Need for APRA accountability
The Australian Centre for Financial Studies (ACFS) has given a qualified welcome to an industry consultation paper recommending broader discretionary powers for the Australian Prudential Regulation Authority (APRA), arguing that the accountability of the regulator also needs to be discussed.
In an analysis issued today, ACFS research director Professor Kevin Davis said "the proposals give APRA significant discretion to use available powers, but are silent on the question of accountability and performance appraisal for decisions made about such use".
"There is no real discussion in the consultation paper of how such accountability is to be achieved, nor of the availability of information to be provided," the ACFS analysis said.
It said that while, clearly, speed and secrecy were important in dealing with a troubled financial institution (and underpin the proposals to provide some relief from continuous disclosure obligations of Australian Securities Exchange listed financial institutions which are in financial distress and with which APRA is dealing) … "ex-post disclosure of the processes, terms and conditions involved in final resolution of a failed institution should be mandatory".
"Similarly, there is no discussion of the extent to which rules might be preferable to discretion in some circumstances," the analysis said.
"For example, APRA can appoint a statutory manager to an Australian Deposit-taking Institution (ADI) if it considers that it "may become unable to meet its obligations; may suspend payment; or it is likely that the ADI will be unable to carry on business in Australia consistent with the interests of depositors or financial system stability in Australia.
"This involves a judgment call on the part of APRA, which must be based on information available to it, and which could lead to either forbearance (about which much discussion occurs in the US context) or premature intervention (which may be more likely in Australia) by the regulator.
"Such uncertainty over regulatory response is likely to influence managerial decision making within regulated financial institutions which are at risk of becoming financial distressed.
"Whether requiring APRA to undertake such actions when certain pre-specified, verifiable, triggers (such as some significant breach of minimum capital requirements) would have preferable effects on decision making in regulated institutions is worthy of further consideration," the analysis said.
Recommended for you
Advisers at DOD Bookkeeping, which received an $11 million penalty last week, received as much as 40 per cent of their remuneration via a bonus when clients purchased a property via a SMSF, according to court documents.
Private wealth manager Escala Partners has launched an end-to-end investment platform to strengthen its alternatives capability as clients seek sophisticated vehicles.
Perpetual Wealth Management has hired two advisers from Ord Minnett as part of five hires, just weeks after the rival firm announced it had picked up six from Perpetual Private.
ASIC has cancelled the AFSL of a Perth financial services firm following payments to its clients by the Compensation Scheme of Last Resort after a failed managed investment scheme.
