Another APRA head goes as failed Byers hangs on

Via the AFR over the weekend:

The Australian Prudential Regulation Authority is looking for a new head of policy and advice, following the resignation this week of Pat Brennan, who had responsibility for developing the regulator’s policies on banks, insurers and super funds.

Mr Brennan’s surprise resignation after more than eight years at APRA creates another hole in its senior executive ranks, at a time of widespread organisational and cultural change at the regulator following the damning Capability Review, which found staff lacked confidence about its competency to reform bank culture.

Mr Brennan declined to comment on the reasons for his departure. It is understood he told colleagues he was in need of a break.

APRA is also interviewing for a new executive general manager for “specialised” institutions, which has been vacant for several months.

A break from what? An inept organisation that is no position to implement reform because incumbent staff are the problem. APRA is in the fight of its life yet its executive is already dead. Previously at the AFR:

Investors are threatening to vote against bonuses calculated under the prudential regulator’s new executive pay rules, putting them on a collision course with the boards of the major banks.

Former National Australia Bank chairman Michael Chaney said the regulator’s new rules for banking, insurance and super fund executives, released on Tuesday, were a snub to investors.

The proposed changes include basing no more than 50 per cent of bonuses on financial measures, which Australian Prudential Regulation Authority deputy chairman John Lonsdale said had driven bad behaviour by the banks.

More at The Australian:

It wants companies to be able to claw back pay from CEOs for up to 11 years, to protect against issues emerging after an executive has departed.

The paper also proposes that CEOs and executives have short and long-term performance measures with 50 per cent of the bonus payment calculated using non-financial measures such as customer satisfaction, compliance and conduct. That means traditional quantitative measures such as earnings or share price growth will be counted equally against other measures determined by the company.

APRA wants no single measure to account for more than 25 per cent of performance pay.

So, the overpaid, failed regulator with no accountability wants to impose pay restrictions on failed bank boards to enhance accountability. The ideas are good, via Banking Day:

“APRA appears to be acknowledging for the first time that variable incentives in the financial services sector have not been at genuine risk,” said Dean Paatsch, co-founder of governance advisory firm, Ownership Matters.

“This is only a draft policy – so how it will be implemented is still not clear.

“But there is room for cautious optimism that APRA is serious.”

Paatsch said the proposal to defer payment of variable remuneration for up to seven years along with new claw back requirements  would constitute “real change”.

Fiona Balzer, the Australian Shareholders’ Association policy manager, said her organisation was supportive of the APRA’s move to tighten regulation of executive pay.

“Shareholders, particularly retirees, need sustainable dividend flows and the only way banks can deliver that is by servicing their customers appropriately,” she said.

The optics and implementation are not. The appalling myopia to corrupt culture that the regulator is supposed to be fixing is on display at Domain:

The Sydney Morning Herald and The Age can reveal that the Australian Prudential Regulation Authority will have to wait six months for its new deputy legal counsel, Lucinda McCann, as she serves out a six-month notice period at AMP. Ms McCann currently serves as general counsel of AMP’s scandal-plagued Australian Wealth Management and Bank Legal division, which houses the company’s problematic financial advice business.

The revelation of her appointment comes days after APRA and its chairman Wayne Byres were accused of having a tin ear after the release of a Capability Review that raised issues about the regulator’s own culture. The review made a series of recommendations, some of which Mr Byres has backed away from.

…Allan Fels, a former top competition regulator and seasoned public servant criticised the appointment. “It is absolutely inappropriate,” he said. Mr Fels said he was surprised APRA would appoint someone from an entity not renowned for its law enforcement culture. “In addition, to take on such a role in an organisation that is so big will make it difficult to be excused on matters that affect AMP directly and indirectly,” he said.

Seriously. Only in Straya would a L-plated treasurer reappoint a failed regulator to oversee bank reform, via the AFR yesterday:

…Outside pressure built on Mr Byres on Monday when financial services royal commissioner Kenneth Hayne broke his silence to publicly back all the recommendations in the APRA capability review and said it was consistent with the findings in his final report.

The Australian Financial Review has been told by government sources that the Morrison government backs Mr Byres to lead reforms at APRA and there has been no consideration to review his leadership tenure.

