APRA’s soft enforcement track record, 10 years after banking royal commission
The prudential regulator is charged with setting the rules of the financial system and enforcing them. But ten years after the Hayne inquiry, it has only a few scalps to show for it.
When Kenneth Hayne ruminated on Australia’s prudential regulator, he said it was there to both supervise and enforce. But a review of the Australian Prudential Regulation Authority’s track record in the wake of the Hayne inquiry reveals APRA has not secured any enforceable undertakings against any individual in 12 years, and only a handful of enforcement results.
APRA, which supervises the banking, insurance, and superannuation sectors, is keen to tell its admirers and critics it is active and engaged.
At its parliamentary appearance, the prudential regulator was at pains to stress it had eyes on the latest scandals to dog the financial sector. But a survey of those screw ups seems to suggest otherwise.
APRA data shows the last time it pinned an enforceable undertaking on any individual was 2013. Meanwhile, only two operators have been smacked with an enforceable undertaking in the last year, and only four since the landmark Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
APRA has also used its powers under the Financial Accountability Regime twice since they were gifted to the regulator in 2024. Taking the scalps of two former bankers, Xinja Bank boss Eric Wilson and director Craig Swanger, many years after the failure of their neobank is not the kind of deterrence the financial sector needs. Xinja handed back its deposits in 2021.
How many financial services scandals have we seen since?
The $1bn blow-up of the Shield Master Fund and First Guardian are extraordinary examples of what can go wrong in superannuation. Nearly 12,000 investors are affected, some of their money will never be recovered, and APRA appears to have held no one accountable yet.
APRA has repeatedly defended its handling of the scandals, with its chair John Lonsdale telling The Australian the agency had done “a lot of work” and written to superannuation funds imploring them to take note.
APRA was again stressing the seriousness of its response, after finding out about Shield in December 2023. But Labor Senator Deb O’Neill wasn’t having it.
APRA said it has been banging the drum on governance, with Mr Lonsdale explaining APRA was concerned exactly how superannuation trustee platforms, like Macquarie and Netwealth, had allowed the Shield and First Guardian strategies access to their platform riches.
In Shield and First Guardian, governance wasn’t a first or second order consideration – profit was.
The Australian Securities & Investments Commission, which was tipped off about Shield and First Guardian many months before it all went wrong, has been jawboning the market on misconduct. APRA on the other hand hasn’t even flashed a red card.
Some note the irony of the prudential regulator’s enforcement record being scrutinised under Mr Lonsdale, who led a review of its head-cracking function while still at Treasury. He did this alongside current ASIC deputy chair Sarah Court, while she was still serving at the Australian Competition and Consumer Commission.
Swinburne University senior lecturer Helen Bird said APRA was “clearly a bit wary of enforcement. The question that has crossed my mind: why isn’t APRA more involved?” Ms Bird, an expert in corporate law, said APRA had still not developed an enforcement approach in the wake of the royal commission.
Some say enforcement just isn’t in APRA’s blood, given it was spun out of the Reserve Bank in 1998. Justice Hayne questioned its chops in his Hayne report, calling on APRA to establish and enforce prudential standards and practices. Hayne, too, found APRA had an undeveloped approach to enforcement.
Ms Bird pointed to the problem: Equity Trustees and Netwealth, both of which played a role in opening the door to Shield and First Guardian for investors. It was “very troubling” and “we should do everything in our power” to make the entities involved fund the response to the scandal.
Instead, Netwealth and Equity Trustees have called on the government to bail them and the investors out. Some of this may come back to APRA’s spotty track record in court, where it is not a frequent flyer unlike ASIC. The regulator has only pursued two cases in the courts in the last two years; one was a successful case against “fake banker” Robert Gray, who set up several websites suggesting he was operating a bank, but was not. APRA has also sought to disqualify First Super co-chair Michael O’Conner, alleging breaches of his director’s duties, which he denies. That case continues.
APRA’s approach has earned the ire of the union movement, which was incensed by proposals to put 10-year term limits on directors. Australian Council of Trade Unions assistant secretary Joseph Mitchell said APRA had failed to articulate how it had responded to Shield and First Guardian. “Sending letters after the fact is not enough,” Mr Mitchell said.
“I haven’t seen enough from APRA to suggest they have a plan to deal with this going forward.”
Mr Mitchell, who sits on the boards of Industry Super Australia and TelstraSuper, said APRA’s enforcement record was lacking. “The onus is on APRA to tell us what they have done and who they have held accountable,” he said.
Many APRA watchers have pointed to its 2018 case against IOOF and its former managing director Chris Kelaher, alongside several other senior executives at the firm, as the moment the regulator got its fingers burnt.
IOOF, now known as Insignia Financial, had become a target after the royal commission hearings with APRA attempting to disqualify the five executives. But the case went against APRA, with Federal Court justice Jayne Jagot finding the regulator had failed to prove contraventions of the Superannuation Industry (Supervision) Act.
Mr Kelaher said he was concerned APRA’s approach to super funds remained “heavily bureaucratised” noting it was “lots of paper, lots of questions, slow moving and defensive”. He was this year consulting to Sequoia, whose advice subsidiary InterPrac is being sued by ASIC for its role in Shield and First Guardian. Two advice firms operating under InterPrac’s financial licence allegedly put close to 7000 clients, and $677m in retirement savings, into the two funds over a three-year period.
This week will likely see some announcement from the government on how it plans to respond to Shield and First Guardian. APRA should also show us a response.
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