APRA bemoans undermining of independence

The Australian Prudential Regulation Authority (APRA) has used its submission to the Financial Systems Inquiry (FSI) to complain that, over time, it has lost its independence from Government.

The regulator has also claimed that efficiency dividends imposed on it by Government are not well-suited to an industry-funded regulator, and while noting its tough approach in the aftermath of the HIH collapse, makes no similar reference to how it handled Trio/Astarra.

The submission, released late last week, notes that APRA has had "substantial independence from Government in most respects" but then goes on to claim that, "over time, constraints on its prudential, operational and financial flexibility have eroded its independence".

The regulator's submission claimed that, as a consequence, Australia now falls short of global standards in this area.

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The APRA submission has sought to portray a robust regulatory approach, stating that it "eschewed light touch supervision in the wake of the collapse of HIH Insurance in 2001, and it has significantly strengthened its supervisory approaches and practices since then".

"In APRA's view, its most enduring contribution to the resilience of institutions in the crisis came from its ‘close touch' efforts to promote their financial health prior to the crisis, and to deal conclusively with struggling institutions," it said.

However it went on to note that identifying and dealing with problems depended on having suitably qualified and expert staff and that recruiting such people was difficult given the recruitment demands of the broader financial services industry.

"The skills that APRA needs, however, are also in demand in the financial sector and it is critical that APRA maintain its attractiveness as an employer when market conditions for skilled and experienced staff, currently subdued, tighten again," the APRA submission said.

Dealing with the impact of the efficiency dividends imposed by Governments, the APRA submission said it was for the Government to "determine the quantum of community resources it wishes to have devoted to prudential regulation".

"However, the mechanism of efficiency dividends is not well-suited to an industry-funded regulatory agency," it said. "Continued efficiency dividends will ultimately compromise financial safety but make no contribution to the Government's budgetary objectives."