Appendix 5 - APRA—Supplementary Submission 4A
Dr
Dermody'
We
would request the opportunity to make a supplementary submission to the Senate
Economic Legislation Committee for the purposes of its deliberations on the
Financial Sector Legislation Amendment Bill No 2, 2002.
We
would wish to inform the Committee that APRA has commenced a comprehensive
stocktake of its present supervisory and enforcement powers. The aim is to
identify all significant gaps and inconsistencies in supervisory arrangements
in all sectors, with a particular focus on those that restrict APRA's
effectiveness. This review is giving some detailed attention to the
application of fit and proper powers. The review includes application of fit
and proper powers across all APRA regulated institutions, establishing and
maintaining a register of persons deemed not fit and proper; specifying that
where a person provided false or misleading information to APRA in the course
of APRA discharging its function or powers then a person may be deemed not fit
and proper and/or disqualified; a requirement to be included in legislation for
a regulated institution to notify APRA of appointments of directors and senior
managers; a requirement for regulated institutions to notify APRA of the
removal of directors and senior mangers (whether by way of dismissal,
resignation or retirement) and the reasons for such changes, and a requirement
for a regulated institution to provide APRA with information in relation to a
director or senior manager of which the ADI may be aware and that APRA should
be reasonably be made aware of in order to form a judgement as to the fitness
and propriety of those persons on a continuing basis. The outcome of the
review may include the request for further legislative measures.
This
development of new regulatory requirements affecting fit and proper provisions
will have regard to legal issues (eg need for any protection for people
providing information and privacy issues), the practicalities and effectiveness
of measures, the burden it may place on institutions and the cost of such
measures vis a vis the desired benefits which they may bring. This review is
on-going but we would seek the implementation of the proposed fit and proper
powers contained in the Bill to give the vital addition to APRA's prudential
tools which they represent.
We can
confirm that Prudential Standards covering fit and proper requirements will
include a requirement that ADIs and authorised NOHCs will need to submit to
APRA a copy of its own internal policies established covering fitness and
proprietary of directors and senior managers. As part of its supervisory
oversight of these institutions APRA will review these policies. In due course
once appropriate policies have been established APRA will include the application
of these policies as part of the matters subject to examination by APRA review
teams, or subject to targeted reviews which may be commissioned from ADI’s
external auditors from time to time.
We
accept the need to offer guidance to regulated institutions in forming
judgements about fitness and propriety and this matter will be taken up in our
proposed Prudential Standard. We would see this as being undertaken in
consultation with affected institutions to provide guidance in a manner which
assist them but is effective and appropriately flexible. This process will
likely involve a combination of key principles and some prescriptive elements
underpinning those elements. In constructing this Prudential Standard we will
obviously look at overseas practice but would note that such practice is not
always the best approach in the Australian context. We believe the approach we
will adopt with our proposed "fit and proper" Prudential Standard
will stand favourably in comparison to the approaches adopted in many overseas
countries, a number of whom provide minimal guidance on this subject to their
regulated institutions. This approach adopted overseas reflects the
difficulties perceived in those countries in defining precisely across all
persons and institutions through time the features of fitness and is, of
course, captured in the appeals processes which are typically established
around the judgements exercised by regulators over what constitutes fit and
proper.
We
would note that APRA and regulated institutions will, of course, only ever be
able to reach the on-balance judgements about the fitness and propriety of
persons based on information available to them at any given point in time. As
such we will always be hostage to the information which is available.
William R Jones
Senior Policy Adviser
Policy Development
Australian Prudential Regulation Authority
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