House of Representatives

Treasury Laws Amendment (APRA Governance) Bill 2018

Second Reading Speech

Mr MORRISON (Cook-Treasurer)

I move:

That this bill be now read a second time.

The Treasury Laws Amendment (APRA Governance) Bill 2018 bolsters the ability of the Australian Prudential Regulation Authority (APRA) to provide oversight of the Australian financial sector.

APRA is Australia's prudential regulator overseeing banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurance, friendly societies and most of the superannuation industry.

It is an independent Commonwealth government body set up under the Australian Prudential Regulation Authority Act 1998 (APRA Act).

In recent years, APRA has had an extensive program of supervisory and policy work. It has implemented important reforms to bolster the soundness and stability of the Australian financial system, including those originating from the financial system inquiry that the government initiated after being first elected in 2013, as well as the recently passed crisis management bill. This critical work must continue. In recent years, APRA has also rightly given greater attention to issues of governance, culture and accountability within the financial sector. This important work must also continue.

A good example of this is the recent prudential inquiry by APRA into the governance, culture and accountability within the CBA group. While CBA is undoubtedly financially sound and provides strong returns to shareholders, the APRA report showed that shortcomings in governance, inattention to aspects of risk management, and a complacent culture can occur without strong and constant vigilance by boards, who have the primary responsibility for the management of their institutions. To ensure they are up to the task, regulators must keep their spotlight on these issues too.

The Laker report, as I said at the time of its release, is essential reading for every single board director and every single company in this country, and I commend the authors of the report once again in this place.

As part of doing this, APRA will, amongst other things, be heavily engaged in following up these measures in implementing recent reforms to the banking sector to improve the accountability of bank executives. It will also help foster competition and drive out complacency amongst incumbents by supporting the entry of new banks into the sector. Beyond banking, APRA's work on risk culture and remuneration will be very important across the financial sector as a whole. And there are a range of emerging issues-including cyber risks-that need on-going attention and focus.

The community benefits from a strong and capable prudential regulator, and the government is committed to ensuring that APRA at all times continues to have the strong and capable leadership necessary to fulfil its important role as the financial system evolves. I particularly want to commend Wayne Byres, who continues to be an outstanding head of APRA, for his work and his leadership in driving that organisation.

Under its enabling legislation, APRA is currently headed by an executive group consisting of not less than three and not more than five members. The terms and conditions of the appointment of members are set out in the APRA Act, and the members are appointed by the Governor-General. Currently one member must be appointed chair, and another member may be appointed deputy chair.

The legislation has already been introduced to appoint a second deputy chairperson at the Australian Securities and Investments Commission to enhance its effectiveness. The government considers it also appropriate for this to occur for APRA.

The amendments in this bill, by permitting a second deputy chair to be appointed, will provide greater flexibility in the way in which APRA is governed and for the allocation of responsibilities to each member. This helps to maximise the skills and capabilities available to APRA within its leadership.

In so doing, the changes can facilitate more oversight of the financial sector at this critical time, as well as allow the chair to have a greater oversight of the entire system and of APRA's overall performance.

These amendments will enhance the ability of APRA to undertake its critical functions.

The ability to appoint up to two deputy chairs will assist with the recruiting of very senior and experienced members as needed, and so enhance the ability of the APRA executive group to manage new or more complex issues in the future.

Accordingly, it is entirely appropriate that the APRA Act be amended so that a second deputy chairperson can be appointed if that is considered necessary.

The amendments would permit, but not require, that there be two deputy chairs, thereby providing flexibility depending on the circumstances. Similarly, the legislation does not prescribe a particular role for each deputy.

The measures contained in this bill are part of a comprehensive and extensive set of measures that the government has been pursuing for many years now to ensure that our banking financial system is accountable, that it's fair, that it's competitive and that it is innovative and is focused on the needs of consumers.

Our banking and financial system is arguably one of the strongest, if not the strongest, in the world. Our financial system's stability is absolutely critical to the efficient and effective performance of our national economy, upon which everything else depends.

There are definitely issues of misconduct in behaviour that need to be addressed and are being addressed through the measures that the government has introduced, whether it's the Australian Financial Complaints Authority, which stands up later this year, or the additional resources and powers that have been provided to ASIC to pursue and prosecute, with penalties which now, with further changes, will see the maximum jail time extended from five years to 10 years, individual penalties of up to almost $1 million and for organisations themselves some $200 million, potentially, in terms of fines.

These are serious powers and serious capabilities. A complaints mechanism which has teeth, without the need to lawyer-up on every occasion, which we know is used by those institutions to basically exhaust the complaints that others rightly seek to make. These are important changes.

The banking executive accountability regime. This is an important change which is changing the nature of how accountability is already being addressed within these financial institutions.

At the heart of the problems in our banking and financial system has been this lack of accountability. That is what has had to be addressed, and the government has already taken that action. The Laker review bore that out, the wisdom of the actions which the government has already been taking.

We will continue to take actions, but we will continue to take responsible actions because it is important that our banking and financial system continues to be one which is competitive and innovative and responsive and one that is meeting the needs of our national economy.

There will be those who will make arguments that there must be more regulation, more controls and more constraints. They were making these arguments previously and they will use whatever means necessary to try and continue to make those complaints.

But what we must also be aware of is that, if we are not careful in how we responsibly respond to these issues-these very genuine and real issues-that are occurring in our banking and financial system, we could cause great self-harm to our national economy.

The easiest thing for a bank to do to avoid all risk is to not make a loan. If banks stop making loans, people can't buy houses, they can't start businesses, they can't expand their operations and they can't employ more people.

This parliament must be very cautious, as the government has been cautious, to ensure that these genuine issues in our banking and financial system are dealt with sensitively and responsibly, a measuredness that is absolutely critical to continue to backup and support the financial system's stability that is so essential for the performance of our national economy.

So, we must continue to take care, but we must continue to take action. That's what the government is doing, through both this measure and the many other measures that I've recounted to the House.

Debate adjourned.