Earlier this week the Australian Prudential Regulation Authority (APRA) announced their terms of reference for their enforcement strategy review.
The prudential regulator said that the final review will be presented to its member in March of next year and then it will be released publicly.
This announcement comes just weeks after the Wayne Byres has been reinstated as chair of the and the regulator got a $60 million injection from the government.
This also comes after the royal commission raised questions of the current deterrent impacts if the existing enforcement strategies of the APRA and the Australian Securities and Investments Commission.
APRA announced that review will be led by APRA deputy chair John Lonsdale, who joined the prudential regulator as deputy chair early last month. He will be assisted by an independent advisory panel.
In an address to the Senate Legislature Economics Committee at the end of October, Wayne Byres said the that the new deputy chair’s appointment was an opportunity the regulator’s approach to governance and ‘allocation of responsibilities amongst APRA members’.
“In particular, John will take Member-level responsibility for APRA’s work on governance, culture and remuneration (including implementation of the Banking Executive Accountability Regime), reviewing our enforcement strategy in response to BEAR and the issues that have emerged at the Royal Commission, further building APRA’s crisis resolution capability, and strengthening APRA’s collaboration with peer regulators,” Byres said.
The announced panel will include the NSW Supreme Court Judge Dr. Robert Austin, Australian Competition and Consumer Commission commissioner Sarah Court and Professor Dimity Kingsford Smith.
“The review will be a forward-looking examination of APRA’s approach to the use of its enforcement powers to ensure that financial promises made by supervised institutions are met within a stable, efficient and competitive financial system,” said John Lonsdale in public message about the release of the terms of reference.
Needs to be more than reshuffling
While the terms of reference have been released what will this mean for the future financial services regulation?
Angus Young, senior lecturer at Hong Kong Baptist University, warns that the review of enforcement strategies could amount nothing more than a reshuffling of the deck.
“If the outcome of this review is as such the financial sector might be overwhelmed by regulatory actions and probes that create a new set of problems,” Young told the GRC Professional.
“Let’s play out a scenario – the APRA enforcement review points to more aggressive enforcement in the financial sector, especially for banks, insurances and superannuation funds because they are ‘big’ and had their ‘hand caught in the cookie jar’,” he explained. “So the likelihood or possibilities of misconduct becomes a key area of enforcement. The industry responses by investing more money into complying with multiple demands of regulators. The cost of compliance rises significantly forcing non-profitable divisions or departments of banks, insurances and superannuation funds to either scale down its operations or close. If this happens is that a ‘win’ for customers, financial companies or regulators? Next, where would such services be available? More than likely it would go to the new financial technology sector.” He continued.
If not done properly, and enforcement review may not address the underlying problems.