…The Treasurer believes he secured a guarantee from the Mr Byres to accept all recommendations of the Samuel review and assured that APRA will be given more money to do so.

Why does the Treasurer have to babysit the head of APRA to get anything done? That is self-evidently untenable. Recessionberg is only digging his own hole deeper.

Byers is thoroughly discredited. Via the SMH:

A rare public intervention from banking royal commissioner Kenneth Hayne could be aimed at ensuring his recommendations are not watered down by financial sector lobbying, former watchdog Allan Fels says.

…In a move that adds to pressure on APRA, on Monday commissioner Hayne made his first public comments since his report was handed down to government six months ago, backing the [APRA] capability review.

…“Any post-report pronouncement by Hayne will carry considerable weight,” said Professor Fels, a former chairman of the Australian Competition and Consumer Commission (ACCC).

“It’s very unusual for a royal commissioner, especially a former High Court judge, to speak after a report, but probably he is concerned about weak implementation of his report due to enormous pressure from the financial institutions, an enormously powerful lobby.”

Or, put another way, Hayne is concerned that a weak regulator led by a proven failure who is resistant to reform even after the endless parade of horrors in the RC will succumb to the lobbying.

Staff have no faith in Byers, previously at the AFR:

Working conditions in a division of the Australian Prudential Regulation Authority that was advising the banks on culture became so toxic that most of the team have quit in frustration over the last 18 months.

Many of those who threw in the towel have gone on to open thriving consultancies, including ASIC’s boardroom shrink of choice Elizabeth Arzadon, who resigned from APRA in May 2018 only to be scooped up by the corporate cop months later.

Former members of APRA’s governance, culture and remuneration team who spoke to The Australian Financial Review said they were regularly undermined by senior executives who did not believe in their mission.

The Parliament is calling for his head, with Centre Alliance patriots leading the charge:

Centre Alliance Senator Rex Patrick has called for the resignations of APRA chair Wayne Byres and his deputies after a review into the organisation found its leadership wanting.

The review of the Australian Prudential Regulation Authority (APRA), done for the government and led by former ACCC chief Graeme Samuel, found that “leadership, people and culture” were issues and that it “should address variation in leadership capability for all management levels”.

“If you look at the findings of the banking royal commission and this review you see that APRA has been asleep at the wheel. Leadership and culture have been identified as a problem and they are set at the very top,” Senator Patrick said.

“You can’t earn $886,000 [as Mr Byres does] and not be fully responsible for leadership, transparency and contestability,” Senator Patrick told The New Daily.

“It’s not proper for him to stay in that role. Ultimately, the buck must stop with someone.”

Even the business press has had enough, previously via Chanticleer:

This tight control of the dissemination of information and the strategic decision to avoid the nightly news sits oddly with the firm advice in the capability review for APRA to engage more deeply with the community.

But it was Byres’ response to the media questions which left Chanticleer in doubt about his willingness to fix all the weaknesses in the management and strategic priorities at APRA identified by the capability review.

The review panel chaired by Graeme Samuel and including Diane Smith-Gander and Grant Spencer must surely be disappointed with Byres’ response. But they have chosen to let the report stand for itself and will not be commenting publicly .

At The Australian Byers is now an object of exasperated ridicule:

In most lines of work, if you do a poor job you don’t get a pay rise­. You might even be laid off. Not in financial regulation La La Land, where poor performance comes with a five-year ­contract and a $17,000-a-year pay increase.

You might have thought a royal commission, a series of damning inquiries into the quality of the financial sector (it’s difficult to keep track) and now a highly critical capability review would have been enough for a round of applications late last year for the position of chairman of the Australian Prudential Regulation Authority.

Instead, Wayne Byres, in the job since 2014, was appointed in November for a further five years and, thanks to the Remuneration Tribunal, scored a pay bump to $886,770 a few weeks ago.

Not bad in the lead-up to a 146-page capability review that found APRA slow, opaque, inefficient, and in urgent need of a culture and leadership overhaul.

However technically competent and experienced Byres might be, it was a mistake to reappoint him last year. He would have found other important work.

