APRA holds back on Hayne rebuild

APRA has refused to say when it will implement a Hayne recommendation that it overhaul its supervision of banks.

APRA chairman Wayne Byres leaving the financial services royal commission last year. Picture: AAP

The prudential regulator has refused to say when it will implement a key recommendation of the Hayne royal commission requiring it to overhaul its supervision of banks and super funds to focus on misconduct and poor culture.

In its response to royal commissioner Kenneth Hayne’s final report, released last week, the Australian Prudential Regulation Authority said it would implement nine of the 10 recommendations affecting it by 2020.

However, it gave no time frame to bring in Mr Hayne’s recommendation that it change its prudential supervision to focus on misconduct, including “improving entity governance” and building cultures within institutions “that will mitigate the risk of misconduct”.

It also said it might need an increase to its budget, which is currently about $140 million a year.

“Developing the capacity to supervise these issues, across a wide range of entities, with considerably greater intensity will be a multi-year program,” APRA said. “APRA is working with the government to ensure it has sufficient resources to implement this recommendation.”

An APRA spokesman declined to say how much time “multi-year” meant.

APRA, led by Wayne Byres, said the other recommendations — which include overhauling prudential standards to take in remuneration, stepping up scrutiny of cosy related party deals in super and making sure agricultural land is valued properly when making loans — would be fully implemented by the end of 2020 at latest, with four done by the end of this year.

Baker McKenzie financial services partner Bill Fuggle said APRA’s response suggested the regulator would not address the Hayne recommendations within a time frame expected by the broader community.

“The reference to multi-year suggests to me they are not engaging sufficiently or quickly enough,” he said. “It’s (response time) wildly outside community expectations.”

Mr Fuggle cautioned though that the task at hand was a difficult one for the regulator as Mr Hayne has shied away from banning vertical integration or recommending specific measures to deal with those structures and conflicts of interest.

“APRA is now stuck … they have received a hospital pass from the royal commission,” he added.

Mr Hayne’s recommendations accompanied stinging criticism of APRA in his final report over its lack of enforcement action over misconduct in superannuation, an area where it currently has primary responsibility.

In a humiliation for an agency that has internally regarded itself as “the Versace of regulators”, Mr Hayne recommended the Australian Securities and Investments Commission be given powers to pursue misconduct in the superannuation industry, alongside APRA.

The recommendation, which is among the 75 of 76 made by Mr Hayne that have been accepted by both government and opposition, came after the commission heard APRA had taken no action against NAB despite being aware of misconduct at its super trustee company Nulis for years and failed to prosecute the CBA even though it admitted to 15,000 crimes by neglecting to move savers to low-cost MySuper accounts.

It was not addressed in APRA’s response, released yesterday, but a spokesman said the regulator supported the move.

In his final report, Mr Hayne said: “APRA was invisible after repeated instances of fees for no service conduct were reported to it by NAB entities and by ASIC publicly in 2016.

“In its submissions, APRA said that it intended to carefully evaluate the evidence that has emerged from this case study and to seek further information to determine the relevant facts and whether there is a need for further action on its part. ”