Check out its response to the Hayne Royal Commission yesterday:
1. This submission provides APRA’s views on issues and questions posed by the Interim Report that are relevant to APRA’s mandate.
2. In summary, there are three overarching questions posed by the Commission with respect to the regulators:
First, have the regulators’ responses to misconduct been appropriate?
Second, how should regulators respond to conduct and compliance risk?
Third, should the regulatory architecture change or the law be simplified?
3. In response to the first question, APRA believes its response to misconduct and misconduct risk has been broadly appropriate given its core prudential mandate and risk-focused approach. That is, APRA has largely focused its response to matters that relate to prudential risks and on issues that may have a material impact on the regulated entity concerned. APRA’s response to misconduct has focused on strengthening the governance and practices of regulated entities, and taking action to protect the interests of beneficiaries. Public examples of such responses include APRA’s recent inquiry into the Commonwealth Bank of Australia (CBA), and its interventions in the residential mortgage lending sector.
4. In response to the second question, APRA agrees with the premise that identified prudential risk drivers, notably governance, culture and incentives, also drive conduct outcomes, and that there is scope to take further action in these areas. In its recently published Statement of Intent, APRA has committed to continue to facilitate the improvement of accountability, governance and risk culture within financial institutions.
5. Greater regulatory attention to these areas by APRA can be part of the solution to misconduct in the industry. While historically APRA’s regulatory focus has largely been concentrated on prudential risk taking and long-term financial soundness, the evidence before the Royal Commission highlights the need for APRA to examine the means by which it can more actively contribute to a regulatory framework that limits the potential for misconduct to occur in the future.
6. Ultimately behavioural change will only occur if boards take ownership for the actions of their organisations and the consequences of those actions. There is a role for APRA 1 APRA, Statement of Intent, September 2018 (SOI): https://www.apra.gov.au/statement-intent-september-2018 Page 2 of 20 (and the Australian Securities and Investments Commission (ASIC)) here as the regulators in setting and enforcing standards of governance, accountability and risk culture. However, solutions to past problems must involve industry taking more responsibility, not less, for maintaining appropriate standards of conduct and guarding against misconduct.
7. Regulatory responses to conduct and compliance risk also need to be appropriately tailored having regard to the circumstances of the breach – for example, an operational failure or outage may not warrant formal legal action. To take formal legal action on every occasion may result in financial institutions becoming wary of all but the most simple and low-risk transactions with a much reduced incentive to innovate. This would potentially limit access to, and increase costs of, all financial services.
1-6. This response is defensive, fails to grasp the scope of the prudential failure and pushes way too much responsibility onto the banks to improve outcomes. The banks will respond to the rules that are set. If the rules reflect broad community standards and ethics, and they are enforced, then the bank’s culture will transform as well. Just saying they had better be ‘good boys’ is the same ridiculous “light touch” drivel that APRA has been doing for years while standards collapsed.
7. APRA has never taken legal action on anything. Take one example recounted by Banking Day today:
The royal commission heard that APRA took no action against CBA’s Colonial arm after it misled the regulator into believing that breaches of superannuation laws had been corrected in 2014.
In that year Colonial was found to have channelled customers into high-fee superannuation products when it was required by law to move the members into low-fee MySuper accounts.
Thousands of Colonial retirement savers were affected by the sharp practice, which led the company to reassure APRA in July 2014 that it had controls in place to prevent it happening again.
However, evidence presented to the royal commission shows that the illegal practices continued at Colonial until August 2016.
At least 16,000 breaches were discovered by APRA but it took no legal action against Colonial.
In its submission to the royal commission’s interim report, APRA avoided making itself accountable for its limp response to the fee rorting practice and Colonial’s misleading assurances.
In short, APRA has learned nothing. It is circling the wagons to defend that nothing, is completely out of step with community expectations, is directly responsible for failing trust in banks, and it is now halfway buried in monetary policy setting as well with no guidelines and limitations. This regulator needs to be shut.
Upon assuming government, Labor must immediately launch a new inquiry into regulator reform, governed by a truly independent, expert mind, preferably foreign but definitely from outside the system, to examine how a corrupt APRA and RBA should be reconstituted.
Root and branch.