And a fresh chairman from outside the financial regulation establishment could have set the regulator, one of the nation’s most important, on a new path. Byres is hardly going to be a ­critical reforming force of an ­organisation he’s been at since 1998.

APRA should right now be warming up new macroprudential measures to prevent any recurrence of bank mortgage fraud yet it is instead shedding staff and credibility daily under an explicitly failed chairman.

Comments

  1. The Horrible Scott Morrison MP

    You need to stop talking down our unquestionably strong banks and regulators. Fraud, corruption and collusion are such dirty words. Can’t you just say engaged in conduct with consequent learnings?

  2. Jumping jack flash

    Excellent observations.

    However, arguably, in a free market economy like we proclaim to have, any government regulator of private entities has at best limited to no control over any of the activities (apart from obviously illegal ones). It was always meant to be that way. Banks are just another private entity. If we regulate too much then are we really “free market”, or “command”?

    When you’re setting up and then operating a system to produce infinite amounts of debt fundamentally based on the issuance of debt to create additional debt capacity to create more debt, then its important that it isn’t inspected too closely, especially at startup, because as ludicrous as a system like that sounds, it really is, and cannot possibly work without some serious shenanigans.

  3. A break? Bwahahahahahahahahahahah. APRA people no doubt comply with the finest of Government sector employment traditions – never look out the window in the morning otherwise you’ll have fvck all to do in the afternoon. A break. Please.

  4. APRA should be doing much more than warming up the macroproduential left-overs found in a icy clump at the bottom of the freezer. That dish was a soggy mess when first served.

    A much better idea is for APRA to deploy some clear regulations.

    Some samples

    * Where the security for a loan is an existing house the bank may only lend a maximum of 70% of the value of the property.

    OR

    * Where the purpose of the loan is for investment in existing property the bank will assess the likely market rent for the property and only lend 70% of the market rent divided by 6%.

    e.g if the market rent of a home unit is $25,000 per year the bank will only a maximum of 70% of $416,666 (425K/0.06) = $291,666. That way anyone who wants to invest in existing housing stock will need a substantial deposit or will need to secure alternate non-bank finance.

    * Where the purpose of the loan is for investment in new property the discount factor could be lower or a higher percentage of the calculation. Where the expected market rent is $25,000 the discount factor could be 5% and the amount of the loan 80% = $400,000.

    Reduce credit for existing housing investment and increase credit for new housing construction by simple and direct regulation.

    • Note: The discount factors of 6% and 5% are given as examples. They can be adjusted up and down as required, preferably by the government taking responsibility for a critical part of the economy…the allocation of capital to the housing market.

      It is much simpler to directly regulate the creation of credit for residential housing though it does mean that a few neoliberal deregulated capital market fanatics may be upset and need time in a safe space.

      • Even StevenMEMBER

        Or APRA can just adjust its risk weights directly to favour some lending activities over another. The problem is that such adjustments would not be based upon ‘risk’ or ‘probability of loss’ but rather value judgements on what is good for society. I don’t believe APRA has the authority to make such decisions. It would effectively control all the financial levers to the economy. I’m not sure I want just 500 (or thereabouts) unelected people making those sorts of calls.

        But in principle, agree with you.

      • Even Steven,

        Yes – that is the fundamental problem with macroprudential.

        It is a nonsense expression that seeks to conceal what is going on……regulation of credit for particular purposes…. by making it sound like some sort of ‘prudential’ exercise. I appreciate some think that this deception is an advantage because they hope that credit creation regulation can be snuck in without any public admissions of the failure and dysfunction of the current arrangements.

        Much better that credit be regulated explicitly by the government for stated policy purposes.

        That does not require that the government get involved with every credit allocation decision but it does mean taking responsibility at a macro level for the allocation of credit to particular objectives like new housing construction or development of productive new industries.

        This is what most of our successful trade competitors have been doing for decades.

        Unfortunately there is nothing quite as thick and resistance to new ideas as a head full of neoliberal economics ideology.

  5. “APRA is also interviewing for a new executive general manager for “specialised” institutions, which has been vacant for several months” – Does anyone know whether Keystart qualifies as a “specialised institution”?