Josh Frydenberg promises reform as regulator urged to end its culture of secrecy

This article is more than 1 year old

This article is more than 1 year old

Australia’s prudential regulator will gain new powers to prevent “inappropriate” directors and senior executives being appointed, the federal government has promised.

The treasurer, Josh Frydenberg, made the commitment on Wednesday, responding to a scathing review of the Australian Prudential Regulation Authority that called for the regulator to reverse a culture of secrecy and increase its focus on superannuation.

The capability review, triggered by the Hayne royal commission into banking and financial services, found that Apra was an “impressive and forceful regulator” when dealing with traditional financial risk but its “variability in leadership, conformist culture and aversion to transparency” had made it “slow to respond” to other challenges.

Apra’s preference to operate “behind the scenes” had limited its impact and authority and was “out of step with public expectations of regulators”, said the panel, which is chaired by the former Australian Competition and Consumer Commission chairman Graeme Samuel.

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“Apra needs to shift the dial towards a more strategic and forceful use of communication to ensure that it maximises its impact with regulated entities.”

The review made 19 recommendations to Apra – all of which the regulator supports – and five to the government. Frydenberg promised to “take action” on all five points.

It called for a power to veto the appointment or reappointment of directors and senior executives, to bring Apra’s powers in line with international regulators and “strengthen its capacity to preemptively regulate [governance] risks”. The government said it would ensure that Apra had sufficient powers to do so.

The review recommended that Apra be exempted from the public sector bargaining framework – which limits pay rises to 2% a year – warning that the policy contributed to “difficulty in attracting and retaining highly skilled staff”.

The government was more lukewarm in its response to that recommendation, agreeing that Apra “should have the flexibility to attract and retain the staff it needs” but committing only to “better understand and address any restrictions” caused by the framework rather than to exempt the entire agency.

Michael Tull, the assistant national secretary of the Community and Public Sector Union, said the review was the fourth major report to recommend an end to the public sector wages cap but the government had “deliberately continued its wage suppression policy”.

“The government has been told time and time again that their restrictive wage policy is a barrier to effective regulation of the financial industry,” he said. “This time the government must act.”

The panel found that “member outcomes and superannuation have often taken a ‘back seat’” to other responsibilities because “they rarely raise financial stability issues”.

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“Despite an increasing focus on member outcomes, APRA’s progress has been insufficient, ­especially in relation to system ­efficiency, fees and ­trans­parency.”

The panel called for the creation of a new superannuation division to oversee the system for all members, including the publication of “objective benchmarks on product performance”.

The government also committed to:

outline its expectations for Apra on superannuation

consider a review of Apra’s penalties, providing a power to appoint a person to undertake a review of an entity, and enhancing private health insurance licensing powers

streamline and improve the effectiveness of Apra and the Australian Securities and Investment Commission’s accountability arrangements

Apra said it supported all the recommendations and described the report as “fair and balanced, and appropriately forward-looking about necessary capabilities needed to stay successful into the future”.

Frydenberg said an “independent, robust and effective prudential regulator is essential for safeguarding the financial safety and the financial stability of the Australian economy”.

The shadow treasurer, Jim Chalmers, said the report showed Apra “needs to lift its game” and the recommendations “are likely to be a step in the right direction” but Labor would work through the detail before announcing its position.