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APRA is strengthening enforcement to keep up with international regulators

by Alexandra Cain | 07 May 2019

The Australian Prudential Regulation Authority is to bolster its enforcement powers to get in line with international regulators.

The seven recommendations are the outcome of a formal review into APRA’s enforcement powers following the Royal Commission.

The recommendations are designed to help APRA to take a ‘constructively tough’ approach to enforcement. 

They will also help the regulator to develop a board-approved strategy document to guide its enforcement activities. This process is designed to ensure APRA can continue to hold institutions and individuals to account for their transgressions.

As outlined in the Enforcement Strategy Review, APRA will now be prepared to act early and take stronger actions in instances when companies and businesses are failing to co-operate with the regulator. 

It will also be tougher when holding regulated entities to account in situations where they are involved in actions that could threaten Australia’s financial stability. 

At the same time, APRA will focus on exploiting the deterrence benefits that come with taking enforcement actions. It has also said it wants to be more innovative when exercising its powers.

A key piece of this program will be combining APRA’s enforcement, investigation and legal teams to allow them to work effectively together and strengthen these teams’ ability to collaborate. APRA has also pledged to work more closely with APRA to enhance its enforcement efforts.  

APRA deputy chair John Lonsdale said: “APRA’s strong focus on financial risk has ensured the ongoing stability of Australia’s financial system, even during periods of financial and market stress, and protected the interests of bank depositors, insurance policyholders and superannuation members."

“But to remain effective, we must continue to evolve and improve, especially in response to the ways in which non-financial risks, such as culture, can impact on prudential outcomes."

“The recommendations of the review will still mean that APRA as a safety regulator remains focused on preventing harm with the use of non-formal supervisory tools."

“However, APRA will be more willing to use the full range of its formal powers – such as direction powers and licence conditions – to achieve prudential outcomes and deter unacceptable practices.”

The report acknowledges in the past, APRA had a relatively low enforcement appetite, resulting in risks in the financial system not being properly addressed. Resources have been spent on remediation, when they should have focused on “preventative supervision”.

It also notes APRA’s approach is out of line with its international peers, which typically take a much stronger approach to enforcement. 

For instance the UK Prudential Regulation Authority says it, “will not hesitate to use formal powers where we consider them to be an appropriate means of achieving our desired supervisory outcomes. This means that, in certain cases, we will choose to deploy formal powers at an early stage and not merely as a last resort.” 

Additionally, the US Office of the Comptroller of the Currency’s policy is to, “identify deficient practices and violations in a timely manner and initiate bank enforcement actions to require corrective action well before deficiencies affect a bank’s financial condition or viability.”

The International Monetary Fund has also called on APRA to, “enhance its approach to corrective actions by being more proactive in escalating the severity of the corrective action in a quicker and more active way if the bank is not effectively cooperating.” 

This review is just the start of APRA’s tougher approach to enforcement. It has said it will continually monitor its enforcement actions and in three years review the progress it has made.


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