Mike Taylor writes that the Australian Prudential Regulation Authority’s probe into the Commonwealth Bank may be unprecedented but its outcome will fall far short of many expectations.
Two things need to be recognised about the Australian Prudential Regulation Authority (APRA) “independent prudential inquiry” into the Commonwealth Bank. First, it is being paid for by the bank itself and, second, it was only initiated after consultation with the bank’s board and chief executive.
Thus, as the Treasurer, Scott Morrison has over recent weeks sought to portray the APRA inquiry as the Government “taking action now” and better than a Royal Commission into the banking and financial services industry the reality will be a very much gentler and bureaucratic outcome.
But what ought to be recognised about the APRA inquiry is that it represents an unprecedented step on the part of the regulator, representing an interesting interpretation and extrapolation of its powers under the Australian Prudential Regulation Authority Act 1998.
There is nothing specific within the APRA Act with respect to its ability to conduct its inquiry into the Commonwealth Bank. Rather, the regulator is relying on Section 11 (1) of the legislation which, dealing with APRA’s powers states:
(1)APRA has power to do anything that is necessary or convenient to be done for or in connection with the performance of its functions.
What is clear, though, is that while APRA’s chairman, Wayne Byres, undoubtedly authored the necessary documentation initiating the inquiry into the Commonwealth Bank he did so in the context of both the Treasurer, Scott Morrison and the chairman and CEO of the Commonwealth Bank being consulted/informed.
Byres was not hiding this fact. His official statement issued on 28 August stated: “The Chairman and CEO of the CBA have assured me that the bank will fully cooperate with the inquiry, and APRA welcomes that cooperation”.
He said the names of members who would make up the inquiry panel and the “agreed terms of reference” would be finalised at the commencement of the inquiry with the costs of the inquiry being met by the Commonwealth Bank.
In other words, and crucially, the terms of reference to be pursued by the APRA-appointed panel will be determined “by agreement” and the costs of the inquiry process will be borne by the organisation being investigated.
All of which makes appears to undermine the Treasurer’s claim that the APRA inquiry represents a better outcome than the calling of a Royal Commission because it represents “taking action now”.
Morrison is right that there is an element of immediacy in the APRA inquiry, but he would well understand that the ability of the APRA panel to dig beneath the surface of what has happened within the Commonwealth Bank falls well short of the forensic investigatory powers of a Royal Commission.
In any case, the nature of the likely outcomes of the APRA panel have already been outlined by Byres who said that, “broadly, the goal of the inquiry is to identify any shortcomings in the governance, culture and accountability frameworks and practices within CBA, and make recommendations as to how they are promptly and adequately addressed”.
“It would include, at a minimum, considering whether the group’s organisational structure, governance, financial objectives, remuneration and accountability frameworks are conflicting with sound risk management and compliance outcomes.”
“The independent panel would not be tasked with making specific determinations regarding matters that are currently the subject of legal proceedings, regulatory actions by other regulators, or customers’ individual cases.”
The bottom line, therefore, is that whatever the APRA panel discovers it is not going to be in the business of traversing the issues which have already proved most controversial for the Commonwealth Bank – the AUSTRAC charges or the many matters already being looked at by the Australian Securities and Investments Commission (ASIC).
Just to put the standing of the APRA inquiry into further context, the panel’s report is expected to take six months to complete, meaning it is not likely to see the light of day until the 2018 Budget session of the Parliament – the one immediately preceding the next Federal Election.