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APRA’s evolution towards taking (enforcement) action

by Lewis Panther SA FIN | 15 Nov 2018

APRA has signalled the regulator will be adopting a tougher approach to enforcement after stinging criticism at the Royal Commission.

The prudential side of the regulatory triangle will be re-examining cases after the bruising indictment from Kenneth Hayne’s Interim Report, FINSIA members at The Regulators were told.

Newly appointed Deputy Chair John Lonsdale, who will be carrying out the review, revealed a deeply felt personal view driving his work after seeing the devastating effect financial mismanagement and hardship can have on families from his time at the Treasury.

“The Royal Commission has highlighted we are not perfect,” he said.

“We acknowledge the need to consider a stronger appetite for formal enforcement action.

“We are also re-examining cases of potential misconduct by regulated entities raised by the Royal Commission where the evidence presented was either new to APRA or contradicted what we had previously been told.

“That process will continue into 2019, and may well lead to formal enforcement action, should we deem it warranted.”

Lonsdale told delegates how he had been asked to “look at recovery and resolution preparedness, crisis management and reviewing APRA’s approach to enforcement more generally”.

Recovery refers to the reconstituting of a bank or financial institution which has become stressed and restoring its financial help. 

Resolution takes place when the institution is beyond help and APRA steps in to manage its "orderly failure".

APRA has enlisted external experts to help make recommendations on which enforcement issues APRA should consider acting on, what factors should be taken into account, and whether there are any practical or legislative impediments to pursuing a stronger approach. 

While he said the organisation is “going through an evolution rather than a revolution”, it is hard to ignore how Hayne pointed out that APRA had failed to take any ADI to court in more than a decade.

The Commissioner said the softly-softly approach could not continue if banks thought they could get away without the threat of a big stick.

When Lonsdale was asked from the floor what APRA had been doing over the past decade during the time that examples of bad behaviour had come to light, he hit back with an attitude that may be a sign of things to come, responding by saying: “We were doing our job.”

He added: “The people in APRA are focused on good prudential outcomes. We think that’s largely happened.

“What the Royal Commission has highlighted re some very important points - we are not perfect.

“There are some issues which I have flagged that we will look at closely.

“One is enforcement. Could we increase our appetite for enforcement action to improve individual accountability and I think the answer is yes.

“Another issue that the Royal Commission has highlighted for us is whether misconduct should just be viewed as a risk, which I think APRA have done for quite a long time or if it goes to good prudential outcomes and we are reflecting hard on that question.”

But he insisted the organisation would continue its safety-first attitude.

He said: “We will remain a supervision-led, rather than enforcement-led, regulator with a focus on pre-emptively tackling problems before they compromise an entity's ability to meet its obligations to beneficiaries, or rectifying adverse outcomes in the best interests of customers.

“Let me finish on a personal note: I may be new to APRA, but during my three decades at Treasury, I saw, at close quarters, the devastating impact of the disorderly failure of a financial institution. 

“Life savings are lost, dreams are shattered, and families are left broken. 

“Those experiences will guide me, and keep me focused, now that I share responsibility, with my APRA colleagues, for trying to stop it happening in APRA’s space.

“APRA is continually evolving its approach to supervision, but its primary mandate will not change – ensuring the safety and stability of Australia’s financial system so that the entities we regulate, under all reasonable circumstances, can fulfil their promises to their beneficiaries.”

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