Banking royal commission: what APRA would have done if it had had tougher powers

Wayne Byres would have considered tougher action over CBA and NAB scandals if he’d had the powers at the time.

APRA’s Wayne Byres arrives at the banking royal commission in Melbourne. Pic: David Geraghty.

Australian Prudential Regulation Authority chairman Wayne Byres would have considered hitting the Commonwealth Bank with big fines if a new, tougher regulatory regime had been in place when the shocking state of governance and culture at Australia’s biggest lender was revealed in May.

Appearing at the financial services royal commission today - the last day of public hearings held by the inquiry - Mr Byres said he would also have considered action under the Banking Executive Accountability Regime (BEAR), which came into force on July 1, if it had been in place in 2004 when NAB traders cost the bank $360 million in secret, unauthorised foreign exchange trading.

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Mr Byres also admitted that APRA had backed away from a plan to do deep dive reviews of how banks handle risk after doing one pilot investigation into an unnamed institution, because resources were sucked away by its inquiry into the CBA.

Under the BEAR, maximum fines for corporations have been increased to as much as $210m, and APRA has gained the power to boot executives out of the industry.

Mr Byres said the CBA and NAB scandals “would be two cases that I think are ones that you would be looking, at least asking the question about, whether a penalty was warranted”.

Asked by counsel assisting the commission, Michael Hodge, QC, which elements of CBA’s behaviour revealed by APRA’s May report would have triggered a penalty, Mr Byres said it was “not necessarily any of the individual issues in and of themselves”.

“But the collective picture.. was clearly of concern, and I’m not saying that we would have.

“I’m saying but it would be the sort of case where you would reasonably say, ‘Well, does this meet the test of jeopardising the prudential standing and prudential reputation of the bank?’”

APRA began a pilot project to review risk culture in July last year - part of a push “to refine and sharpen its approach to assessing risk culture”, an internal document tendered to the commission shows.

The results were provided to the institution in November 2017.

Mr Byres agreed with Mr Hodge that a second pilot review was planned for October but “was suspended because the resources were redirected to the prudential inquiry” into CBA.

“We had a couple of key resources who were our core expertise in this area, and they were redirected to do similar sort of work in relation to risk culture for the CBA inquiry because that was seen as a priority,” he told the commission.

Senior members of the team also resigned in late 2017 and 2018, after which APRA decided not to go ahead with the risk culture reviews.

“The pilots were a very intensive process,” Mr Byres said. “Very reliant on key people. And there was always a question mark as to how scaleable it was going to be across the APRA population.

“And this trade-off between depth and coverage was an issue that we were always grappling with… if we tried to do that into the future, we just didn’t have the resources to get anywhere near the coverage that we would need.”

Mr Byres admitted APRA still does not have an enforcement strategy for the BEAR and agreed it would have been good to have one before the law came into force.

“It would have been nice to do, I suppose, yes,” he said.

He said deciding how to enforce BEAR was “caught up in a broader thinking about enforcement strategy”, which had accelerated after the disastrous appearance of the APRA member responsible for superannuation, Helen Rowell, at round five of the royal commission’s hearings in August.

Mr Byres said new member John Lonsdale, who was appointed in October, was responsible for conducting the review.

“There’s no doubt after the range of issues emerged in round five that that gave impetus to pushing that work along,” Mr Byres said.

“It also coincided with the arrival of Mr Lonsdale at APRA, who started in October and was tasked with taking charge of, amongst other things, BEAR and enforcement.”