The Australian Prudential Regulation Authority (APRA) has published details on the use of its enforcement powers to prevent and address serious prudential risks, and to hold entities and individuals to account.
APRA’s new Enforcement Approach, founded on the results of its Enforcement Review, also published today, was designed to help the prudential regulator better leverage its enforcement powers with the following recommendations:
- adopt a “constructively tough” appetite to enforcement and setting it out in a board-endorsed enforcement strategy document;
- ensure APRA supervisors are supported and empowered to hold institutions and individuals to account, and strengthening governance of enforcement-related decisions;
- combine APRA’s enforcement, investigation, and legal experts in one strengthened support team, and ensuring resources are available to support the pursuit of enforcement action where appropriate; and
- strengthen cooperation on enforcement matters with the Australian Securities and Investments Commission (ASIC).
John Lonsdale, APRA deputy chair who conducted the review, said that while APRA on the whole had performed well in its primary role of protecting the soundness and stability of institutions, it could do more to achieve better outcomes.
“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,” Lonsdale said. “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.”
APRA Chair Wayne Byres said the review acknowledges that APRA should always focus on resolving issues before they cause problems for depositors, insurance policyholders, and superannuation members, rather than relying on backward-looking actions after harm has occurred.
“In most cases, we will continue to achieve this through non-formal tools,” Byres said. “However, formal enforcement is an important weapon in our armoury when non-formal approaches are not delivering prudential outcomes. Particularly as our powers have recently been strengthened in a number of areas, the new enforcement approach will ensure we make use of those powers as the Parliament intended. That means that in future, APRA will be less patient with the time taken by uncooperative entities to remediate issues, more forceful in expressing specific expectations, and prepared to set examples using public enforcement to achieve general deterrence. With the release of APRA’s revised Enforcement Approach today, the new enforcement appetite comes into effect immediately.”