Australia bank regulator faces overhaul after damning review

[SYDNEY] Australia's banking regulator is set for a major overhaul after a government-commissioned review found it had a "culture of conformity" and needed to become more forceful.

In a scathing 146-page report released on Wednesday, the Australian Prudential Regulation Authority (APRA) was found to be slow to act, tentative in addressing issues that don't entail traditional financial risks, and have a strong preference to work "behind the scenes" with the firms it oversees.

"The main conclusion of this review is that APRA's internal culture and regulatory approach need to change," the report said. "APRA needs to shift the dial towards a more strategic and forceful use of communication to ensure that it maximises its impact with regulated entities."

Among key recommendations, the report said APRA should be given a veto power over the appointment of senior executives and directors at financial firms, and create a new division to oversee the nation's A$2.8 trillion (S$2.67 trillion) pension industry, with a specific focus on member outcomes.

Australia's mandatory pension savings regime has been beset by problems, from underperforming funds to the creation of 10 million unintended multiple accounts that cost savers A$2.6 billion a year in unnecessary fees and insurance.

Treasurer Josh Frydenberg said the government will take action to implement the recommendations, including considering the penalties APRA can levy, and review its pay structure to allow it to attract and retain highly skilled staff.

APRA has also indicated to the government it supports all the report's recommendations, Mr Frydenberg said in a statement on Wednesday.

The review, headed by former competition regulator Graeme Samuel, was commissioned after an inquiry into misconduct in Australia's financial industry unearthed a series of scandals and lashed regulators for failing to hold lawbreakers to account.

Samuel's report echoed that sentiment, saying "an approach involving protracted behind the scenes negotiations of prudential issues is out of step with public expectations of regulators" following the Royal Commission.

BLOOMBERG