Enforcement appetite is working: APRA

The prudential regulator has told the House of Representatives Standing Committee on Economics that despite tough conditions it has shown an increased appetite to be "constructively tough".

APRA chair Wayne Byres told the committee that broader enforcement capabilities have allowed the regulator to achieve better results.

"APRA is not an enforcement-based agency, we are a safety led organisation.  We have a very close look at our enforcement approach and we have demonstrated an increased ability to be constructively tough," Byres said.

"That means taking action on a broader range of issues.  We are happy to set deterrents and are happy to act quickly.  If we are not seeing action, we will take enforcement action.  Our enforcement appetite is working."

Byres also told the committee that it is important, while Westpac is receiving a lot of negative attention, to not lose sight of other issues which are important for delivering a resilient financial system.

"From the perspective of traditional metrics, the financial system and most entities within it are financially sound and resilient. This is important, and shouldn't be taken for granted. It serves the Australian community well - a thriving economy cannot be sustained without a well-functioning financial system," Byres said.

Ahead of APRA publishing the full superannuation heat map, Byres said the goal is to help drive better member outcomes by "shining the light" on MySuper products that need to improve.

"For the past couple of years, we have been focused on using data to weed out the under-performers in the industry. We have seen reductions in costs and, in some cases, changes of trustee as a result," he said.

"However, when coupled with new regulatory powers and penalties provided by the Parliament earlier this year, our heat map means APRA is now much more well-equipped to take these efforts to a whole new level."

However, Byres admitted that APRA's attempt to align reporting obligations to accounting standard requirements and proposed product dashboard definitions for data on expenses, investment performance, fees and costs has not seen a positive outcome.

"Unfortunately, the comparability and consistency of that information has proven inadequate. Choice creates a major challenge, as there are well over 40,000 superannuation investment options on offer," he said.

"We will have to be more prescriptive in what we ask for, and potentially diverge from other reporting requirements in some areas. That will come at a cost to the system. But being able to genuinely assess member outcomes requires more granular product and investment option level data. On this score, there is no choice."

Byres also said the fact that shortcomings in governance and risk culture continue to emerge in the financial services industry is concerning.

"Last month, APRA published its plans to significantly scale up the intensity of its supervision in this area," he said.

"Our intensified approach establishes a supervisory framework and methodology designed to strengthen the resilience of financial institutions by addressing, and ideally preventing, issues of poor risk governance, misaligned incentives and misconduct that have undermined public confidence in the financial sector over recent years. It is, we believe, at the forefront of international practice in many areas."

Read more: APRAHouse of RepresentativesWayne ByresMySuper
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