APRA outlines keys to good supervision
A forward-looking supervision action plan tailored to respective financial institutions is the centrepiece of the Australian Prudential Regulation Authority’s (APRA’s) successful approach to supervision, according to APRA chairman John F Laker.
Outlining what he thought were the keys to good prudential supervision in a speech to the American Chamber of Commerce in Melbourne this week, Laker said that “a regulatory framework cannot be a ‘set and forget’ list of rules but one that needs to be implemented and actively enforced – ideally by a skilled, empowered and well-resourced prudential regulator.”
APRA assigns a responsible supervisor or supervisory team to each regulated institution, which is tasked with identifying areas of potential risk and requiring appropriate rectification, Laker said.
The supervision action plan “sets out the key risks we see facing the institution and in response, over the next one to three years, the desired supervisory outcomes and the activities necessary to achieve them,” Laker said.
“Having determined the plan, our supervisors then move into action. This can range from off-site analysis of financial and other statistical data provided to APRA on a regular basis, to more detailed on-site reviews at which risk management and internal controls can be tested, to high-level strategic discussions with boards and senior management,” he said.
“Where we sense all is not as it should be, the frequency and intensity of our reviews will be lifted.”
APRA did not significantly change its processes during the global financial crisis other than to increase its intensity, and its co-ordination with other regulators such as the Reserve Bank of Australia also proved their effectiveness, he said.
Other factors that have contributed to APRA’s success are its clarity of purpose, with a clear mandate to protect the depositors, policyholders and superannuation members of the institutions it regulates, and its consistency. Inconsistency could tempt institutions to push for lenient treatment or undermine the process, Laker said.
Recommended for you
The strategic partnership with Oaktree Capital and AZ NGA is likely to pave the way for overseas players looking to enter the Australian financial advice market, according to experts.
ASIC has cancelled a Sydney AFSL for failing to pay a $64,000 AFCA determination related to inappropriate advice, which then had to be paid by the CSLR.
Increasing revenue per client is a strategic priority for over half of financial advice businesses, a new report has found, with documented processes being a key way to achieving this.
The education provider has encouraged all financial advisers to avoid a “last-minute scramble” in meeting education requirements prior to the 31 December 2025 deadline.
