Australian Prudential Regulation Authority response to Financial Services Royal Commission

The Australian Prudential Regulation Authority (APRA) has announced its plans in relation to specific recommendations relating to it contained in the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The Royal Commission made 10 recommendations requiring APRA to strengthen its prudential and supervisory framework. Of the 10, APRA expects that four will be completed in 2019, and a further five will be completed by the end of 2020.  See the APRA Response table.

Royal Commission Referrals
APRA is examining each of the 12 matters in relation to individual entities that have been referred to it by the Royal Commission.  APRA says this work is already underway and APRA will liaise with ASIC and other relevant agencies to address promptly the matters identified.

BEAR Enforcement
APRA is reviewing its enforcement strategy with the assistance of an Independent Expert Panel. This review includes consideration of when to hold individuals to account (including under the Banking Executive Accountability Regime (BEAR)), when it would be appropriate to take enforcement action to achieve general and specific deterrence in appropriate cases, and APRA’s governance and other arrangements in relation to enforcement decisions. The Report will be completed at the end of March 2019 and published shortly thereafter.

APRA notes that the Commission’s Final Report recommendation of an extension of the BEAR will require legislative change.

APRA’s responses include:

Valuations of land
APRA will release proposed revisions of APS 220 by the end of the first quarter of 2019 to:  require that internal appraisals of the value of land taken or to be taken as security should be independent of loan origination, loan processing and loan decision processes; and  provide for valuation of agricultural land in a manner that will recognise, to the extent possible:  – the likelihood of external events affecting its realisable value; and  – the time that may be taken to realise the land at a reasonable price affecting its realisable value.

The final version of the standard is expected to be completed by the end of 2019.

BEAR product responsibility
APRA will release proposed requirements for accountability under the BEAR for product design, delivery and maintenance management and customer remediation in the second quarter of 2019, with a view to finalising a requirement by end 2019.

Prudential Standard SPS 250 changes for RSE licensees included related party arrangements and member status process
Formal consultation on revised standards will commence shortly after the release of the post-implementation review report of the superannuation prudential framework, in the second quarter of 2019, with a view to having a new standard finalised in 2020.

Supervision of remuneration
APRA will release proposed revisions to Prudential Standard CPS 510 by mid-2019 which will incorporate the Royal Commission’s recommendations, recent lessons from APRA’s supervisory activity, the CBA Prudential Inquiry as associated self-assessments by other entities, and relevant international guidance. APRA’s intention is to have a final standard determined in 2020. Work on the design and implementation of remuneration systems and supervision of culture and governance is subject to funding.

ASIC and APRA joint memorandum on co-operation
APRA and ASIC are reviewing the cooperation and coordination arrangements between the two agencies, including revising the existing Memorandum of Understanding. This review will be completed by 2019.

Application of the BEAR to APRA
APRA  will develop and publish accountability statements for itself before the end of 2019.

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