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and be given more power, including the ability to veto corporate
boardroom hires, a government report said, in a sign oversight
bodies are being dragged into a banking sector clean-up.
The Australian Prudential Regulation Authority (APRA) may need
more resources and an expanded armory of penalties - criminal
and civil - so it can have "greater flexibility when enforcing
the law", the independent report said.
The "capability review" was ordered by the government after a
special inquiry into finance sector misconduct, which had
sparked some criticism that regulators were asleep at the wheel.
Though the "Royal Commission" inquiry ultimately left the
structure of the banking industry intact, it cost several top
bankers their jobs amid allegations of rampant fee-gouging and
brought intense scrutiny to the regulatory system that enabled
it.
"APRA has a strong preference to do things behind the scenes
with regulated entities," said the report, published on Tuesday,
and "this limits its impact and authority.
Though there were sometimes "good reasons for a prudential
regulator to be discreet ... APRA needs to shift the dial
towards a more strategic and forceful use of communication to
ensure that it maximizes its impact with regulated entities",
the report added.
APRA, formed in 1998 to oversee the money management of banks,
insurers, and pension funds, has largely restricted its mandate
to regulating the amounts of cash that industry players keep in
reserve to ensure they can meet their obligations.
The regulator must now expand its remit to include non-financial
risks like governance, culture and accountability in the 510
companies, with a combined A$6.5 trillion ($4.6 trillion) in
assets, that it supervises, the report said.
"There is no doubt that in matters of traditional financial risk
APRA is an impressive and forceful regulator but APRA's
tolerance for operating beyond quantifiable financial risks has
been low," the report said.
APRA appeared unwilling to challenge itself, slow to respond and
tentative in addressing issues that do not entail traditional
financial risks, which limited its ability to deliver on its
mandate and adapt to new challenges, the report added.
APRA said it backed the report, which it said highlighted "the
increasingly complex industry dynamics in which APRA operates
and that the expectations of its role and mandate have
increased".
The regulator added that four of the 19 recommendations directed
to it - including improving its technology risk capability and
running ongoing self-assessments of banks - would require more
funding.
Treasurer Josh Frydenberg said in an email that the federal
government had given APRA another A$150 million in the most
recent budget and passed laws to give the regulator greater
power.
The government would act on the report's five recommendations
directed at it, including giving APRA the power to veto hiring
of company directors and senior executives, Frydenberg said.
The government would also review APRA's available penalties,
Frydenberg said, after the report said it was "important to
ensure that penalties are effective deterrents and in step with
community expectations".
(Reporting by Byron Kaye; Editing by Kim Coghill)
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