Australia Markets closed

Banks set for a shake-up; APRA slammed for being too soft

Then-ACCC chairman Graeme Samuel in 2011. (AAP Image/Andrew Taylor)

The way the big banks are overseen and regulated by the banking watchdog needs to be shaken up, according to a report released today.

The Australian Prudential Regulation Authority (APRA) Capability Review, released by Treasury, slammed the regulator for not being forceful enough with the banks, as well as being “slow” and unwilling to change.

The review makes 24 recommendations – 19 directed to APRA and five directed at the government – that will see financial institutions face closer scrutiny, as well as a more heavy-handed banking watchdog.

What will change?

Most of the recommendations are around shifting culture and operations within the regulator itself, which means consumers won’t directly feel the impact of the changes.

However a number of the recommendations do push for different ways of supervising or regulating the banks and how they go about their business:

  • Owning up: Misbehaving banks will now need to front up to a regulator more willing and publicly air wrongdoing after being urged to be “more strategic and forceful” in the way it communicates.

  • External panel of experts: Institutions face closer inspection than ever as an external panel of experts will be set up to help APRA conduct in-depth assessments.

  • Banking watchdog changes: The banking watchdog will also need to “depart from its behind closed doors approach” and instead “adopt a stronger approach towards recalcitrant institutions”.

  • Less power to choose leaders: Financial firms will have less power to choose their leaders, with the review recommending that APRA should have a new power to veto appointment or reappointment of senior executives and directors to company boards.

  • Superannuation division: There will also be a new cop on the block to keep a closer eye on the superannuation system: APRA is being urged to set up a new ‘superannuation division’ in charge on focusing on how the super system actually works for members.

But will this change actually happen?

Both the Federal Government and APRA have said they accept and are taking up all the recommendations made by the review.

“The Government has ... agreed to take action on all five of the recommendations directed to it,” said Treasurer Josh Frydenberg today.

The regulator also welcomed the review.

“APRA supports all of the 19 recommendations in the report directed at APRA, with work already underway on many as part of APRA’s current Corporate Plan,” it said in a statement.

“Unwilling, slow, tentative”

Underlying all of this is a culture within the banking regulator that is essentially too soft on cracking down on financial institutions.

“The main conclusion of this Review is that APRA’s internal culture and regulatory approach need to change,” said the review.

“APRA appears to have developed a culture that is unwilling to challenge itself, slow to respond and tentative in addressing issues that do not entail traditional financial risks.”

“In combination with APRA’s organisational structure, these factors limit its ability to deliver on the breadth of its mandate and adapt to new challenges.”

The APRA Capability Review was established on 11 February this year off the back of the Banking Royal Commission, which called for the banking regulator to assessed for its effectiveness.

The review was conducted by an expert panel led by former ACCC chief Graeme Samuel, alongside Diane Smith-Gander and Grant Spencer.

Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, news and tech news.