Second Reading SpeechMr Costello (Treasurer)
That this bill be now read a second time.
This bill will effect changes to the leadership and governance of Australia's prudential regulator, in accordance with recommendations made by the Royal Commissioner the Hon. Justice Neville Owen in his report of 4 April 2003.
The Australian Prudential Regulation Authority was created in 1998 following the financial system inquiry.
The framework that the government established in response to the report led to substantial modernisation of financial regulation and put Australia at the leading edge of regulatory practice.
In November 1998, the IMF described the Wallis reforms - that is, the financial system inquiry reforms - as 'a package of path-breaking reforms, which puts Australia at the forefront of international practice'.
Since this time, APRA has further evolved and has taken significant steps in its implementation of a coherent and flexible regulatory framework in line with the financial system inquiry vision.
This vision is to embrace and move forward with the wave of technological change, globalisation and financial convergence that are forces reshaping financial systems worldwide.
APRA now regulates some $1.5 trillion of assets on behalf of some 20 million Australians.
It regulates banks, insurance companies and superannuation funds, credit unions, building societies and friendly societies.
From 1 July 2003 APRA will assume responsibility for regulating bodies offering or providing medical indemnity cover.
APRA occupies an important and challenging position within Australia's financial system.
Our prudential framework promotes and reinforces the responsibility on the boards and management of firms for meeting the financial promises they make to customers.
Rules concerning transparency and disclosure are critical pieces of our regulatory architecture.
In the prudentially regulated sectors, APRA sets the benchmarks through its ability to make prudential standards and provide other forms of guidance to the bodies that it regulates.
Its licensing and rule-making roles provide it with this capacity.
As the prudential supervisor, APRA is placed to detect, as early as possible, problems in firms or with those responsible for running them.
It must have regard to a mass of information before it, from monitoring market events to using direct intelligence and undertaking investigations and inspections.
APRA has comprehensive intervention and resolution strategies at its disposal when regulated firms, as they inevitably will from time to time, experience financial difficulty.
And, as a last resort, APRA would play a key role in putting a stop to losses in the event that the difficulties are too great to resolve.
As a package, these arrangements are designed to reduce the probability and impact of a financial institution failing to keep its promises to consumers.
The role required of APRA is to balance the objectives of financial safety with efficiency and competitiveness. It is also required to promote contestability and competitive neutrality of the financial system.
I released Justice Owen's report on 16 April 2003.
While the commissioner concluded that APRA did not contribute to or cause the collapse of HIH Insurance, he did find that it should have been more inquiring in its approach. In particular, he found that APRA 'missed many warning signs, was slow to act and made misjudgements about some vital matters'.
This is a significant finding, and one that requires the full attention of APRA moving forward.
The commissioner made a number of important recommendations that describe a preferred model of governance for APRA given its important role.
APRA's governance arrangements will therefore be further strengthened and refined to better suit a body with APRA's important responsibilities.
In summary, the effect of the measures contained in this bill is to achieve four related objectives that flow from the recommendations of Mr Justice Owen.
The first objective is to replace APRA's current part-time board with a full-time executive group comprising at least three and no more than five members.
The members would collectively exercise APRA's responsibilities, while preserving its status as an independent statutory authority.
This approach allows APRA to retain its name and identity, and to move forward and continue its process of evolution, with minimum disruption.
The second objective is to implement a number of changes that will better represent APRA's place within the financial system architecture.
This will better define how it relates to other bodies while ensuring it remains independent of undue political influence in conducting its operations.
At the same time, it permits more flexible communication between the government and APRA, particularly on priorities, required policy changes and any other matters that might impact on financial system stability.
The third objective, given the proposed executive status of the new APRA members, is to apply an enhanced disclosure and conflict of interest framework.
This will enhance the integrity of the office of an APRA member and apply similar requirements as exist for other executive regulatory bodies.
The fourth, and final, objective, is to clarify the operation of provisions that allow APRA's engagement with other agencies.
APRA's greatest asset is its core of committed and professional staff.
The changes introduced by this bill are designed to establish a dedicated leadership team to guide APRA through the challenges that lie ahead of it.
These changes should have minimum impact on the dedicated people who comprise the heart of APRA while positioning the organisation for the future now that the HIH royal commission has concluded.
APRA is one of a number of agencies with responsibilities in our financial system.
The challenge will be as great as ever for the agencies responsible for keeping our financial system safe and efficient to be vigilant and to cooperate in the face of continuing change.
In this regard, I wish to announce the government's commitment to enhance the status and role of the Council of Financial Regulators.
Membership will be extended to comprise the Treasury, the Reserve Bank of Australia, ASIC and APRA.
Through collective action, these bodies can serve to strengthen our financial system regulatory framework even further.
Each agency will continue to focus on its respective operational responsibilities.
However, as a group, the council will be ideally placed to ensure that there are appropriate arrangements between members for coordinating their activities in response to pressures.
The council will also advise the government on the adequacy of Australia's financial system regulatory architecture in light of ongoing developments.
I commend the bill to the House and present the explanatory memorandum.
Debate (on motion by Mr Edwards) adjourned.
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).