Inquiry into the Australian Prudential Regulation Authority

Media release: 6 November 2000

APRA FUNDING LEVIES STILL A CONCERN

In a report tabled in Parliament today, the House Economics Committee has found that the Australian Prudential Regulation Authority (APRA) is still not able to effectively measure the cost of supervising individual institutions, leading to possible overcharging.

'Despite two reviews and annual readjustment, the levies paid by financial institutions to APRA are still a significant concern,' the Chairman of the House Economics Committee, David Hawker MP, said. 'The committee will closely monitor APRA's ability to levy financial institutions accurately. The committee expects a significant improvement in this area over the next year.'

The House Economics Committee released its report on APRA, today, Monday 6 November 2000. The report is based on discussions between the CEO of APRA and the House Economics Committee at a public hearing on 4 September.

Mr Hawker said 'despite this critical concern, after two years APRA has successfully established itself. It has successfully navigated the transitional period and work towards establishing the new regulatory framework for Australia's financial institutions is progressing well. The bringing together of the prudential supervisory responsibilities of eleven separate agencies to a single prudential regulator is no small feat. We now have a single prudential regulator for the whole of the financial services sector and coordination with the other major financial regulators is working reasonably well.'

'This view is generally supported by the industries being supervised which consider that the transition to the new regulatory framework has been smooth, with a number of modest achievements.'

However, the committee found that there are still a number of major problem areas that need to be addressed. The committee has made recommendations on the two most pressing of these.

Mr Hawker said 'the first recommendation relates to making it easier for employees over the age of 65 to remain in a superannuation fund. Currently, these people are required to inform superannuation funds of their employment status on a monthly basis. This is excessive by anyone's standards. The committee believes this requirement should be relaxed.'

'The second recommendation relates to collection of hard information on banking activities. The ongoing work of the Reserve Bank on bank fees and charges and the recent work by the Reserve Bank and the ACCC on credit and debit cards clearly demonstrate the need for up-to-date relevant data on banking activities. Closure of bank branches remains a major concern for the community and parliament. Accordingly, the committee has recommended that APRA provide yearly statistics on the location and level of face-to-face banking in Australia. This is critical to monitoring the community's access to banking services' said Mr Hawker.

'Other areas of concern identified in the report include:

• overcoming the restrictions on capital raising that apply to mutual institutions, such as credit unions;
• ensuring the adequacy and quality of APRA staff, particularly in the areas of superannuation and insurance regulation;
• increasing the acceptance and understanding of APRA's risk-based approach to the supervision of financial institutions; and
• the need for APRA to be more publicly accountable for its activities including developing clear indicators of its performance.

On a final cautionary note the report states that APRA has been fortunate to be established in a benign economic climate. Its performance is yet to be tested in a less benign economic situation. As the committee expects to deliver a similar report card on APRA annually, the opportunity for APRA to prove itself more widely will be available.'

'This regular review of APRA's activities will dovetail with the committee's biannual review of the Reserve Bank to form a comprehensive accountability mechanism for those organisations that safeguard Australia's financial system' concluded Mr Hawker.

Ends
6 November 2000

Further information:
David Hawker, MP (Chairman), Parliament House (02) 6277 4837
Kevin Bodel (Inquiry Secretary) (02) 6277 4586
Committee Email: EFPA.Reps@aph.gov.au

A copy of Mr Hawker's tabling speech is attached.

For a copy of the Committee's report Review of the Australian Prudential Regulation Authority: Who will guard the guardians? see:
internet:(http://www.aph.gov.au/house/committee/efpa/Apra/report.htm)
or contact the Committee Secretariat on 6277 4587.

