Australia’s regulators – the Australian Securities and Investment Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) – have recently published their Corporate Plans for 2019-2023, providing the financial services sector with a valuable update on which areas the regulators will be targeting over the next four years.
ASIC’s Corporate Plan
On 28 August 2019, ASIC published its four-year Corporate Plan covering 2019-20 and 2022-23 (ASIC Corporate Plan).
ASIC canvasses its plan to improve enforcement and supervision to create real and positive changes in culture and behaviour, which should produce better outcomes for consumers and investors. It also explains that ASIC will bolster its capabilities by expanding its use of data and technology, including the use of RegTech to widen the reach of its surveillance of the financial services sector.
ASIC has identified the following seven strategic priorities:
- High-deterrence enforcement action.
- Prioritising the recommendations and referrals from the Banking Royal Commission.
- Delivering as a conduct regulator for superannuation.
- Addressing harms in insurance.
- Improving governance and accountability.
- Protecting vulnerable consumers.
- Addressing poor financial advice outcomes.
At the recent Financial Services Council Summit 2019, ASIC Chair James Shipton spoke on the strategic priorities outlined in ASIC’s Corporate Plan. Mr Shipton provided the following insight into the regulator’s intentions behind the strategic priorities:
“The strategic priorities we have identified represent the most significant ways in which we are addressing consumer harm, punishing wrongdoing, and encouraging better culture and behaviour – including a greater emphasis on fairness and professionalism – throughout the industry.
One thing that is different this year about our Corporate Plan is that we have highlighted the range of regulatory actions we propose to deploy in relation to each of our strategic priorities."
In the table below, we consider some salient features of ASIC’s Corporate Plan.
APRA’S Corporate Plan
APRA released its four-year Corporate Plan on 29 August 2019 (APRA Corporate Plan).APRA’s Corporate Plan
Interestingly, the APRA Corporate Plan, which cover 2019-2023, revises a similar plan released last year that was initially slated to operate until 2022. Following criticism by the Financial Services Royal Commission, the Productivity Commission and an independent APRA Capability Review, APRA has delivered a revised plan for the next four years believing it better articulates APRA’s vision ‘to deliver a sound and resilient financial system, founded on excellence in prudential supervision’.
APRA’s new strategy will be supported by increased funding in the 2018 Mid-Year Economic Outlook and 2019 Federal Budget, providing an additional $210 million over the next four years.
APRA has identified the following four strategic focus areas to improve:
- Maintaining financial system resilience.
- Improving outcomes for superannuation members.
- Improving cyber-resilience across the financial system.
- Transforming governance, culture, remuneration and accountability across all regulated financial institutions.
In the below table we provide comment on these priorities and what they mean for entities regulated by APRA.
In addition to an outline of upcoming changes to its regulation of institutions, APRA’s Corporate Plan includes details of the regulator’s internal conduct and accountability mechanisms. The plan publishes five key performance measures designed to measure APRA’s ability to achieve its purpose.
- Performing Entity Ratio. The percentage of regulated institutions that met their commitments to beneficiaries in a given year.
- Money Protection Ratio. The total liabilities to beneficiaries in Australia (measured by dollar value) minus those lost due to prudential failures, divided by the total liabilities to beneficiaries in Australia. This is measured over a given year.
- Percentage of Financial Claims Scheme (FCS) payments paid within seven days of a declaration. A percentage measure of FCS claims in relation to banks, building societies and credit unions that were paid within seven days of an FCS declaration.
- Number of outstanding claims in the event of an FCS declaration. A measure of the total number of claims that remain outstanding following an FCS declaration.
- Costs per $1,000 of assets supervised by APRA. A measure of APRA’s operational efficiency, measured by its expenditure per $1,000 of assets under supervision.
The regulators are now wide awake
The tone of each regulator’s Corporate Plan is very proactive: the regulators convey that they intend to take action to drive changes in behaviour that deliver good consumer and investor outcomes.
Importantly, both ASIC and APRA identify fostering cultural change and better governance as a paramount to addressing the exposed shortcomings of the financial services industry. Followers of the Banking Royal Commission will recall that an overarching theme of Commissioner Hayne’s Final Report was that culture drives misconduct, so a focus on corporate culture should go some way towards mitigating a reoccurrence of the misconduct that led to the Royal Commission.
Both Corporate Plans raise some question marks about how effectively each regulator will execute their strategies over the next four years. In a previous article, we commented on the APRA Capability Review and noted that APRA’s ‘behind closed doors’ approach to enforcement was an area attracting widespread criticism. It is peculiar that APRA’s Corporate Plan did not convey an effort to be more transparent or open in its activities. Granted, APRA did publish revised performance measures, but it will remain to be seen whether the regulator is transparent in using its supervisory toolkit and performance against these benchmarks.
The Banking Royal Commission may have been the earthquake that awoke the sleeping giants, but when it comes to executing their corporate plans and achieving their visions, the regulators still have a lot to prove.