The federal government yesterday released the APRA Capability Review listing 19 recommendations for the regulator moving forward, each of which it has accepted in a public response.
The report concluded that while APRA’s core mandate of safeguarding the stability of Australia’s financial system remains its focus, the regulator’s responsibilities have expanded and require additional clarity and further resources in order to perform as best as possible.
According to APRA chair Wayne Byres, the report is “ambitious in its views of APRA’s future remit and required capabilities.”
“The report highlights the increasingly complex industry dynamics in which APRA operates and that the expectations of its role and mandate have increased. Appropriately, the report…highlights the need to accelerate the necessary changes if APRA is to remain a successful prudential supervisor into the future,” he added.
An issue tackled further into the document underscores this need for the regulator to better adapt. While technology is transforming financial services and open banking is likely to power the growth of non-ADI financial service providers, APRA is slow to offer guidance on new technologies and is often “not sufficiently cognisant of commercial perspectives."
With the regulator's primary purpose being the protection of financial stability, supporting innovation and competition with new entrants introducing “risks that are not well understood” poses a unique challenge. However, the report recommends that more be done.
The review read, “APRA could be said to have a ‘do no harm’ approach to competition: support competition when it can, but not at the expense of any perceived risk to financial stability. However, there should be greater recognition of…the strategic importance of facilitating competition for the incumbent institutions.”
As such, APRA has been called on to establish a strategic position on competition and to then communicate its stance, in order to be held accountable. Additionally, the review decided APRA should create a “competition champion” within the organisation who can carry out regular assessments of the state of competition.
The Customer Owned Banking Association (COBA) welcomed these conclusions and feels that its key recommendations to the APRA Capability Review were heeded.
“COBA accepts that APRA’s role is not to actively promote competition, but the regulator needs to more effectively and systematically consider the impact on competition of its decisions,” said COBA CEO, Michael Lawrence.
“These include for APRA to better balance competition with its other objectives, to accommodate different business models, to ensure approval processes are efficient and to consult about macroprudential measures.”