Making APRA pre-emptive post-Trio Capital
Amid continuing criticism of both the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) over their handling of the collapse of Trio Capital, the Government has released a public consultation paper dealing with the strengthening of APRA's crisis management powers.
One of the most important elements contained in the consultation paper is a proposal to provide APRA with directions power in superannuation to take pre-emptive action to address prudential concerns, including the removal of trustees, directors or offices.
The consultation paper, released by the Minister for Financial Services and Superannuation, Bill Shorten, also canvasses a range of changes including the ability of the regulator to appoint statutory managers to failing institutions, its capacity to deal with foreign entities and its ability to direct failing institutions to disclose information.
Having suffered criticism in the Parliament over suggestions that the Government failed to appropriately account for the regulatory impacts of its Future of Financial Advice changes, Shorten said the Government was seeking views on the regulatory impact associated with the measures.
"This information will be used in preparation of the Regulatory Impact Statement which the Government needs to consider before deciding which reform options it will develop further," he said.
Analysis of the Treasury discussion paper revealed concerns that while the regulator has comprehensive directions power in relation to banks, general insurers and life insurers, this does not apply to superannuation entities - "even though the superannuation sector holds approximately $1.4 trillion in savings and a number of superannuation entities hold tens of billions of dollars in assets".
"APRA currently does not have a general early intervention tool, of the flexibility of the directions power in the other industries, to address a superannuation entity's deterioration or non-compliance with prudential requirements,'" the discussion paper said.
It said that while there were certain existing directions powers in superannuation, their specificity limited their utility, and the broadest directions power (a direction to comply with a licence condition) was not pre-emptive.
"Enhancing directions powers in superannuation would allow APRA to detail specifically how an entity must address an identified concern," the discussion paper said.
"Directions powers would enable APRA to direct the entity specifically as to what should be done to remedy the situation, without the need to appoint an acting trustee or institute lengthy criminal proceedings."
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