Committee Membership 39th Parliament

Chairman: Mr David Hawker MP
Deputy Chairman: Ms Anna Burke MP
Members:
Mr Anthony Albanese MP
Ms Teresa Gambaro MP
Mrs Kay Hull MP
Mr Mark Latham MP
Ms Tanya Plibersek MP
Mr Christopher Pyne MP
Hon Alex Somlyay MP
Dr Andrew Southcott MP

TABLING SPEECH: DAVID HAWKER MP, CHAIRMAN

Mr Speaker, this report of the House Economics Committee reviews the performance of the Australian Prudential Regulation Authority since it was established two years ago. It is based on the committee's public hearing with APRA's CEO, Mr Graeme Thompson, and other representatives, held on 4 September this year.

APRA is a new regulator, created as a result of a change in the focus of financial regulation from sector based regulation to risk based regulation following the Wallis report.

APRA has assumed the regulatory responsibilities of eleven separate agencies to form a single prudential regulator for the whole of the financial services sector.

Mr Speaker, in its report the committee concludes that APRA has successfully navigated this transitional period and work towards establishing the new regulatory framework for Australia's financial institutions is progressing well.

In particular, APRA has made considerable progress in:

• removing regulatory barriers to competition between similar deposit taking institutions through the development of harmonised prudential standards;
• developing a regulatory framework for the new financial conglomerates;
• improving the prudential framework for general insurance companies, which is widely regarded as being out of date; and
• developing a regulatory approach to new financial products such as smart cards and credit derivatives.

APRA has also put considerable resources into establishing effective working relationships with its fellow regulators: the Reserve Bank of Australia; the Australian Competition and Consumer Commission; and Australian Securities and Investments Commission. In addition, APRA plays a leading role in many international regulatory bodies, such as the International Association of Insurance Supervisors and the Basel Committee on Banking Supervision.

The committee's qualified tick of approval is generally supported by the industries being supervised, which consider that the transition to the new regulatory framework has been smooth, with a number of modest achievements.

However, the committee found that there are still a number of major problem areas that need to be addressed, and the committee has made recommendations on two of these.

The first relates to making it easier for employees over the age of 65 to remain in a superannuation fund. Currently, regulations of the Superannuation Industry Supervision Act require these people to inform their superannuation funds of their employment status on a monthly basis. The committee considers this to be excessive, so we have recommended that the regulations be relaxed.

The second recommendation relates to the collection of statistics on banking. APRA is now responsible for the collection of financial institutions statistics and is currently reviewing the statistics collections it has inherited from previous regulators.

As the closure of bank branches remains a major concern for the community and parliament, the committee has taken the opportunity presented by APRA's statistics review to recommend that APRA provide yearly statistics on the location and level of face-to-face banking in Australia. The committee believes this will be critical to monitoring the community's access to banking services.

In addition to these recommendations, the committee has indicated in the report that it will closely monitor APRA's performance in a range of other areas, including:

• overcoming the restrictions on capital raising that apply to mutual institutions, such as credit unions;
• improving the current system for levying financial institutions by measuring APRA's actual cost of supervising individual financial institutions and answering claims of overcharging on some levies;
• ensuring the adequacy and quality of APRA staff, particularly in the areas of superannuation and insurance regulation;
• increasing the acceptance and understanding of APRA's risk-based approach to the supervision of financial institutions; and
• developing clear indicators of APRA's performance in order to be more publicly accountable for its activities.

The report notes that APRA has been fortunate to be established in a benign economic climate. Its performance is yet to be tested in a less benign economic situation. The committee will monitor APRA to ensure it maintains its good performance record in more testing times.

Mr Speaker, the House Economics Committee has a well established commitment to ensuring those who oversee Australia's financial system are properly accountable. This first report on APRA's performance should be seen in this context.

The committee expects to deliver a similar report on APRA annually. This regular review will fit well with the Committee's biannual review of the Reserve Bank. Together they will form a comprehensive accountability mechanism for those organisations that safeguard Australia's financial system.

I would like to thank the staff of the Australian Prudential Regulation Authority, especially the CEO, Mr Graeme Thompson and the Secretary, Ms Thea Rosenbaum, for their excellent assistance and cooperation in undertaking this review. I also thank all Committee members and the secretariat staff for their contributions to this inquiry and report.

I commend the report to the House.

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